Wasn’t it Henry Kissinger who said of the Iran-Iraq war back in the 1980s that it was too bad both sides couldn’t lose? That’s how you feel when Jeffrey Sachs, the thuggish Columbia University economist (er, “professor of sustainable development” according to his bio) whose bad advice arguably paved the way for the rise of Russia’s post-Cold War crony capitalist oligarchs, delivers some smack on Paul Krugman. But that’s exactly what Sachs does in a column yesterday:
For several years, and often several times a month, the Nobel laureate economist and New York Times columnist and blogger Paul Krugman has delivered one main message to his loyal readers: deficit-cutting “austerians” (as he calls advocates of fiscal austerity) are deluded. Fiscal retrenchment amid weak private demand would lead to chronically high unemployment. . .
Krugman has vigorously protested that deficit reduction has prolonged and even intensified what he repeatedly calls a “depression” (or sometimes a “low-grade depression”). Only fools like the United Kingdom’s leaders (who reminded him of the Three Stooges) could believe otherwise.
Yet, rather than a new recession, or an ongoing depression, the US unemployment rate has fallen from 8.6% in November 2011 to 5.8% in November 2014. Real economic growth in 2011 stood at 1.6%, and the IMF expects it to be 2.2% for 2014 as a whole. GDP in the third quarter of 2014 grew at a vigorous 5% annual rate, suggesting that aggregate growth for all of 2015 will be above 3%.
So much for Krugman’s predictions. Not one of his New York Times commentaries in the first half of 2013, when “austerian” deficit cutting was taking effect, forecast a major reduction in unemployment or that economic growth would recover to brisk rates. . .
I raise all of this because Krugman took a victory lap in his end-of-2014 column on “The Obama Recovery.” The recovery, according to Krugman, has come not despite the austerity he railed against for years, but because we “seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result.”
That is an incredible claim. The budget deficit has been brought down sharply, and unemployment has declined. Yet Krugman now says that everything has turned out just as he predicted.
Krugman is a great economic theorist – and a great polemicist. But he should replace his polemical hat with his analytical one and reflect more deeply on recent experience: deficit-cutting accompanied by recovery, job creation, and lower unemployment. This should be an occasion for him to rethink his long-standing macroeconomic mantra, rather than claiming vindication for ideas that recent trends seem to contradict.
Heh. I suspect that Sachs is angling for Krugman’s Times column when the Krugmeister decides to hang it up.