I like Dan Mitchell. He’s a great economist. Sometimes, I wish he’d word things a bit different, but, that’s a matter of taste, I suppose.
In his latest, he makes a mockery of some of Krugman’s latest idiotic assertions …..
I’m tempted to feel a certain degree of sympathy for Paul Krugman.
As a leading proponent of the notion that bigger government stimulates growth (a.k.a., Keynesian economics), he’s in the rather difficult position of rationalizing why the economy was stagnant when Obama first took office and the burden of government spending was rising. …..
He goes on to talk about the US, but, that’s not the money shot ….. this is.
In other words, Krugman actually is being slippery and misleading in his analysis of American austerity.
But that’s nothing compared to his analysis of so-called austerity on the other side of the Atlantic Ocean. Here’s some of what he wrote about fiscal policy in the United Kingdom.
…in 2010 Britain’s newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified? No, not at all.
Krugman then claims that there was better economic performance because U.K. politicians decided against “further cuts.”
What actually happened was that the Tories stopped tightening the screws — they didn’t reverse the austerity that had already occurred, but they effectively put a hold on further cuts. …And sure enough, the nation started feeling better.
So is he right?
Well, the IMF numbers show that overall government spending has been growing, on average, by 2 percent annually since 2009. By today’s standards, that’s a decent record of spending restraint.
But what if we dissect the numbers? Did spending grow very slowly between 2010-2012, followed by a relaxation of restraint beginning in 2013? In other words, is Krugman’s argument legitimate, even if it requires him to implicitly endorse (as in the American example) decent fiscal discipline over the past two years?
Nope. Instead, the numbers show just the opposite. Between 2010-2012, the burden of government spending expanded by an average of 2.3 percent per year.
But over the past two years, the “austerity” has become tighter and the budget has grown by 1.5 percent annually.
In other words, it seems that Krugman is either sloppy or mendacious.
Though I’m going to give him an escape hatch, a way of justifying his assertions. When the Tories took over in the United Kingdom, they quickly imposed a series of tax hikes (in addition to the tax hikes imposed by the outgoing Labor government). But since that time, the government has implemented some tax cuts, most notably reductions in corporate tax rates and lower tax rates on personal income.
So if Krugman wants to argue that tax increases retarded the British economy for a few years and that tax cuts are now helping to boost growth, I’m willing to give him a probationary membership in the supply-side club.
But I don’t expect him at the next meeting.
P.S. This isn’t the first time Krugman has mangled numbers when analyzing U.K. fiscal policy.
Just thought I’d give the readers another economic view from a bright guy, while we can all laugh at Krugman!!!