The Economic Narrative

Why do people like me feel the need to revisit the fateful decision to go for an underpowered stimulus right at the beginning of the Obama administration? It’s not about “I told you so”, or at least not mainly. It’s about the economic narrative, which will matter long after the current players are off the scene.

The way the right wants to tell the story — and, I’m afraid, the way it will play in November — is that the Obama team went all out for Keynesian policies, and they failed. So back to supply-side economics!

The point, of course, is that that is not at all what happened. A straight Keynesian analysis implied the need for a much bigger program, more oriented toward spending, than the administration proposed. And people like me said that at the time — we’re not talking about hindsight.

You can argue that nothing bigger and better was politically feasible; we’ll never know about that. But what we do know is that (1) senior administration officials, even in internal arguments, claimed that half-measures were the right thing to do, based on … well, invented doctrines that certainly weren’t basic Keynesian. And (2), the administration has never said that it had to make do with an underpowered plan; on the contrary, to this day it maintains that what it did was just right. And this just feeds the false narrative.

So I’m trying to keep the record straight here. It may not matter for the immediate political debate, but I think it does matter for the long game.

via krugman.blogs.nytimes.com

Posted via email from Brian's posterous