MAKING SEN$E -- July 3, 2012 at 11:07 AM EDT
If We Could Time Travel with Krugman, Would He Still Recommend Stimulus?
A Metropolitan Transit Authority engineer walks through a tunnel at the Long Island Rail Road East Side Access project, which received economic stimulus money. Photo by: Scott Eells/Bloomberg/Getty Images
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Tuesday's query:
Question: I believe in Keynesian economics but I try to keep an open mind. Recently, you have been featuring the opinions of Paul Krugman who believes in his [Keynes'] theories, as well. At the beginning of the Great Recession, Krugman advocated the Powell Economic Doctrine by calling for a stimulus in the range of $650 billion. The American Recovery and Reinvestment Act of 2009 eventually totaled around $830 billion. Technically, the U.S. is out of recession, but, in truth, the economy is still in terrible shape.
Why didn't the stimulus return our economy to some aspect of normality? What does Krugman have to say about his 2008 recommendation? Knowing what he does about the economy now, what would he have recommended if he could go back in time? What does he recommend that we do now? Is Keynesian economics wrong?
Answer: Krugman has been clear about the effects of stimulus: It saved the global economy from a far worse fate, but should have been much larger to be truly "Keynesian" and effect a hearty recovery. That's why he's been pushing more stimulus ever since.
Is he right? Unfortunately, we'll never know. What makes economics such an impressively imprecise science -- if it is in any sense a science at all -- is its inability to perform experiments. We can't go back in time to see what would have happened had the Bush-and-then-Obama stimulus package been substantially greater. And even if, in some parallel universe, a super-stimulus had been enacted during 2008-2009, so many factors would influence the parallel global economy that our counterparts there would surely be arguing about its effects, just as we are here.