Department of "Huh?!": Austerity Bad and Stimulus Bad too Department
Outsourced to Noah Smith:
Noahpinion: Cochrane blasts austerity AND stimulus...???: These two points of view just don't seem consistent to me. Here's a few reasons why:
How can austerity and stimulus both be harmful?… He claimed that either slashing or boosting government spending would cause a significant deterioration from where we are right now. It doesn't take a genius to see the logical implication of this position: Cochrane must believe that the level of government spending is exactly optimal right now. So policymakers in every rich country (including Barack Obama) have gotten the level of government spending exactly right!…
If austerity increases deficits, why wouldn't stimulus reduce deficits? Cochrane laughs at the notion, currently being advanced by Brad DeLong and Larry Summers, that increased government spending could pay for itself. But just a few sentences earlier, he claims that austerity is failing to close budget gaps!… [I]n other words, our current level of spending must be exactly the level that minimizes fiscal deficits. Again, a huge win for government policy!…
Over the past couple of years, stimulus opponents have been relentlessly pounded by the evidence…. So how do the opponents of fiscal stimulus respond? All through the recession, they've been saying that boosting spending doesn't boost GDP. But if cutting spending hurts GDP, how is the anti-stimulus position tenable? Well, stimulus opponents could argue that government spending is simply irrelevant… that's proving a difficult case to make. The only other out for stimulus opponents is to claim that we are at the perfect level of government spending right now…. But I have to say, this case doesn't seem credible either. How is it that every rich country just happens to be at exactly the right level of spending?…
