Monday Birthday Present DeLong-Is-Stupid Smackdown Watch: Let the Intellectual Battle of Nations Commence in Comments!!
If you are looking for a metaphor of what has happened to the intellectual case for austerity, Napoleon's retreat from Moscow comes to mind.
We have been treated to spectacles like Michael Kinsley, floundering in the Beresina, saying that even though he doesn't have any technocratic economic argument for austerity, he lived through the 1970s, and isn't that relevant, and didn't Paul Volcker eliminate the large budget deficits that preceded the inauguration of Ronald Reagan, or something; spectacles like Bloomberg Editorial abandoning the troops to take a fast sleigh back to Paris, claiming that nobody ever said that a 90% debt-to-annual-GDP ratio was any sort of "important marker"; and the most welcome spectacle of IMF Managing Director Christine Lagarde, cast by history as an analogue of Prussian Field Marshall Johann David Ludwig Graf Yorck von Wartenberg, ably assisted by David Lipton, Olivier Blanchard, and many others as analogues of Carl Philipp Gottfried von Clausewitz, declaring that she was going to do what was right rather than what those who appointed her wished, and turn her corps d'armee around to point in the other, pro-stimulus, direction.
But after the retreat from Moscow, Napoleon regrouped. He launched the Leipzig campaign.
And so right now the austerians are deploying three arguments:
The longer zero-interest-rate and quantitative easing policies continue, the more likely it is that banks somehow reach for yield in ways that will require another rescue--and this time to rescue the banks and so prevent total economic meltdown will be politically impossible.
In any event, policies of extraordinary monetary ease are certain to fail because central banks cannot credibly promise to be incredibly irresponsible over the long-term.
Further expansionary policies are unwise because our Keynesian short-run is going to be followed by a classical long run, and entering that long run with too high a debt to annual GDP ratio will cause the economy a world of hurt--although precisely how appears to be one of those pesky "unknown unknowns".
How much substantive theoretical, empirical, and policy meat is there, really, on top of dry bones in these three arguments the Napoleons of austerity have now marshaled?
I seem to be somewhat out of harmony, in that I think that there may well be at least some meat here.
Am I being stupid? How, exactly, am I being stupid? Let the intellectual Battle of Nations commence, in comments!