Krugman on the 3rd Quarter

I pass along a link to Krugman’s blog because I think he makes a good point.

One of the more frustrating and amusing aspects of the entire stimulus debate was the apoplectic opposition that could muster nothing but the usual bromides about government spending. So it’s fun to see them all twittering about the success of the stimulus a few months later.

And that success is so beyond denial that no one I am aware of is arguing that the stimulus failed – I don’t watch Fox news so I am excluding their denial if it exists. Instead, and this is what Krugman tweaks, is the new mantra of the anti-government spending team is that while it may work it isn’t ‘real growth’.

Quite what real growth is in this context I am not sure.

As it became more and more evident that the stimulus is a success, its opponents shifted their target. Now they are vexed that once the ‘artificial’ growth subsides we will plunge back into recession.

Well yes.

I agree. Without a significant pick up in private demand we will, indeed, flop straight back. But that doesn’t mean the third quarter was somehow ‘unreal’. On the contrary the third quarter was very solid. Wonderful. Jobs were saved and money made. That inventories and stimulus were the primary drivers does not invalid the growth. It merely spurs us to press for an end to corporate retrenchment, and, if necessary, to spend more stimulus to provide another kick to the stubborn private sector. It is entirely specious, and dangerous if it means the future discussion about another stimulus is made more difficult, to argue that stimulus produced wealth is different or ‘artificial’.

Nonsense.

There are two points that need repeating:

1. The stimulus is working, but has reached, or is reaching, the peak of its impact. By mid-2010 it will start to ebb. After that we will need either new stimulus or a revived self-sustaining recovery.
2. There is absolutely no difference between growth created by private demand and that created by government demand. A job is a job. Wages are wages. As long as the job is secured and the wages are spent, the wealth generated is identical. The notion that, somehow, a job saved by the stimulus is tainted and is slightly ‘unreal’ is absurd.

But absurdity doesn’t stop the opposition. Nor is it exclusively the right wing press: there seems to be a whole mess of academic economists who are just as muddled as Fox news.

Not that I watch Fox.