Last Wednesday Paul Krugman spoke to an overflow breakfast of the Economist Club in Toronto. His speech topic was advertised as “Economic and Fiscal Prospects: Has the U.S. mortgaged its Future?” The club’s marketing department clearly hadn’t read his columns in the New York Times.
Krugman immediately dismissed the notion that public debt is America’s over-riding problem. With a cheerful sarcasm that is effective before a live audience but just sarcasm in print, Krugman debunked the “Hellenization” of popular economic discourse. “Nobody’s Greek except the Greeks,” he insisted.
Before taking questions he laid out his classic Keynesian proposition: governments must spend more not less when investment isn’t keeping up with private savings; only politics limited the size of Obama’s stimulus package. Obsession with public debt is prolonging a grudging recovery—“the North Atlantic crises” —and will hurt a lot of people unnecessarily.
Krugman didn’t suggest that America is in decline or that its governing institutions are inherently “dysfunctional.” That would be too much to ask from a New Yorker visiting Toronto.
His Nobel laureate economic competence and his activist spirit were impressive. While he left the brokers in the audience with no positive reasons to invest, Krugman generated an old fashioned buzz—the exciting idea that intelligent public policy is still important and within reach.
Krugman insisted that the only obstacle to more US government spending is the “conventional wisdom” that the US deficit is already too high. He pointed out that total (federal, state, and local) government purchases of goods and services have actually, and most unhelpfully, slowed down during the Great Recession.
However, since economists insist that we must bear in mind what consumers actually want over what we think they need, surely economists must also take into account what consumers think of government policy and the future—whether “conventional wisdom” will thwart or support a given public policy thrust.
As things stand now, isn’t it wholly possible that more government spending, without a long-term deficit reduction plan, would, in the short time before the next election, scare individuals to spend less and save more?
Canada’s strong economic growth along with public sector restraint in the 1990s was not accomplished, as Krugman shrugged, only by the good fortune of having a cheap currency and a booming US neighbor. Restraint was gradual, broad-based, assisted by declining borrowing costs and political acceptability. Krugman needn’t have been extensive. However, it would serve his liberal agenda to consider more closely the political, as well as economic success of restraint in Canada.
Canadian governments actually restrained spending on universal programs and raised taxes slightly, and got re-elected. Canadians collectively proved to be willing to make some sacrifices to maintain the viability and universality their health and education systems. Are Americans really any different?