Latest Jobs Report Good News for Obama

[Dr.Dudd]

Re: Latest Jobs Report Good News for Obama

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[Dr.Dudd]

Re: Latest Jobs Report Good News for Obama

New York Times
Paul Krugman
MARCH 29, 2011, 2:55 PM
Friedrich Hayek, Zombie
Brad DeLong directs us to a 1932 letter by Friedrich Hayek and others
arguing that (a) deficits somehow caused the Great Depression (b) deficit
spending would drive up interest rates and make the Depression worse.
Truly, nothing ever changes. The insistence that big deficits somehow
caused the crisis even thought they actually didn't appear until after the
crisis was well underway -- and were clearly caused by the crisis, not the
other way around -- prefigures the debate in Europe, in which everyone
declares that fiscal irresponsibility is the core issue even though both
Ireland and Spain had low debt and budget surpluses on the eve of crisis.
And Hayek's prediction that deficits would drive up interest rates despite
high unemployment was, of course, totally wrong.
Here's the picture for the United States. (Yay FRED !) Budget balance, in
millions of dollars, red line, right scale; long-term interest rates, blue line,
left scale:
You can see that the deficit came after the slump began, not before, and
that much bigger deficits never did push rates up. You can also see the big
mistake of 1937, when FDR gave in to the austerians of his era.
Still, you can make excuses for Hayek and friends: this was all new
territory, and macroeconomics barely existed as a field.
What's terrifying is the fact that, as Brad notes, the arguments of today's
pain caucus are exactly the same as those Hayek was making in 1932,
except that they're less well expressed. And they're sticking with their
doctrine even though the economic story -- deficits mainly the result of the
slump, not the cause, and interest rates not rising in the face of those
slump-caused deficits -- is playing out the same way:
Braiiiinnnnzzz!