Fascinating piece yesterday for Krugmanologists: America’s most famous public economist, at what is arguably America’s most influential newspaper, wrote an entire column about the biggest current economic controversy, the impact of the Republicans’ proposed budget cuts. And my goodness, he uses no hard numbers whatsoever!
The column has been completely dry-cleaned of quantitative data, thus depriving us of any insights into how the Professor arrived at his dire conclusion:
The clear and present danger to recovery, however, comes from politics — specifically, the demand from House Republicans that the government immediately slash spending on infant nutrition, disease control, clean water and more. Quite aside from their negative long-run consequences, these cuts would lead, directly and indirectly, to the elimination of hundreds of thousands of jobs — and this could short-circuit the virtuous circle of rising incomes and improving finances.
Hundreds of thousands? Quite a fudge factor. The current betting line among Keynesian economists on the impact of the cuts ranges from around 200,000 jobs lost over several years to over 700,000 jobs lost in short order. Impact on GDP? Best case trivial, worst case a double-dip recession.
Here’s Dr. Krugman’s problem if he puts a hard number out there. As I pointed out yesterday, skeptics have been able to run reality tests when figures are used, and rap the knuckles of analysts (such as those at Goldman Sachs) who make outrageous claims. The trick is to back out the “multiplier,” a standard concept in Keynesian economics that says how many dollars of economic output result from every dollar of additional government spending, or, conversely, how much output is lost to budget cuts. There are respectable Keynesian multipliers, and there are wacky ones.
This is an issue entirely apart from the profound differences between liberal and conservative economists, the latter questioning the whole logic of Keynesianism and multiplier-driven deficit spending. We’ll also leave aside some factual issues, like how quickly cuts are phased in.
No, this is just a lack of a simplified model within Dr. Krugman’s own framework. He gives us nothing to work with. The man — or is it a careful editor on the Times copy desk? — is clearly afraid of displaying his multiplier to the scoffing masses. And the reason’s simple: To reach his conclusion, he would have use demonstrably nutty numbers. Veronique de Rugy, for example, points out that to get Goldman’s original estimate on the impact of the cuts, the multiplier would have to be three. Megan McArdle, writing at The Atlantic, estimated that the “double-dip” scenario would require a multiplier of over five.
In the past, Professor Krugman has written a number of stimulating columns on fiscal multipliers, and accepted the 1.5 multiplier the administration used to calculate — or rather miscalculate — the impact of its fiscal stimulus package. While recognizing that economists tend to have a multiplier for every occasion, I’d appreciate another wonkish discussion by him of why the multipliers used when Republicans cut budgets seem consistently to be so much bigger than those used for Democrats’ stimulus spending.