William Galston has written an excellent piece for TNR asking an important question that I haven’t heard the Keynesians answer: If the U.S. is more like Japan circa 1992 than Greece circa 2009, and Japan is still mired in a recessionary funk after a decade of low-quality growth, then why are we using the same policy tools that Japan used to fight the recession?
If the best the Keynesians can do is to argue that the Japanese didn’t go far enough fast enough and neither did we… well, that analysis seems to underweight the risk of running up against our credit limit unexpectedly. Even nations have credit limits — limits at which their ability to borrow and print is constrained by investors’ willingness to roll over their debt. It’s all well and good to say, “Whatever we spent, we should have spent X hundred billion more,” except every hundred billion brings us closer to a credit limit that we don’t know in advance, the sudden discovery of which could create problems that dwarf the ones we are trying to fight.