Brad DeLong has written a piece for The Week titled, “Keynes and Co. have lost the stimulus argument.” I believe Matt Welch had the appropriate response to this fake surrender when Paul Krugman attempted it last week:

While there are certainly many economists who think that spending is dangerously out of control–mostly because spending is dangerously out of control–to posit this a “consensus” in a world where the president of the United States is Barack Obama and the country’s most influential econ-policy columnist is Paul Krugman strikes me as more than a bit exaggerated.

Let’s accept for argument’s sake, however, that DeLong and Krugman are right: Why did the Keynesians lose the stimulus argument? First, I’ll summarize their reasons:

1. People are irrationally worried that bond investors will turn on the United States. More specifically, they are concerned that each new stimulus package (as I point out in the latest issue of NRODT, we are currently on Stimulus V) increases the risk that bond investors will lose confidence in our ability to chart out a course of fiscal prudence and stick to it. This irrational fear is related to the Federal Reserve Board’s irrational fear that further quantitative easing would risk currency instability, possibly runaway inflation. In reality, our borrowing costs are very low, and we have seen no signs of runaway inflation. (Krugman)

2. Republicans are heartless and venal, “blue dog” Democrats are craven, and well-intentioned Democrats are stupid. (Both)

3. Journalists are morons — rich, too, and isolated from the people who are bearing the brunt of this recession. (DeLong)

4. “The collapse of union power… ensures that nobody who sees real workers on a daily basis sits at the table when the deals are made.” (DeLong)

I think we can dismiss the last three points without too much consideration:

2. Ad hominem is just what these guys do. Neither Krugman nor DeLong has produced any convincing evidence that those who disagree with them are driven by anything other than sincere concerns over the size of the deficit.

3. Journalists do not always do a great job of making complex economic issues clear and understandable, but the idea that they are insufficiently concerned about the plight of the unemployed is laughable. Journalists are the unemployed, and those who aren’t fear they’re about to be.

Again, for argument’s sake, let’s assume that DeLong is right when he says that most journalists are currently too skeptical of the government’s ability to create jobs. A more convincing alternative to DeLong’s class hypothesis is that journalists, including rich pundits, are influenced by good reporting, and some of the best explanatory and investigative journalism of the past year has revealed most of the spending in the $787 stimulus bill to be slow, wasteful, ineffective and fraudulent.

4. Hahahahahaha.

As for 1. — Krugman and DeLong might be right. But it is not true that the market is registering no signs of concern about the U.S. government’s fiscal mismanagement: Gold has been on a tear recently. Maybe gold investors are less rational than bond buyers, but I think it can be persuasively argued that the opposite is true, on the basis of who is doing the buying in each case. Put simply, the too-big-to-fail banks are financing our debt with house money, while the too-small-to-bail hedge funds — the ones who called the housing collapse — are buying gold.

If the Keynesians really have lost the stimulus argument, I don’t find Krugman and DeLong’s reasons persuasive. Why, then, did the Keynesians lose? I will have to take this up in a separate post, which I will link to at the bottom of this post when it is done. I’m going to be on CBC’s “Power & Politics” at 5:30 Eastern, in case any of our Canadian readers feel like tuning in. To be continued…

Update: As promised, here is Part 2 of this post.