Readers of this fortnightly would not be surprised to hear someone say, “The stimulus failed.” Most would probably nod in agreement. But they might be surprised to learn that the someone who said it is Jeffrey Sachs, the Columbia University economist most famous for writing The End of Poverty (unofficial subtitle: “Yet another book calling for Western governments to increase their foreign-aid budgets”) (foreword by Bono). He also wrote an article for Time last year entitled “The Case for Bigger Government.” He is, in other words, not easily dismissed as just another right-wing crank. For this reason, it was all the more important for stimulus defenders to dismiss him, so economist Paul Krugman — the stimulus lover’s stimulus lover — assumed the role of freelance psychologist for this purpose. “What I think is happening,” Krugman wrote, “is that we’re seeing the deep seductiveness, for many economists (and others), of taking what sounds like a tough-minded position in favor of inflicting pain on the economy.”
In Krugman’s mind, there is no other answer for why a growing number of left-of-center economists are embracing the argument that the stimulus didn’t work. Their reasoning — Americans are worried about the debt, and in the face of this uncertainty are saving rather than spending — doesn’t add up for Krugman. Evidence of such concerns is “absent from the data,” he writes. If people are so worried about the U.S. government’s ability to carry its debt load, then interest rates on government securities should be going up, to compensate for the perceived risk. Instead, they’ve remained relatively flat (and low) over the past year. Nor are we experiencing monetary instability in the form of inflation, Krugman argues, which would be a sign that the stimulators had gone too far. Oddly for such a die-hard liberal, Krugman is telling us to place our faith in the markets, which are saying that the U.S. government deficit is not a problem, and to ignore Sachs and Co., who are just trying to burnish their reputations as the tellers of unwelcome truths.