The Incoherence of Neo-Keynesian Doomsaying

In response to my post below, friend and former colleague Ryan Avent writes:

This is just too cute. The paradox of countercyclical macroeconomic politics is only a paradox if you believe that the current recession is the result of equal parts Democratic fear-mongering and facts on the ground. But can any sane person actually believe this? Does anyone really think that Barack Obama’s acknowledgement of economic reality and the op-ed warnings of lefty economists are the things producing this downturn, or perpetuating it, or deepening it?

I don’t think Ryan understands the cute argument. The cause of the recession is irrelevant. I never even intimated that Democratic fear-mongering caused it. (I think normal periodic breakdown of efficient-ish economic coordination + American houselust + democracy + fancypants finance + executive myopia + regulatory failure caused it.) So does anyone think that pants-wetting op-eds by Presidents and Nobel Prize-winning economists can perpetuate or deepen a downturn? Yes! For example, people like the President or Nobel Prize-winning economist Paul Krugman who believe that countercyclical macroeconomic policy works largely by manipulating consumer and investor psychology. If you don’t think Obama and Krugman’s confidence-destroying disaster forecasts hurt, then you probably shouldn’t accept confidence-restoration theories of stimulus, either. Or maybe Ryan knows of some research that shows that badly-targeted tax cuts and infrastructure spending effectively boost confidence and buoy markets while doomsaying from the most powerful man on Earth means squat. That would be interesting to see.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center