Krugman's Kontradictions or Contradictions? By David Henderson

Blogger and frequent Econlib Feature Article contributor Robert P. Murphy has coined the term “Krugman Kontradiction.” I believe, and I think Bob agrees with me, that Krugman is very clever and crafty. (Or should that be Klever and Krafty?) And so when he appears to contradict himself, without ever admitting it, which he often does appear to do, he can usually get out of it because when you go and read him carefully, you find that he didn’t really contradict himself but, instead, misled his audience into thinking that he said something that he didn’t quite say. Thus Murphy’s term “Krugman Kontradiction.” It’s not necessarily a contradiction. It just represents a Krafty and Klever mind at work creating certain misleading impressions.

I thought of that when reading his post “Unprecedented Austerity” this morning. I don’t know whether his post evidences Krugman Kontradictions or simple contradictions. I lean to the latter. You be the judge.

Levels vs. Rates of Change

Krugman shows a graph titled “Three Year Changes in Real Government Spending” for the United States. What it shows is a dramatic drop in the change in real government spending. That is, it shows that the change in real government spending has fallen from a high positive number to a low positive number and then, finally, to a low negative number. Keep that in mind: he’s talking about a drop in the change in government spending, not a drop in government spending. Real government spending through the whole period in the graph, up to the final year or so, actually rose. But the rate of increase fell.

But then he writes as if he has shown that real government spending fell. He writes:

You can see that there was a brief, modest spurt in spending associated with the Obama stimulus–but it has long since been outweighed and swamped by a collapse in spending without precedent in the past half century.

Wrong! There was a brief spurt in the rate of growth of government spending. But it was not “long since outweighed by a collapse in spending.” The so-called collapse in spending happened only, going by his own chart, in the last two years.

Government Spending vs. G

Krugman is a Keynesian. When Keynesians look at government spending to judge whether there is austerity, they tend to look at government spending on goods and services, the “G” in the “C+I+G” in the Keynesian model. Yet Krugman, if he has labeled his graph correctly, is looking at all government spending, not just spending on goods and services.

Is Austerity Causing Slow Growth?

How has Krugman handled the fact that the decline in real government spending has not caused the slow growth or recession that he has so often feared? He tries to handle this issue up front in in the piece, writing:

Intellectually, the case for austerity has pretty much collapsed, having been reduced at this point to the Three Stooges Theory: we’re supposed to consider austerity a success because it feels good when you stop, or at least let up. At the same time, however, austerity policies continue to be imposed, on both sides of the Atlantic.

Well, which is it, Paul? Have the austerity policies let up, as you seem to suggest in the first sentence above, in which case one could understand why real GDP in the third quarter grew at an annual rate of 3.6 percent? Or, have austerity policies continued on this side of the Atlantic, as you say in your second sentence? In that case, how do you account for this relatively healthy growth?

One final note. Krugman writes:

Taking it further back is tricky given data non-comparability, but as far as I can tell the recent austerity binge was bigger than the demobilization after the Korean War; you really have to go back to post-World-War-II demobilization to get anything similar.

Actually, the post-World-War-II demobilization was not similar. It was huge. I wrote:

In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion–a 75-percent reduction. It brought federal spending down from a peak of 44 percent of gross national product (GNP) in 1944 to only 8.9 percent in 1948, a drop of over 35 percentage points of GNP.

Oh, and, by the way, what happened as government spending was falling like a stone? We had a boom. I’ve documented all that here.