problems with keynesian “solutions” to current depression robert p. murphy mises university 2013...

Problems With Keynesian “Solutions” to Current Depression

Robert P. MurphyMises University 2013

Infamous Christina Romer et al. Forecast Accompanying Original

Obama Stimulus Plan January 2009

Did Krugman “Predict” This Failure?

True that he warned that Republicans would point to high unemployment in 2010 etc. as proof that “stimulus didn’t work.”

BUT: He was using the unemployment figures in Romer report itself to make the case.

Other Keynesians, e.g. Mark Zandi, also ‘didn’t realize how bad the economy was’ before stimulus hit.

Krugman’s Botched Deflation Call

His preferred measures of price inflation “show an ongoing process of disinflation that could, in not too long, turn into outright deflation:”

(Feb 2010)

Krugman’s Botched Deflation Call, cont’d

After showing the previous graph, he ended Feb 2010 post with:

“Japan, here we come.”

Krugman’s Botched Deflation Call, cont’d

Krugman’s Botched Deflation Call, cont’d

“I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation—and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates.” --Krugman blog post, July 5, 2013

Have Gov’t and Fed Done“Too Little, Too Late”?

(From circa 2011 or 2012 forecast.)

SOURCE: Congressional Budget Office (May 2013)

What About “Success Story” of World War 2?

Treats gov’t spending as equivalent to private spending.

Ignores price controls.

Even on own terms, private output fell 55% over 3 years, and gov’t debt during war increased by a

factor of 5.

Doesn’t Europe Show Failure of Austerity?