Tax Analysts Blog

Krugman Berates a Bush -- Unfairly

Posted on May 28, 2013

Paul Krugman is not a nice guy, and he's willing to admit it. “I am a big meanie," he wrote recently on his blog. Of course, there’s a lot of snark in that confession, but a lot of truth, too. Krugman doesn’t suffer fools, gladly or otherwise. But he’s also quick to call someone a fool in the first place.

Nice or not, though, Krugman is usually right when he picks a fight. As he was earlier this month, when he took on arguments that fiscal stimulus, once begun, is nearly impossible to reverse.

There is, Krugman noted, “widespread, deep-seated cynicism about the ability of democratic governments, once engaged in stimulus, to change course in the future.” Some have attributed that argument to James Buchanan, among others.

But Krugman was having none of it. “Now seems like a good time to point out that this cynicism, which sounds realistic and worldly-wise, is actually sheer fantasy.” In point of fact, he contended, stimulus has often been reversed – and often too early. 1937 is usually the key data point in arguments against premature austerity, and Krugman offered it up on schedule. Politicians are actually too quick to rollback stimulus, not too slow, he argued.

History also suggests, according to Krugman, that politicians are willing to pay down debt in good times (in contrast to the suggestion of political realists that debt incurred in bad times is never repaid in good ones). “If you look at United States history since World War II, you find that of the 10 presidents who preceded Barack Obama, seven left office with a debt ratio lower than when they came in,” Krugman pointed out.

I have been known to make “realist” arguments myself. On reflection, though, I think I may have been too quick to accuse American politicians of being fiscally weak-willed.

But I’m not quite convinced that Krugman was right to be so sanguine about debt repayment. I suspect that some of the apparent fiscal rectitude of the postwar era can be explained as a function of happy circumstance, as generally robust economic growth saved politicians from having to make hard choices (thanks to generally rising tax revenues). The early postwar decades were, as Gene Steuerle has noted, “the era of easy finance.”

Would politicians still pay down debt in an era of difficult finance? Time will tell.

I also think that Krugman undermined his good argument about debt repayment with a partially unfair partisan shot at GOP presidents. The three exceptions to his debt repayment pattern are all Republicans: Reagan and the two Bushes. “So debt increases that didn’t arise either from war or from extraordinary financial crisis are entirely associated with hard-line conservative governments,” he wrote.

By the numbers he is right. And his characterization of Reagan and Bush II as hard-line conservatives is defensible. But tagging George H.W. Bush with that description is not fair. Sure, Bush I talked the talk of “no new taxes.” But when it came to actually governing, he was quite moderate -- or fiscally conservative, in the old-fashioned sense of the term.

Indeed, it was Bush I's very moderation – and the tax increases that derived from it – that have made him a touchstone of modern conservative scorn.

Say what you will about George the First -- and there are plenty of unkind but accurate things that might be said – but he was no "hard-line conservative" on fiscal policy.

The sins of the son should not be visited on the father.

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