Fighting the last war

Nicholas Kristoff had a column in the NYT recently that bemoaned the likely course of US economic policy in the event that Mitt Romney were to win the election.  He argued, on supposedly Keynesian grounds,  that strict austerity would be exactly the wrong course for the US to follow at this time.

There are at least three points to be made here.

First, assuming that the new administration can get past the looming "fiscal cliff", there's a broad consensus that the US economic outlook through 2013 and beyond is looking much rosier.  A genuine recovery seems to be getting underway.  This is starting to look like a good election to win: the next President, whoever he may be, will be able to claim credit for the rebound, setting the stage for the same party to win again in 2016.

Second, Kristoff surely doesn't believe that Romney will actually start hacking away at government spending if he takes over the White House.  Over the past three decades or so, Republicans have had a much worse record of fiscal irresponsibility than Democrats, at least until the financial crisis forced Barack Obama's hand back in 2009. See this earlier post for a fascinating illustration (not by me!) of this point.

Third, Kristoff misleads when he cites current events in Europe in support of his anti-austerity argument.  He states that the UK economy is contracting this year.  This was true in the first half of the year, but recently released GDP data for Q3 showed a sharp rebound in growth, sufficient to recoup all of the output lost in the preceding three quarters of  "double dip recession".  In fact, Kristoff has missed a real opportunity here.  The Q3 bounce owed a lot to the massive expenditure on the London Olympic Games, so if he had got his facts straight, he would have been able to use the recent path of the UK economy as strong evidence that fiscal stimulus can work.

Kristoff's article has made me wonder for the first time if he and some of the other Keynesian policy wonks, including Paul Krugman, are continuing to fight the last war when there's a new war beginning. You wouldn't know it from listening to these folks, but the Obama administration's response to the financial crisis was Keynesianism on steroids. If a genuine recovery is getting under way, policy discussion in the US should at least be starting to focus on how and when to remove the extraordinary amount of stimulus that's currently in place.  Somehow, Keynesians never seem to be quite as vocal about that as they are about initiating the stimulus in the first place.