Krugman remains “confused”

Previously, Steve Williamson said Krugman was “confused”. To sort of “settle the issue, in “Demand Policies in Two Big RecessionsKrugman writes:

With job growth finally running at the pace we’d expect to see after a deep slump, we’re not hearing as much about how Obama’s anti-capitalist policies are the reason we’re not having a V-shaped recovery, the way we did under the Blessed Reagan. But it’s true that recovery was a long time coming. Why?

Well, the answer has long been obvious: constrained monetary policy thanks to the zero sort-of lower bound, constrained fiscal policy because of the combination of debt fears and Republican obstruction.

He shows two pictures as corroboration for his arguments:


And concludes:

[A]t a time when monetary policy was limited in its effectiveness, fiscal policy was perverse. In practice, Reaganomics was far more Keynesian while Boehnernomics — which is what it ended up being, in practice — was anti-Keynesian.

That’s the story of the delayed recovery.

In his post Krugman concentrates on Government Purchases. That´s an incomplete measure of government contribution to demand. Better to look at the fiscal balance (in this case deficit of the Federal Government relative to GDP).


The chart shows that the pattern was similar, with the deficit increasing more during the Obama cycle.

In cyclically adjusted terms (CA), the  outcome is different, with the deficit taking a deeper and quicker “dive” under “Obama”.


But what really provides the explanation for the contrasting recoveries is the behavior of monetary policy, not as (wrongly) inferred from levels and changes in the FF rate, but as reflected in the behavior of nominal spending (NGDP).