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Fresh off debating the deficit with Joe Scarborough on Charlie Rose, Paul Krugman is now tangling with fellow lefty economist Jeffrey Sachs. At issue is the government’s post-crisis stimulus spending, and the basic tenets of Keynesianism. Or at least that’s what Sachs would have you believe.
Sachs and Scarborough co-authored a Washington Post op-ed titled “Deficits Do Matter”, accusing Krugman of a crude interpretation of Keynes. Specifically, they say that short-term stimulus spending hasn’t achieved increased growth. (Krugman, by contrast, has long called the stimulus too small.) Sachs and Scarborough warn that things will only get worse as the US population ages, and healthcare costs increase. Keynes wouldn’t have approved, they say:
Keynes worried about the long-term buildup of public debt and called for balancing the budget over the course of a business cycle — allowing deficits during downturns to be offset by surpluses during good times. Unfortunately, Republicans and Democrats spent the past decade supporting reckless tax cuts, irresponsible wars and budget commitments without supporting revenue.
The econoblogosphere has waded in to sort things out. Brad DeLong points to a citation error in Sachs’s op-ed: “to support the claim that Krugman said deficits don't matter, Scarborough and Sachs point to Krugman saying explicitly that people who say deficits don't matter are wrong”. Mark Thoma does a nice job of pointing out some of the less charitable parts of Sachs and Scarborough’s piece: Krugman doesn’t deny that the US has a long-term debt problem, and he’s backed stimulus spending because “short-run multipliers are sufficiently large, there is substantial cyclical unemployment, and our debt problems are not immediate.”