George Will and Paul Krugman had another showdown about fiscal policy on Sunday, and the ABC contributor made it crystal clear to viewers that he doesn't agree with the perilously liberal New York Times columnist.
As the Roundtable segment of "This Week" moved to a discussion of whether more economic stimulus is needed versus deficit reduction, Krugman made his predictable request for the former.
After Will made a strong point about the economy being "unusually weak for a recovery after a severe downturn," he said one of the reasons is "the consumer in his native perversity has begun to save" rather than spend.
Krugman responded, "Just wanted to say, George, it's exactly what I would have done in describing it."
Will smartly countered, "Lest it be thought that Paul and I agree on something," and this is where the fun began (video follows with partial transcript and commentary):
CHRISTIANE AMANPOUR, HOST: There is a huge debate right now, all leading economists basically disagree on how and what effect stimulus has had, what it means for future economic policy. Is it deficit reduction austerity? Is it more stimulus? Where do we go and what does it mean to people?
PAUL KRUGMAN, NEW YORK TIMES: Well, what it means to people, I think, is a lot of confusion, which is -- which is a problem, right? They're not hearing any clear message.
You know, the way I look at it is that there are two sides in this debate -- I call them inflationistas and deflationistas -- that were -- one side, the inflationistas, have said, "Oh, god, we have this -- we have budget deficits. The Fed is printing money. We're going to have inflation. Interest rates are going to go sky-high."
The deflationistas have said, you know, that we've had a major financial crisis. In the fact of that, the Obama stimulus plan is too small, interest rates are going to stay low because nobody wants to spend, the -- you know, that the risk is deflation.
So far, the deflationistas have been totally right. What's interesting is that the political debate is being dominated by the people who've been wrong about everything up to this point, who said, well, you know, actually, interest rates are lower. They just hit a -- more than a year low just now.
But they keep on saying, oh, but it's any day now. We've got to be afraid of those people who aren't visible in the markets and so on.
But this is a -- there is this problem that people have got this austerity notion in their mind, not based on anything that's actually happening, but based upon this hypothetical notion and because it appeals to people who just feel that there has to be some reason to make people suffer even more.
AMANPOUR: Let me put up this graphic, talking about the gross domestic product of the second quarter. Growth is happening, but at 2.4 percent, which is slower than most people wanted. I see you shaking your head in this debate. The Financial Times is basically saying that the deficit talk is a phony, rhetorical war and that actually stimulus has had some effect.
You're shaking your head.
GEORGE WILL: Well, the recovery is now more than a year old, and we know two things about it. It's unusually weak for a recovery after a severe downturn, and, B, starting weak, it's getting weaker, for two reasons.
First of all, the stimulus is running out. Paul's right about this. Cash for Clunkers has come and gone. The homebuyer's tax credit for purchasing new -- particularly new homes, come and gone.
Second, the growth so far has been largely driven by inventories, businesses rebuilding their inventories in anticipation of the consumer -- 70 percent of business activity in a normal time -- coming back to the malls. The trouble is, the consumer in his native perversity has begun to save. The savings rate is now 6.2 percent.
So what you have is what I think Keynes called the paradox of thrift.
WILL: It's a virtue until it isn't a virtue.
DONNA BRAZILE: Well, I'm not the resident economist on the panel, clearly, but what's happening, Christiane, is that we're not creating jobs. The economy is -- is -- is not creating enough jobs. Unemployment remains high. The Democrats will have to campaign on the promise that the policies that they've put forward thus far has averted the Great Depression 2.0.
And going forward, this is a choice between going back to the past, going back to Bush-onomics, or going forward with a path toward economic growth, which brings us back to the Bush tax cuts and -- and whether or not the -- the Congress will -- will just let them expire in January or let some of them stay on the table.
AMANPOUR: Well, you heard what I asked Speaker Pelosi, and she said she hoped that this would come to a resolution before the -- before the midterms. Is that likely?
BRAZILE: Well, I don't think so. I mean, look, Congress on the House side, they're away for six weeks. They're going out. They're going to campaign on what they've accomplished.
But I think when they return, they're going to have to turn back toward the budget, turn toward the economy, and once again convince the voters out there that they've done something to provide economic growth for the future.
KRUGMAN: Just wanted to say, George, it's exactly what I would have done in describing it. The forces for growth are fading out. We're not looking good going forward. This is very difficult. It's very hard for an administration in power to run on the campaign slogan, "It could have been worse," and that is essentially -- and it's true. It actually could have been a lot worse, but -- but that doesn't sell very well.
AMANPOUR: Can I...
WILL: Lest it be thought that Paul and I agree on something, let me...
AMANPOUR: Well, you might. Maybe this is a rarity today.
WILL: No, this is not the case, because Paul thinks the government is dangerously frugal at this point, and I do not think so. I side with people like Kenneth Rogoff at Harvard who say there is time for austerity, and this is it.
Isn't it wonderful to have Will on this panel to make sure folks like Krugman can't get away with spouting their propaganda completely unchecked?
For the record, Will was likely referring to Harvard economics professor Rogoff's marvelous piece published in the Financial Times on July 20:
Obviously, this is and has been Krugman's argument. Rogoff disagrees:
As it becomes increasingly evident that the recovery will remain subdued in Europe and the US, there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus. Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels - such as both Germany and the UK - are accused of pig-headed fiscal conservatism. Had they only a better grasp of Keynesian truisms, we are told, these countries' leaders would realise that their penury risks throwing already weak economies into double-dip recessions, or even a sustained depression.
Rogoff made another fabulous point that is mysteriously lost in the debate concerning letting the Bush tax cuts expire:
There is no question that huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don't see it. [...]
Indeed, it is folly to ignore the long-term risks of already record peace-time debt accumulation. Even where Greek-style debt crises are unlikely, the burden of debt will ultimately weigh on growth due to inevitable fiscal adjustment. The fact that the markets seem nowhere near forcing adjustment on most advanced economies can hardly be construed as proof that rising debts are riskless. Indeed, the evidence generally suggests that the response of interest rates to debt is highly non-linear. Thus, an apparently benign market environment can darken quite suddenly as a country approaches its debt ceiling. Even the US is likely to face a relatively sudden fiscal adjustment at some point if it does not put its fiscal house in order. [...]
The risks of rising debt, while apparently far off, cannot be lightly dismissed.
At the same time, the stimulus benefits of massive fiscal deficits are not nearly so certain as proponents of a new surge of spending maintain. The academic evidence on Keynesian growth effects of fiscal deficits is thoroughly inconclusive.
Ironically, a lot of the newfound conviction comes from the casual empiricism on the growth effects of the Bush tax cuts, evidence that few academics consider sufficient to outweigh the mass of previous results. Indeed, it will take researchers many years, perhaps decades, to sort out the effects of the massive fiscal stimulus that many countries undertook during the crisis. My guess is that scholars will ultimately decide that fiscal policy was far less important than monetary policy and measures to stabilise the banking system.
I believe that will be the case as well.
Obviously, so does Will.