Wednesday, August 25, 2010

On Krugman On Germany

. Wednesday, August 25, 2010

See... this is what people who complain about Krugman are complaining about:

Many people are now holding Germany up as proof that austerity is good.

There are a number of reasons that’s foolish, among them the fact that Germany’s austerity policies have not yet begun — up to this point they’ve actually been quite Keynesian.

But it’s also worth having some perspective on actual German performance to date. ...

Everything you’ve been hearing is about that uptick at the end. But I’m not willing to declare an economy that has yet to recover to the pre-crisis level of GDP an economic miracle.

This analysis is just sloppy. There are at least three very wrong things here:

1. No one is saying Germany is an economic miracle. Some people, like Tyler Cowen, are saying that Germany's experience doesn't track very well with standard economic models and this fact needs to be acknowledged by those who loudly proffer policy advice.

2. No one (that I've seen) is saying that Germany's turn-around is due to austerity. Germany has been insisting on austerity in other eurozone economies like Greece as a condition for the establishment of the emergency stabilization fund. Don't mistake an observation about EU political economy for an argument in favor of one economic paradigm or another.

3. The fact that Germany has "actually been quite Keynesian" and "has yet to recover" is not evidence in support of Keynesianism.

That said, Krugman's recent comparison of the current U.S. situation and the Japanese "lost decade" is pretty compelling, in my view.


Anonymous said...

"Germany has been insisting on austerity in other eurozone economies"

No, Merkel has clearly stated her own preference for austerity in Germany. To start with 80 billion worth of budget cuts next year.

On Krugman On Germany
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