I guess I'm an idiot, as I can't understand simple things. Paul Krugman says:
One clear result of the midterms is that we won’t have anything like a further round of stimulus. And this, in turn, means that the narrative all the Very Serious People will tell is that fiscal policy was tried, it failed, and that’s that.
To support this he presents two points of data, and only two. They are:
1. Germany's economic decline has been worse than the U.S.'s.
2. Germany's government spending has been higher than the U.S.'s.
From this, he concludes:
3. U.S. government should spend more in order to boost growth. (Or, alternatively, the U.S. didn't really try fiscal stimulus at all.)
As far as I can see, that conclusion is a non sequitur given the data he's presented. He updates the original post to say "Just to be clear, I’m not saying that the Germans were big Keynesians; the point is that neither of us were". Fine. But if there is a correlation between government spending and economic growth during this downturn, that correlation is very clearly negative given the data he's given us. How can we conclude from this that the election narrative that "fiscal policy was tried, it failed" is wrong? The data that he's given supports that very conclusion.
This is not a sophisticated analysis, and there are all kinds of relevant variables that aren't included. But Krugman doesn't say which of those might be mitigating factors. He doesn't qualify the data he presents. It's a really strange conclusion for him to reach. As I've noted before, Germany really messes with the standard Keynesian analysis. Tyler Cowen built off of that post here.
Brad DeLong writes about this post, but doesn't square the circle either. Like Krugman, DeLong is much smarter than me, so I guess I'm missing something obvious. I wish they'd point out what it is.
Also note that this crude analysis supports this recent study on the fiscal multiplier, since Germany has a fixed exchange rate with many of its trading partners, while the U.S. does not.
What am I missing?