Paul Krugman appears to be moderately pleased that another bearded Scots-Irish hippie has publicly joined the ranks of the anti-austere.
Will it make any difference that Ben Bernanke has now joined the ranks of the hippies? Earlier this week, Mr. Bernanke delivered testimony that should have made everyone in Washington sit up and take notice. True, it wasn’t really a break with what he has said in the past or, for that matter, with what other Federal Reserve officials have been saying, but the Fed chairman spoke more clearly and forcefully on fiscal policy than ever before — and what he said, translated from Fedspeak into plain English, was that the Beltway obsession with deficits is a terrible mistake.
First of all, he pointed out that the budget picture just isn’t very scary, even over the medium run: “The federal debt held by the public (including that held by the Federal Reserve) is projected to remain roughly 75 percent of G.D.P. through much of the current decade.”
He then argued that given the state of the economy, we’re currently spending too little, not too much: “A substantial portion of the recent progress in lowering the deficit has been concentrated in near-term budget changes, which, taken together, could create a significant headwind for the economic recovery.”
Finally, he suggested that austerity in a depressed economy may well be self-defeating even in purely fiscal terms: “Besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.”
Speaking of the Federal Reserve, I note the following numbers: 526.5 560.9 465.4 338.4 378.7 261.4 477.8 344.5 390.1 367.8 260.3 92.7 389 326 398.3 198.2 229.8.
Those are the numbers, in billions, that represent the quarterly increase in federal debt as reported by the Federal Reserve’s Z1 credit report. That is a $6 trillion INCREASE in just over four years, which more than doubled the federal government’s outstanding debt. There is no austerity. In fact, the idea that the sequester somehow amounts to imposing austerity is rather like a drunk claiming that because he did 20 shots last night and planned to do 24 shots tonight, only doing 22 shots represents teetotalism.
They simply don’t make ascetics like they used to.