In his latest column for the New York Times, celebrated economist and best-selling author Paul Krugman laments the political legacy of the American Recovery and Reinvestment Act — more commonly known as "the stimulus" — which he partially blames for the country's recent and disastrous turn toward fiscal austerity.
Krugman breezily reiterates one of his chief arguments of the Obama era — that conservatives who warned the stimulus would lead to interest rate spikes and a "crowding out" of private sector investment by government spending have been proven wrong — before arguing that the eurozone's years of stagnation have shown the disastrous route Obama avoided by pushing for stimulus.
But Krugman's column is more about politics than policy. He next moves on to argue that the stimulus is seen as a failure by many because the economy has yet to fully recover from the financial crash of 2008, despite the stimulus' becoming law. This is a mistake, Krugman writes, because it fails to take into account the fact that the stimulus was always too small to fully fix the economy, a point Krugman himself was vociferously making before its passage in 2009.
"There’s a long-running debate over whether the Obama administration could have gotten more," Krugman continues, before chastising Team Obama for "[compounding] the damage with excessively optimistic forecasts, based on the false premise that the economy would quickly bounce back once confidence in the financial system was restored." But he recognizes that, at this point, this all amounts to "water under the bridge."
"The important point," Krugman writes, "is that U.S. fiscal policy went completely in the wrong direction after 2010." He continues:
With the stimulus perceived as a failure, job creation almost disappeared from inside-the-Beltway discourse, replaced with obsessive concern over budget deficits. Government spending, which had been temporarily boosted both by the Recovery Act and by safety-net programs like food stamps and unemployment benefits, began falling, with public investment hit worst. And this anti-stimulus has destroyed millions of jobs.
In other words, the overall narrative of the stimulus is tragic. A policy initiative that was good but not good enough ended up being seen as a failure, and set the stage for an immensely destructive wrong turn.