Rebutting Paul Krugman: The Rest of the Story
By Chris Turner
May 3, 2012


Residing in Kansas and working as a military pilot with 26 years of service, Chris Turner manages a private Hedge LLC, contributes guest articles to Doug Short at, and manages a database that determines S&P 500 Index Equivalent Fair Value.

Think Tank presents alternative discussions on topical issues of markets, economics and financial policy. The views presented here represent those of the author.




I recently read an interesting article over at Barry Ritholtz’s blog (one of my daily mandatory reads after Advisor Perspectives) triggered by one of Paul Krugman’s recent commentaries, The Secret of Our Non-success.

Krugman showed the following chart from the Federal Reserve Economic Data (FRED):


Krugman analyzes the data this way:

Obama, far from presiding over a huge expansion of government the way the right claims, has in fact presided over unprecedented austerity, largely driven by cuts at the state and local level. And it’s therefore an amazing triumph of misinformation the way that lackluster economic performance has been interpreted as a failure of government spending.

Before dissecting Krugman’s analysis, let me point out that readers who closely read Krugman’s article would correctly point out the chart shown above (taken from the FRED site directly) is a bit different from what Krugman posted in his article (shown below).



Since data-miners and hobby chartists like me relish the opportunity to present data to readers so they can make their own decisions, I zipped over to FRED to recreate Krugman’s chart. To make an exact replica of Krugman’s chart, one would have to make purposeful changes to the original data shown. The date range must be changed to an exact 2001 September to 2011 September and the scale had to be changed from billions of dollars to the percent change from year ago. Everyone knows that Krugman has an agenda – that’s OK (author’s note: both political parties have agendas). But let’s highlight Krugman’s agenda by telling … The Rest of the Story!

When originally viewing the chart from Ritholtz site, I just simply couldn’t decipher how spending decreased in an era of unprecedented deficits. The chart featured by Krugman clearly showed a decrease. Ironically, Krugman did say that most of the change occurred from local and state government decreases. To analyze the data, the first step is to obtain the source data without “real” or CPI adjustment. Just plain numbers.

First up in our sequence of “self-actualizing” charts — what if we understand where this data resides originally and make our own conclusions? Per FRED, the source data are BEA and NIPA tables. Government Consumption Expenditures consist of the following (from NIPA table footnotes):

  1. Government consumption expenditures are services (such as education and national defense) produced by government that are valued at their cost of production. Excludes government sales to other sectors and government own-account investment (construction and software).
  2. Gross government investment consists of general government and government enterprise expenditures for fixed assets; inventory investment is included in government consumption expenditures.

The chart below shows the makeup of GCE and growth since 1929 (non-logarithmic).




To zero in on the same time period for Krugman’s chart, we have the following showing the Total Government Consumption Expenditure:



By separating the individual components, we have the following that shows the “cuts at the state and local level.”



Krugman’s analysis becomes more clear in showing that the “rate of change” has slowed since 2009. By simply applying a CPI adjustment, the rate of change would become negative and explains the first chart in decline. However, the chart above clearly shows an “unprecedented level of spending” that is rising, not declining. The cuts in local and state governments have only stagnated since 2008 (and that is Krugman’s definition of “Austerity”).

While studing the data on which Krugman based his opinions, some additional thoughts occurred to me, generally along the lines as Ritholtz’s effort to look for more context. I thought an instructive set of charts might show how each presidential term faired when using deficits as a comparison tool (not simply the last 10 years or so). Let’s be fair to both sides of the aisle and provide the set without comments:



After studying these charts, readers, I hope, will have a better appreciation of the fact that both political parties contributed to our massive national debt through continuous deficit spending. We voters share responsiblity with those we voted into office. Additionally, I would hope this article provides a little more clarity and context to Krugman’s assertions about “unprecedented austerity.”

Now you know what I mean by … The Rest of The Story!

(c) Chris Turner

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “Rebutting Krugman & Invictus: The Rest of the Story”

  1. Easyenough says:

    Fantastic work, though when looked at through a cyclical lens, hardly seems like a rebuttal. Big deficits during expansion seem like the moral opposite of deficits during a once in three generations recession. Had a hard time telling which team you were playing for until that last chart, which is a great sign of the quality of the work.

  2. econimonium says:

    I’m not sure what point you’re trying to make here. I distinctly remember being told during the Bush administration that “deficits don’t matter”. Well, of course, until Democrats suddenly cause some, then I guess it matters. Like the current health care law that is an exact copy of the one we have here in MA courtesy of Mssr. Romney that now he’s against. Hypocrisy in these quarters knows no bounds now.

    You can toss all the charting you want at me Tuner, but I took finance and economics too in Grad School and remember quite well two things: “you can torture the numbers until they confess” (which is what I always think when someone tosses too many charts at me), and “what would you like the numbers to say?” (which is how pretty much all corporate valuations start out). We both know that I can twist a data series here, and add in a projection there and do anything I want to the ultimate charting.

    I find it more reasonable to ask exactly what we’re worried about…borrowing at real negative rates as long as the rest of the world seems to be tossing it at us in the depths of the worst jobs market since the depression, or taking the Euro-austerity route that currently crushing the Continent and driving them towards popular change no matter what anyone says. So my response to you is what was said during the Bush administration writ large. You’re chasing the WRONG problem right now. They’ll matter later, when we’re hitting normal employment. The RIGHT problem now is to SPEND MORE to drive us to that destination faster and throttle back as we’re getting there. So in my view this entire column addresses the wrong economic issue. ?

    “It’s the jobs, stupid”, to paraphrase the first Bush election. That’s the issue we all should be chasing, even the Federal Reserve, not talking about the deficit now. That’s the point Krugman is always and consistently making and your analysis doesn’t even touch it.

  3. DMB says:

    This analysis suffers from a confusion over the difference between nominal and real variables and what that means. Also, it suffers from not examining the data as a % of GDP. It is like comparing a poor man with $1,000,0000 loan and Bill Gates with a $1,000,000 loan. Context is everything.

  4. A7L-B says:

    Thank you, Mr. Turner. As he also said, “Lead on!”

    One sad note regarding “We voters share responsiblity with those we voted into office.”,
    no candidate in recent history promised change like the current president promised change.
    Yet, his policies are virtually indistinguishable from his predecessor’s, party loyalist attestations notwithstanding.
    How could votors have known? How can they know now? Would it matter? Likely not.
    It is almost as if the two parties are working together to promote a common agenda…

  5. jaytrader says:

    The moral of this story is anybody can create charts and tell the story to the way they see it. This is 100% Rush Limbaugh economics…. Mr. Turner is just looking for confirmation bias so he comes up with some charts that say surprise! Its all the Democrats fault! Its all Obama’s fault but puts in “we all have to share in the blame”….to make himself look like he is not a partisan hack….

    To put this in the Think Tank is a joke…It belongs in a dumpster…
    If anybody believes that Republicans are better at managing the countries finances I have a S-CDO to sell you.

  6. jd351 says:

    Interesting post, but it really doesn’t prove anything, except people cherry pick data. I don’t know of Mr. Turner, however we all know of Dr. Krugman, and his record. ( which I agree with more often than not) So its all on who and what you believe. The last graph for example is misleading because of he uses avg , I think ” mean” would be better, just my opinion. Another question is why did he leave out the data from the great depression ? Again cherry picking data. And finally he splits the blame how nice. But maybe Mr Turner will step up top the plate, and agree as Hedge fund manager, the carried interest deduction should not be allowed. That would be a good 1st step. But I doubt he will.

  7. “…Think Tank presents alternative discussions on topical issues of markets, economics and financial policy. The views presented here represent those of the author…”


    this, to me, seems a Good Idea..

    in a way, reminds of “Point-Counterpoint” (ala SNL)

    would you know if Mr. Turner can channel Dan Aykroyd?

    might make a compelling IPTV ‘Webisode’..

  8. gusgus says:

    If Mr. Turner’s intention was to rebut Krugman’s claim that Obama has presided over unprecedented austerity, he failed miserably. Instead he has confused and confounded the issue with numerous charts which do not address Krugman’s point. All in all, a disappointing effort.

  9. denim says:

    Actually, it is Mr. Turner who has overwhelmed the presentation with numerous charts. Many of us who read financial charts know full well that the starting date of a percentage chart can dramatically affect the curve. However, the first two charts that Mr. Turner presents prove Krugman’s point…even though Mr. Turner generated his own personal version using, as he said, using FRED.

  10. Maj Tom says:

    @ Easyenough – The charts Krugman showed were simply rate of change from a very high plateau. From Krugman’s analysis, Obama is faring better and seeing an “uprecedented level of austerity on the state and local level.” These charts simply show total federal receipts minus total spending (creating deficits) divided by receipts (to get a percentage). About as unbiased as possible.

    @ Jaytrader/JD351 – I was hoping the charts would show that BOTH sides contributed to the debt (the Reagan/Obama chart). I picked post WWII to get a good sample of both parties. Not necessarily “cherry picking” – I have data back to 1790 with all presidents if that chart is useful. Dr. Krugman only included the last decade of data btw; I simply wanted a longer time horizon. Also, I strive to remain “a” political. Both sides have created this situation, both sides are complicit. My only issue, for both sides, is presenting data correctly. The Democrat VS Republican chart wasn’t designed as a competition chart, it was designed to aggregate the “mean” of both parties and show that neither can claim the title of “budget hawks.”

    @gusgus – The direct rebuttal is the chart showing just the numbers with the quote from Dr. Krugman. The State and Local levels of austerity went from 1.798 T to 1.797 T in four years (the very high plateau). Dr. Krugman’s chart shows real year-over-year change (CPI adjustment) reflecting a decrease. I wanted to simply present an alternative chart with raw numbers for the reader to decide what constitutes “unprecedented levels of austerity.” What should also be obvious is the very rapid increase in spending under Bush.

    Overall – I have been reading Barry’s site since about the time he began blogging. I thought his readers would enjoy seeing the data presented a different way and the reader can determine the meaning. I hope this additional info helps in understanding the background and would gladly provide the data to anyone for their own creative minds to explore. Proud to serve – CT

  11. ilsm says:

    Include the “war to end fascism’s” deficts against the dastardly dems.

    And going then year dollars (unadjusted) is like assuming the “bouyancy” of the dollar does not change.

    Mike Kimel wrote a book about this stuff with a lot of research and statistical analysis.

    Like your dash 1 power charts don’t change with MSL of the aerodrome?

    Go figure.

  12. bmz says:

    Mr. Turner’s conclusion that both political parties caused the national debt is simply wrong. Prior to 1981 the national debt was relatively insignificant. Prior to 1981, income taxes averaged 12%(+/-1%) of normalized GDP. Reagan reduced income taxes to near 9%. Clinton increased them back to 12%; and Bush/Obama reduced them again to 9 %(and below). However, on budget expenses(which excludes Medicare and Social Security) have remained 12%(+/-1%) of normalized GDP throughout. The deficit in income taxes has been financed by borrowing, largely from the Social Security trust fund. When Clinton raised income taxes back to 12%, this eliminated the on budget deficit. The CBO projected that this, plus the Social Security and Medicare surpluses, was enough to pay off the entire US debt by the time that the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise taxes to pay for the amortization of those trust funds. Like Reagan before him, Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that income taxes would have to be raised in order to amortize the trust funds. The failure to do so, as advocated by all Republicans, simply permits the 1% to steal the money contributed by workers for their retirement. All of the deficit under Obama was caused by the great recession he inherited from Bush, as well as his necessary attempts to stimulate the economy to get us out of that recession. He can be faulted however, in continuing the Bush tax cuts; although the severity of the recession required that unless the Republicans would cooperate with him in increasing the stimulus (an oxymoron) that he not increase taxes in 2010.

  13. Asymptosis says:

    That’s an awful lot of charts just to show one alternate statistic (federal government deficits as a percentage of receipts).

    I can see how this statistic also serves a particular agenda. Since the numerator plummeted started in the Bush era, it gives the impression that the denominator skyrocketed — which it of course didn’t.

    If you look at a variety of such statistics and measurements, you can start to get a realistic and even borderline “objective” view of the world.

    This post doesn’t give the impression of attempting to achieve that goal.

  14. yoganmahew says:

    There’s a gross error in your timings. Income and expenditure in year 1 of a presidency are carryovers from the previous President. Correct timings would be to include the first year of each president in the last year of the previous President. You have included 2008 as the first Obama budget, but his first budget did not pass until February 2009 and did not have a full-year effect until 2010.

    You can see this here:

    I’m kind of embarrassed for you. To put up something so partisan and so wrong is a little self-demeaning.

  15. ilsm says:

    Maj Tom,


    Thanks for the chart with the US war budget going up from 3% of GDP a bit over $370B “then years” dollars in 2000 to over 5% of GDP in 2007 and about $825B in 2011. A way to hide the plunder of the US economy by war profiteers. Keeping then year dollars is so informative! Obama is responsible for that making him just another war profiteer.

    In real dollarsthe past 5 years the US has spent more on war than in 1968 when it had more than Afghan shepherds to defend against.

    “About as unbiased as possible.”

    No evidence to support this.

    “I was hoping the charts would show that BOTH sides contributed to the debt (the Reagan/Obama chart).”

    Obvious, you cherry picker you. Evidence of bias, intent to show a conclusion.

    “Dr. Krugman’s chart shows real year-over-year change (CPI adjustment) reflecting a decrease.”

    In your world money value does not change with time, quite bizaar!

    “I have been reading Barry’s site since about the time he began blogging. I thought his readers would enjoy seeing the data presented a different way and the reader”

    Maudlin is enough in the odd analysis of data to sell an ideology, you don”t add much to Maudlin, other than having to weed through fewer words.

    You might think about acquainting yourself of the concepts of logic, and epistemology.

    Otherwise you provide some good examples of “fail equivalence”, which we get daily from the WSJ editorial page and Fox News.

  16. rtol says:

    What I learned here is that showing similar information presented in different ways is not a rebuttal.

    Can you state in a single sentence exactly what aspect of Dr. Krugman’s thoughts you believe is wrong? And in another single sentence, state exactly why you think it is wrong. And in a third sentence state the reason for your belief. THEN, give us a graph (if you must) or other evidence to support your belief.

    I’ve seen a lot of hack attacks against Krugman, most of which are more concerned about promoting a political agenda than they are in advancing understanding. I’d like to give you the benefit of the doubt that this is not another, but for the life of me I can’t see anything concrete here.

  17. gman says:

    Hardly a rebuttal. Many of the longer term charts should be in a log scale if you were trying to be objective. We are in a soft core depression (neg real interest rates) THIS IS THE TIME TO RUN DEFICITS. Goverment should be counter cyclical. The debt service for the US govt is actually @ 30 yr LOWS!

  18. DG says:

    Mr. Turner. If the government in 2008 started paying out your government pension benefits without COLA (cpi adjusted), would you agree that by today you would be getting a lot less value from those payments? Of course you would be. The purchasing power of those benefit payments would be severely eroded after 4 years. Similarly, by looking at nominal numbers rather than cpi adjusted (really I think it should be pce adjusted, but that is a discussion for another time), you are ignoring the huge amount of austerity that has occurred in simply failing to keep up with inflation. This is the kind of stuff you learn in the first week of a highschool economics course. A dollar today is worth a lot more than a dollar 4 years from now.

  19. gman says:

    The Tea party mindset of wars and tax cuts in the boom years and austerity in the busts is wildly PRO CYCLICAL.

  20. Greg0658 says:

    bmz @3:37p ” simply permits the 1% to steal the money contributed by workers for their retirement.”
    NO .. the employer who built the factory and signs the check contributed that money – it should be confiscatable
    NOT – of course I’m being facetious ..
    the muscle power inside the factory made the product and the other muscle powers of the world with their excess free mad money bought it off a shelf .. roundnround
    a kudo to bmz for time spent :-)

  21. Oral Hazard says:

    Kudos for yoganmayhew at 4:59 pm for blowing this up real good. It’s called a “Fiscal Year,” Mr. Turner. Look into it.

  22. ottnott says:

    That was a turn on the soapbox, not a rebuttal. It was a different story, not the rest of the story.

    Turner admitted that Krugman’s chart is accurate:
    “Krugman’s analysis becomes more clear in showing that the “rate of change” has slowed since 2009. By simply applying a CPI adjustment, the rate of change would become negative and explains the first chart in decline.”

    Turner then failed to address, much less rebut, Krugman’s commentary about the chart, which was:
    “Obama, far from presiding over a huge expansion of government the way the right claims, has in fact presided over unprecedented austerity, largely driven by cuts at the state and local level. And it’s therefore an amazing triumph of misinformation the way that lackluster economic performance has been interpreted as a failure of government spending.”

    There was nothing objectionable about the rest of his charts and commentary, but they weren’t related to Krugman’s chart and blog post.

  23. mlnberger says:

    Turner ends up by focusing on the federal government, whereas the story is the decline of spending at the state and local level. This is where the “anti-government” forces have had their greatest successes, as employment levels have actually dropped over the past several years. And, what is rarely reported or realized, is that wages have stagnated and labor rights reduced, as well. One of Obama’s failures has been to offer little or no support to the states and their fiscal difficulties — and he knows this, for he carefully trumpets the growth of “private sector” jobs after each jobs report.

  24. jaytrader says:

    From reading the comments I almost feel like the human race has some hope.
    Most if not all will not fall for Mr. Turner’s assertions.
    Obama is going to win the election not because he is good at governing or even if he is up to the job, but for the fact that Republicans/Right Wing/GOP hacks like Mr. Turner have been exposed for what the are.

  25. Maj Tom says:

    @rtol – 1) presided over unprecedented austerity, largely at state and local level, 2) the chart above without commentary provides Dr Krugmans definition, 3) Austerity has not happened with budget increasing – for true austerity, simply consult 1920/21 Depression and fiscal response. BTW – I have equal disdain for lowering FF rate to 1% after 9/11, Glass Steagall repeal, CFTC modernization, and bailouts occurring in last administration. See this – for who are really getting crushed.
    @BMZ – the topic was simply to analyze Krugman’s data – while doing so, I had other thoughts to show income and expenses while presidents “presided” (i.e. inauguration). Perhaps showing the second set of charts simply clouded the issue and would have been better in another post. I tried to show something “unbiased” which is the total income of government minus the total spending. By showing a %’age plus or minus, this removes the requirement for dollar adjustment.
    @oralhazard/yoganmayhew – Dr. Krugman places a chart with 10 years and states “presided over unprecedented austerity” – I simply applied the same data. We all understand FY – perhaps Dr. Krugman should include only the last 2 years in his data? Additionally, consult Harding’s response in 1921 – not only was the Budget Act of 1921 the formal Budget Process enactment, that same year, he slashed the budget from 6 billion in 1920 to 5 billion in 1921 and 3.3 billion in 1922. It is possible to cut spending immediately, just not popular.
    @Ottnott – State and local spending essentially remained flat since inauguration. “Presided over unprecedented austerity” is the disingenuous part.

    @DG/GMAN – very familiar with cpi adjustment (and log scales) – see here for example and here for dollar adjustment examples
    @jaytrader – Definitely not a right wing hack (haven’t been accused of that before, and spit a little coffee out of my lips) – sorry, but I blame several Right wing categories above for much of the situation Obama inherited.

  26. DeDude says:

    I think “rebuttals” are supposed to address the same issue that is begin “rebutted” rather than raising a completely new issue. Regarding this new issue of deficits; they are the failure to tax as much as is being spend. I agree that the deficits have been horrible under Obama. But this failure to tax equally to the spending is not something you can blame on him, since he is the one that has proposed increasing taxes and the GOP are the ones that blocked it. He was saddled with unpaid and irresponsible tax-cuts from the previous administration and a “do nothing” GOP contingent that refused to fix the problem.

    I is really pathetic how little real argument is coming out against Krugman/Invictus. I guess the facts are just completely with them and then all you can do is inventing and shooting down straw men.

  27. Irwin Fletcher says:

    Thank you for posting this. I found it very thoughtful and respectful. Since your blog took a severe left turn, it is refreshing to have some good counterpoints. Isn’t the goal to cut through noise and agendas to find truth? The bashing comments on this board by partisan hacks is really disappointing and makes one question intellectual intent. Agenda above truth? The guy writes a respectful, thoughtful rebuttal and idiots shout him down. Oh for the lost days when gentlemen had healthy, spirited debate based on data and ideas, rather than name calling and insults. Thanks for the post.

  28. Irwin Fletcher says:

    CT- thanks for your work.
    BR – thanks for posting.

    Good rebuttal. Sorry most commenters here don’t want to learn anything or engage in a healthy debate with respect. They prefer to slam you and call you names. Pathetic.

  29. JesseLivermore says:

    Thank you for presenting a competing perspective to Krugman’s. Now that I see how intellectually bankrupt the anti-Krugman side is (“Let’s ignore inflation! Let’s ignore GDP! Look at 20 irrelevant charts!”), I can be more confident that Krugman is correct.

  30. Irwin Fletcher says:

    Chris – Thanks for taking the time to do the work and post.
    Barry – Thanks for posting this.

    It’s refreshing to have good, respectful debate using data.
    It’s too bad that challenging other’s claims with you own data, and presenting another side to an argument gets you shouted down, called names and insulted.

    Good piece. Keep up the good work.
    In God we Trust. All others bring data.

  31. jaytrader says:

    @Irwin Fletcher….Mr. Turner’s check is in the mail…..

  32. Yossarian says:

    Will someone please define “austerity?” Thx…

  33. Maj Tom says:

    @Irwin – no worries on the crowd rhetoric. I take no offense to the posts, the great thing about the US is the true melting pot of ideas. I hoped that some of the links provided might show some commenters that I do understand CPI and I also happen to think that it is UNDER-reported (which would actually help Krugman’s chart as well as showing a further decline in income). The trouble though, is that CPI radically changed in the 80′s and 90′s from nearly 70 years of operating using the same methodology. By using comparisons in percentages – this eliminates the necessity for CPI adjustment. Every Presidential term from Inauguration was treated exactly the same (just as Krugman posted the chart with 10 years of data and the words “presided over”).

    The fact that Clinton posted a positive 11.66% (rather than a deficit) is just as valid as Reagan finishing with -17% (deficit). Dollar devaluation and CPI increasing from 1980 to present does not matter using this method. Reagan spent 17% more money than the government received in receipts.

    This single fact that we are currently spending nearly 55% more than receipts (continuation of previous administration policies) seems more well-founded to lack of Austerity than “unprecedented austerity,” as Dr. Krugman detailed.

    All the commenters desire a better United States just as we all do. The beauty of living in this land is that we are free to voice our opinions and have differing ideas. I cherish the opportunity to speak freely, in open discourse, without retribution (well… except of course, being called a right wing hack… still kinda chuckling on that one)… I have served in many areas without this freedom and I would just as soon read some comments about some research (regardless of the delivery method) than spend a day without this freedom.

    All the best – CT

  34. Greg0658 says:

    I’ll play .. so some group think:

    but imo:
    austerity is paying the bills of the state as if you are like a household ie: bills when they come due must be paid at face value … but in this world of credit creation to aquire the states needs and world trade across internet and market board/floors that strict definition falls into the realm of Financial Political Science and we all know that Science is a hard science that is defined by gravity “what goes up must come down”

    the google isn’t good enough (should try – not) but I remember reading the accrued World Trade Deficits country by country as “the account sheet of incorrect price’g to allow trade for interested parties” or another of those FPS (financial political science) POVs (personal owned vehicles)

    hope that helps :-)

  35. Yossarian says:

    So from the link: “In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.”

    If total spending is rising, even if the rate of debt accumulation is happening at a slower pace, that would not seem to indicate austerity, even if one believes it to be an inadvisable economic path. I take Austerity to mean a radical and substantial move by a country towards living within their budgetary means (moving strongly towards only spending what they take in, or balancing the budget). Obviously, this has not occurred.

    False wealth creation was enabled by the financial system over many years. Instead of hitting the reset button (default, bankruptcy, etc.) financial institutions and their political partners were of the belief that more debt would get the growth train going again, enabling the debt to be inflated away and thus the false wealth purged. However, over and over again that promise turned out to be a mirage- after each burst of debt-fueled stimulus failed we let Krugman and his ilk convince us that the reservoir in the middle of the desert is not another mirage. If we just had more debt, more stimulus, he says, then the growth would have finally come.

    The fact is, there is no easy solution. The correct path would have been painful, just as it was in the 1920-21 period and in East Asia in the late 1990′s. But it would have been brief and we would have emerged stronger by now. We still may come out of this yet as market economies tend towards growth and we are already quite some time into this economic unpleasantness. But I would bet on private enterprise, not the donkeys and elephants in DC to lead the way…

  36. Joe Friday says:


    Yet another example of someone who apparently does not comprehend that fractions do indeed have denominators, rendering comparisons of percentage of GDP meaningless.

  37. Greg0658 says:

    aus·tere /ôˈsti(ə)r/ Adjective: 1.Severe or strict in manner, attitude, or appearance: “an austere man with a puritanical outlook”.
    2.(of living conditions or a way of life) Having no comforts or luxuries; harsh or ascetic.

    The Joy Formidable – Austere (original video)

  38. Karl Smith says:


    I don’t know if its productive to get wrapped up in what the “true” meaning of certain words is. The majority of the economics community would have readily understood Krugman to mean ether declines in real expenditures or declines in real outlays.

  39. Yossarian says:

    Stimulus is always focused on preventing a decline in nominal output as that is what matters in the short-term (to some). Re-framing the discussion around real #’s is disingenuous, especially when many feel that the inflation is largely the result of various stimulative efforts. There has been no austerity. There has been stimulus, fiscal and monetary. There has been follow-up monetary stimulus but limited fiscal stimulus, unless of course you properly account for FNM/FRE/HSA which would mean significant and continued stimulus. Again, austerity will not lead to nominal growth either, at least not until markets cleared at a lower level. That was short and painful in East Asia but they emerged quite a bit stronger and have weathered the western debt crisis reasonably well.