Does the impact of Keynesian stimulus depend on what we call it?
By Scott Sumner
Here’s a question I’m confused about. I think I understand that Keynesians believe that fiscal stimulus is expansionary and fiscal austerity is contractionary. But what do they believe is the effect of fiscal stimulus if it’s called supply-side economics? Does that make its effects contractionary?
If not, then precisely what point is Paul Krugman trying to make with this post:
So the big tax cut of 2003 (and big spending increases) was less expansionary than the various types of fiscal austerity adopted in 2013 (big income and payroll taxes increases, plus spending cuts.) I guess I can buy that. But I’m not clear as to what sort of point Krugman is making here. Does this support the Keynesian model? If not, then what’s his point? Perhaps it suggests that Keynesianism and supply side economics are both wrong? Not likely, as Krugman is a Keynesian. Or maybe the point is that when Keynesianism is being evaluated it’s not a fair test, because other things weren’t equal, but when supply-side is being evaluated it is a fair test, because there is no need to hold other things equal when evaluating supply-side economics. Any anecdote will do just fine.
Undoubtedly I’m being unfair to Krugman, and I hope some of his readers will let me know the point of his new post.
PS. Apologies if the post comes off as sarcastic, but I’m actually raising an important point here, about how we evaluate evidence.