A couple of days ago, Room for Debate at the NY Times asked about the need for further stimulus, and part of my response said the following (It hasn't run yet since they decided to cover McChrystal first):
But the most important change that is needed is in the attitude of the public and politicians toward using deficit spending to stabilize the economy. Even though it’s the correct response, deficit spending goes against our instincts. When times are tough, our natural response is to cut back on consumption. We may dip into savings or borrow money to prevent too large a fall in consumption, but our overall consumption falls. To see government not only failing to reduce its spending as its income (tax revenue) falls, but actually increasing spending by a large magnitude, cutting taxes, and financing it by taking on debt, and then saying even more is needed runs counter to those instincts. And starting with a budget that is already in the red doesn't help at all.
I see Paul Krugman is making a similar point. Here's Brad DeLong:
Against The Super-Asinine, The Gods Themselves Contend in Vain: Brad DeLong wonders how the proponents of tight budgets and tight money are prevailing in the midst of mass unemployment, low interest rates, and incipient deflation. It’s actually not all that surprising. Horrifying, but not surprising. The case for expansionary policies in the face of a slump is intellectually difficult; Keynes described the writing of the General Theory as a painful process of discovery, and so it is. The natural instinct of almost everyone is to think that tough times require tough measures, and that if the economy is suffering, the government should tighten its own belt. It would take a clear consensus from economists to overcome that natural bias. And that consensus has, of course, been lacking — largely because a significant proportion of the economics profession has spent the last three decades systematically destroying the hard-won knowledge of macroeconomics. It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.
On top of that, anti-stimulus appeals to a fundamental meanness of spirit that is always present in the political world. The super-asinine we shall always have with us.
May I say that I expected something like this? It’s part of the reason I was so anxious to see Obama go for the maximum stimulus possible: it seemed obvious that he would have only one shot...
Not obvious to me--not at the time.
I do say that if, as appears to be the case, Paul Krugman is always right, it would be really, really, really, really helpful if he were more optimistic...