What a strange thing for a Keynesian to say:
How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?
If you were a New Classical or a Real Business Cycle type then this comment would make sense. For at the core of these ideas is the thought that the economy (and thus people) react near instantaneously to a change in relative prices, tax rates and so on.
But you\’re not, you\’re a Keynesian (possibly a New Keynesian), someone who is adamant that such relative price changes, such new tax rates, do not have instant effect. Indeed, your entire macro-economic approach is built on the fact that changes can be years in coming: that\’s why we have recessions and why it\’s even possible to have depressions.
Now it does rather depend upon what you think the time lags are but there\’s now at least the possibility that Clinton\’s tax rises are what led to the slow growth in the early Bush years, no? Which makes something of a mockery of your logic in the above phrase.
For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.
Snigger. So if we\’ve disinflation then even if nominal interest rates are low then real interest rates are high, yes?
For a great economist (which PK most certainly is) and a great essayist (which PK most certainly is) this isn\’t a particularly good outing, is it?