Paul Krugman now says the problem with the stimulus is we had the wrong sort of stimulus:
So what happened to the stimulus? Much of it consisted of tax cuts, not spending. Most of the rest consisted either of aid to distressed families or aid to hard-pressed state and local governments. This aid may have mitigated the slump, but it wasn’t the kind of job-creation program we could and should have had. This isn’t 20-20 hindsight: some of us warned from the beginning that tax cuts would be ineffective and that the proposed spending was woefully inadequate. And so it proved.
In Krugman’s recollection, he warned us from the beginning. Fortunately, we have a better record than Krugman’s reported recollection. In February 2009 he was quite positive about the stimulus that he now says he always said was the wrong sort:
Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.
Back then, aid to state governments (which he now says he warned against) was “among the most effective and most needed parts of the plan.” The only problem was that we didn’t send nearly enough of it.
It will be interesting to see how Krugman goes about squaring the circle. I anticipate endless hilarity along the lines of his efforts to justify his notorious divide-by-ten error.
(Via Kaus Files.)