On the radio with Reason’s Matt Welch yesterday talking about sequestration, I mentioned off hand that I think the great left-right debate over Keynesian fiscal policy is largely fake. Over at AFL-CIO headquaters earlier today watching a discussion with Richard Trumka and Paul Krugman further confirmed that view to me.
You obviously had a liberal, union-oriented audience and so you got a lot of talk about the economic merits of federal aid to state and local governments, about infrastructure projects, about the stabilizing impact of Social Security and Medicare, etc. On the other hand you didn’t get a lot of talk about the stimulative impact of a corporate income tax repatriation holiday, the economic damage of failing to extend the Bush tax cuts, or the job losses associating with cutting military spending. The big difference between left and right in this regard is that when conservatives want to oppose left-wing Keynesian ideas they tend to counter with anti-Keynesian points, while when liberals want to oppose right-wing Keynesian ideas they tend to argue with specific multiplier-focused points.
That’s not to throw around a lazy charge of hypocrisy. Smart people who are precise in their arguments on either side of this debate are always careful to couch their position in consistent and coherent ways. The issue is just that the political disagreements about macroeconomic stabilization policy in the United States are relatively small compared to the political disagreements about the overall size and scope of the federal government. People have strong, deeply held, very sincere differences of opinion about the utility of public sector programs and the growth impact of progressive taxation and redistribution.
The gaps here are not nuanced, and nine times out of ten the thing that people are really disagreeing about when they debate the stimulus, the sequester, “the budget deficit”, or whatever is the big ideological gap about government programs not different accounts of Keynes. But people try to fit their strongly held policy objectives into the macroeconomic situation that happens to be prevailing. So tax cuts can be the cure for recession in 2001, but also the cure for boom-induced surpluses in 1999. Infrastructure spending is great in good times—we’ve got the money and it’s a valuable investment in the future—but even better in bad times when the multiplier is high.