Listen To The Hippies This Time

Looks like the leaders of the eight largest economies agree with the hippies, at least in part, that the economy still faces rough patches and additional stimulus could still be necessary.

G8 leaders believe the world economy still faces "significant risks" and may need further help, according to summit draft documents that also suggest failure to agree climate change goals for 2050 [...]

Documents seen by Reuters before the G8 summit began on Wednesday cautioned that "significant risks remain to economic and financial stability" while "exit strategies" from pro-growth packages should be unwound only "once recovery is assured."

"Before there is talk of additional stimulus, I would urge all leaders to focus first on making sure the stimulus that has been announced actually gets delivered," Canadian Prime Minister Stephen Harper said.

That chimed with comments from the International Monetary Fund, which said it believed the global economy was starting to pull out of recession but recovery would be sluggish and policies needed to remain supportive.

Harper isn't wrong, the stimulus in the queue must get out. But recovery has not yet been assured, and so the smart move would be to prepare for some contingency where more public money has to go into the economy.

It's interesting that everyone has whitewashed the debate from early this year.

During the initial discussion of the stimulus, the debate was framed almost entirely as a debate between Obama and those who said the stimulus was too big; the voices of those saying it was too small were largely frozen out. And they still are — if it weren’t for my position on the Times op-ed page, there would be hardly any major outlet for Keynesian concerns.

And here’s the thing: in this case, there isn’t any hidden evidence — you can’t argue that the CIA knows something the rest of us don’t. And the voices calling for stronger stimulus are, may I say, sorta kinda respectable — several Nobelists in the bunch, plus a large fraction of the prominent economists who predicted the housing crash before it happened.

But somehow, the pro-stimulus people are unpersons. Who makes these decisions?

I don't think Krugman wrote that without knowing the answer.