Paul Waldman has a righteous rant on Congressional Republicans, who posed as the hawkiest of deficit hawks as long as a Democrat was in the White House, but are now fine with huge debt increases under Trump. But really, is anyone except the fiscal scolds surprised? The fraudulence and flim-flam of GOP deficit poseurs was obvious all along.
What is true is that the GOP flip-flop – flim-flam-flop? – is especially noteworthy because of the macroeconomic timing. Deficits were the ultimate evil when the economy was depressed, monetary policy was stymied by the zero lower bound, and we really needed fiscal expansion. Now deficits are fine at precisely the moment when the economy seems to be fairly close to full employment, the Fed is starting to hike rates, and the case for fiscal expansion, while not completely absent, is fairly subtle, resting mainly on the precautionary motive.
But will Republicans pay a price for their hypocrisy? Probably not: my guess is that professional centrists will move the center, as they always do, to declare both parties equally at fault, while the news media will continue to canonize Paul Ryan, who looks Very Serious as he instantly abandons all his supposed principles.
And meanwhile I and other Keynesians are getting mail accusing us of being the hypocrites: “You were for deficits when Obama was in, now they’re bad!”
But as I just said, the situation has changed.
Nobody knows precisely how close we are to full employment; we have very little reason to trust estimates of the NAIRU, if such a thing even exists at low inflation rates. However, some unambiguous indicators of labor market tightness clearly show an economy looking much more like its pre-crisis self than it did a few years ago. As the figure shows, wages are finally rising at a reasonable clip, and quit rates are more or less normal, suggesting that jobs are relatively easy to find.
I’d be a lot more comfortable about the state of affairs if we had more-or-less full employment along with an interest rate well clear of the ZLB, so that the Fed had evident room to cut in the next recession; the fact that we don’t is why I still think modest fiscal stimulus is appropriate, and so is monetary forbearance until inflation is higher. But it’s nothing like the situation in 2010.
When the macroeconomic situation changes, I change my policy recommendations. What do you do?