Krugman Again

I'm starting to think my co-worker (and loyal reader) Alexander just likes to link me Krugman articles for the sake of an argument when work is slow. The article in question today was Krugman's Sunday headliner comparing government spending during the "Morning in America" Reagan recovery and today's current recession. Krugman rightly points out that Reagan's government actually increased spending more than Obama's if state and local spending are included.  What Krugman neglects to mention is that the majority of difference comes only AFTER the federal reserve turned on the monetary spigot, increasing NGDP growth to above 12% over the course of a single year.  For comparison sake, here is the government spending graph that Krugman links to followed by NGDP and RGDP growth following both recessions.

The Real Story Behind the 1983 Recovery

I was underwhelmed by Krugman’s recent interpretation of the V-shaped recovery from the 1981-2 recession.  I have written about briefly about the 1983-4 recovery before but this post will be a bit longer.  First is NGDP, GDP, inflation, and 10 year inflation expectations from 1982-1987.

Pretty simple, NGDP is at 4% in 1982, the result is a Fed induced recession to fight inflation.  1983 to 1984, NGDP raises to 12 percent a year, the result is a robust recovery.  Let's compare that with the current recession.