Why oh why can't we have a better press corps?
Daniel W. Drezner:
The worst piece of conventional wisdom you will read this year: Stagflation in the 1970s was caused primarily by an inward shift of the aggregate supply curve due to a surge in commodity prices, particularly energy. Some central banks responded with accommodating monetary policies that accelerated inflation even further. Fiscal policy was an innocent bystander to this whole shebang. So I honestly don't know what the hell Kinsley is talking about. More importantly, the current macroeconomic climate is really, really different from the 1970s. Inflation was a Big Bad Problem during that decade. It is not a problem right now. If inflation were spiking, then a genuine debate could be had on macroeconomic policy options. But that's not the case.
In his final paragraphs, Kinsley has managed to epitomize the exact critique that Krugman has served up. The irony of this whole thing is that the Congressional Budget Office's recent figures put the lie to Kinsey's hidden assumption that the federal budget deficit is getting bigger and bigger. Right now it's shrinking at the fastest rate in postwar economic history. The CBO also warns that the deficit will start to balloon up again due to entitlement spending, which suggests that Kinsley has half a point about thinking through entitlement reform. The thing is, that's a structural problem, not a business cycle problem. Kinsley et al. are acting as if the current fiscal climate demands immediate budgetary actions. And it doesn't -- it really, really doesn't.