It was only three months ago that Paul Krugman, in his Times column and on his blog, was giving it to the Obama administration almost as hard as he gave it to the Bush administration. He appeared on the cover of Newsweek as the poster boy of the angry left. He could not have been more emphatic: The stimulus was too miserly to make a dent, the financial bailout was a trillion-dollar giveaway, and the banks would have to be nationalized, à la Sweden.
"The current system of implicit maybe-kinda guarantees on bank liabilities call it wink-wink-nudge-nudge-say-no-more banking policy is failing badly," he wrote on March 8, 2009.
Today, Krugman's message is: Stay the course. By "the course," does he mean the one that previously had us headed over the cliff?
Not all that much has changed since March other than the fact that the stock market has been on fire and key economic indicators are no longer quite as dire as they once were. Neither of the issues that Krugman deemed most critical have changed at all the stimulus hasn't been expanded, nor have any banks been nationalized.
But last week, Krugman himself sparked a rally in the stock market according to Bloomberg, anyway when he told an audience at the London School of Economics that "I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer."
Whoa. How did he get from there to here?
It should be noted that in the wake of the Newsweek cover, Krugman started quietly backpedaling a little. He even offered the administration the crumb of a compliment: "I don't believe that even America's economic efforts are adequate, but they're far more than most other wealthy countries have been willing to undertake."
Then the White House had him over for dinner, along with that other economist-thorn-in-Obama's-side Joseph Stiglitz. (As Politico reports today, the Obama White House has engaged in "aggressive outreach" toward the Times editorial page in general.) The conversation between them and the Obama economic team was off the record, but the White House's "engagement" policy sure seems to have worked, at least so far as Krugman is concerned. Ever since, he has played nice; last Friday, he even busted out one of his old-school liberal-mad-dog columns, attacking the other side for a change.
So what might Krugman have learned at the White House that adjusted his vision? He provides a clue in an interview published over the weekend in the Guardian.
"Sufficient to actually restore full employment would probably have to be 5 percent or more," said Krugman, referring to the size of the stimulus package measured as a percentage of GDP. "More than we have would certainly be a good thing. It actually might happen. You know, the buzz I'm getting is that a second-round stimulus might well come on the agenda."
Hmmm, the buzz where could that be coming from?
"It's what you hear from people who talk to people who talk to people," he said. Of course, you hardly need the intermediary if you have direct access to the people, like over dinner at the White House.
For now, the White House has solved its Krugman problem. Next stop: North Korea!
Stay the Course [NYT]
Barack Obama and the White House Woo the New York Times [Politico]
Paul Krugman's Fear for Lost Decade [Guardian UK]