The post deals with the following two graphs, the first being Mark Zandi's prediction and the second being the actual GDP numbers (or at least what the government says are the GDP numbers). First, the Zandi graph:
Now, for the post-stimulus graph:
The graphs are what they are. However, Krugman's comment about them is most illuminating:
It’s not a perfect correspondence, nor would you expect one — other factors, especially inventory swings, were bound to make the timing of actual growth different from that of stimulus. Still, the two pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s (pdf): Fiscal policy works when it is tried. (Emphasis mine)Most important, a new injection of money into a moribund economy (especially if it is an early injection) ALWAYS will bring about more economic activity. In his classic "Fiat Money Inflation in France," Andrew Dickson White points out that during the French Revolution, the first round distribution of Assignats brought new life to the French economy, a "stimulus," if you will.
But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.
However, with further injections, the economy responded less and less to the new money and new spending until finally all that was left was the inflation. In this case, I am not surprised at the numbers, but one has to remember that the stimulus was about SPENDING and nothing else. The new money for projects ended up in the hands of people who spent it, clearing existing inventories and the like.
What Krugman wants us to believe is that had there been more money made available through "fiscal" policies (more borrowing by the government), somehow that extra money would have given the economy "traction," which then would have allowed it to move along on its own. There is no real causality as to WHY this would happen; he just wants us to believe that this is what would have occurred.
Actually, what would have happened would have been bigger numbers (as Krugman claims) at the beginning, and then a steeper fall, as there would have been nothing to have SUSTAINED that earlier activity. In the Keynesian paradigm, the economy is a homogeneous mass driven only by spending; Austrians understand that there has to be long-term capital investment that can be sustained by economic activity, and that makes all of the difference.