Austerity has way better rhetoric, you can talk about wasteful spending and living within our means, blah blah, but the predictions have absolutely sucked compared to standard economics.
Edit: other austerity greatest hits:
* don't bail out detroit!
* qe will lead to hyperinflation!
* cancel infrastructure projects!
* buy gold!
Another big issue is all the stuff that got financed that normally couldn't be financed, with investors everywhere willing to buy junk bonds and any imaginable kind of stock. How that works out remains to be seen.
(Personally I don't have a firm opinion on stimulus/austerity, apart from it being a far from obvious issue - that I believe rather firmly.)
My theory is that the administration wanted more stimulus, couldn't make it happen politically in useful ways (infrastructure projects, school building, new nuke plants etc), so the only outlet they had was QE, which did the job somewhat (we're not in a great depression), but did have the negative effects you highlighted. I think we'd be better off had the money been spent on infrastructure projects -- same sugar rush preventing a crash, plus we get a bunch of stuff afterwards. Right now we just have paper assets in the aftermath.
"Couldn't make it happen politically?!" That part I don't get. You mean they couldn't just give everyone money so they spend it instead of giving money more or less directly to the richest people? You mean the citizens would revolt?!
(Actually the possibility of QE on the scale we had in a bunch of democracies left me dumbfounded. Why do people put up with that shit?)
Politically, citizens have nothing to do with it, look at Congress. They're voted in on fears of socialism and kenyans, not like they can turn around and support infrastructure spending.
Also - what do you mean "credit is tight for businesses"? Haven't businesses of all kinds been vigorously buying back their stocks lately, while issuing bonds at the same time? Those bonds having very low yields?
Maybe grandma has a problem getting a loan from a bank to run her small shop (why would the bank lend out money when they get risk-free handouts from governments?.. AFAIK banks are actually notoriously bad at credit risk assessment when giving out loans to businesses so they tend to not bother); but definitely a public company issuing bonds has no problem of prohibitively high yields.
Sure 500bln is a delicious shot in the arm, even if most of it is 'wasted' on the cronies. I can't predict what will trigger inflation, hyper- or otherwise, in this distorted economy. All I want to know is, just when exactly can I expect the payoff? Will there be growth or recovery such that the debt holders are paid back? No? Never can expect it, realistically? Ok, let's cut it out with the stimulus then, because I'm sick of bailouts and blatant cronyism.
In other words there was a huge change in the derivative of those rates, downward change flattened and bent upwards.
Now, going instantly another 500bln in the hole and rolling over that much more debt service every year is concrete. I can measure that failure.
Was the stimulus worth it short term or long term? I don't think so!
Honestly it doesn't make much sense, and should really make people hesitate to pursue deflationary measures. China's fiscal policy does serve to deflate the dollar, so that counterweights QE a little, but that much? Maybe, I guess?
Hyperinflation is almost impossible in a highly leveraged credit economy, but cheap money has to go somewhere.
I'm personally unimpressed with all the various schools of economics. Sometimes it seems like astrologers and palm readers arguing over which technique happened to randomly seem to work last time.
The real problem with austerity is that it makes debt bigger by shrinking the underlying GDP, and a fallacy of composition where individually rational actions (e.g. cutting your personal expenses so you can pay down your debt) doesn't work if we all do it at the same time. The solution often is some variant of "grow your way out of recession". It's not a great solution, but it's probably the least-worst plan. This may or may not involve make-work programs; an "anti-austerity" plan may simply be a plan that stops ruining the GDP with cuts.
(trickle-down the opposite idea, I'm not sure why you associate it with anti-austerity)
Never mind Krugman - I highly recommend Mark Blyth's (prof. econ. Brown Uni) discussion of the topic ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 - the main lecture starts after a boring introduction at ~12min). While this particular lecture is focusing on the situation in the EU, Blyth covers a lot of general econ topics and spends a lot of time on the history of austerity and what it does to an economy.
"grow your way out of recession" is pretty much making the same argument.
Not always. I think it's a shame that the stimulus wasn't done too well, but I don't think any attempt was destined to failure. If done well, the stimulus might have effectively addressed a large number of problems, such as infrastructure and unemployment as the CCC did in its day.
For example, one of the most successful anti-austerity measures was the "kurzarbeit" program of the German government, which prevented mass layoffs and kept the German "mittelstand" (the backbone of the German economy) afloat.
"Kurzarbeit", very simply put, is a program that allows businesses to keep their employees employed part-time, while the government makes up for most of the loss of wages by paying them benefits. Once the recession is over and orders are coming in again, they go back to full-time employment. People don't lose their jobs, there's no drop in consumption, and businesses don't have to go through painful layoff and rehiring processes for high skill positions.
In America, which has a more consumption-driven economy, food stamps (i.e., SNAP) have been shown to be one of the most effective forms of stimulus; not only do they keep low-income families fed, but because the marginal propensity to consume is basically 100% for SNAP recipients, this then creates business for supermarkets, which in turn can keep employing their workers who also have a high marginal propensity to consume, and so forth. As a result, increases in SNAP spending were probably one of the most successful parts of the Recovery Act [1].
[1] http://www.cbpp.org/research/snap-is-effective-and-efficient
Doesn't wasteful central government stimulus always just enrich cronies and banksters? The whole shovel-ready jobs being nowhere to be found/summer of recovery thing was kindof laughed off by the president, but that obscene $500bil stimulus still got spent.