Brad Delong carried a piece today worthy of Paul Krugman ( I can think of no higher praise) .By Paul Krugman.

Here’s a taste

The original argument against expansionary fiscal policy in the current conjuncture was that it was not worth undertaking because of crowding-out. Fiscal expansion would push up long-term real interest rates and that would diminish private investment. The net effect on demand, employment, and spending would be zero--or even less than zero: the "expansionary austerity" meme.

 

The Keynesian counter-argument was that accommodative monetary policy would prevent any crowding out. That counter-argument was dismissed with the claim that while central banks controlled short-term interest rates, long-term rates had a mind of their own, and that bond markets would require sacrifices to make it clear that debt would never explode in order to maintain or restore their confidence.

Years passed., It became clear that unprecedented volumes of bond issues issues were not in fact putting upward pressure on long-term interest rates--save in eurozone countries that had a hard exchange rate peg and no ability to control their own monetary policy.

The argument against expansionary fiscal policy was counterproductive shifted.

Next victim (Flavius not PK)

The argument against became, instead, a declaration that uncertainty about how and when taxes would be levied on businesses or others to amortize government debt was sharply diminishing business' desires to invest. Government debt issues were, the argument implicitly went, reducing the pool of savings. But uncertainty was causing an equal reduction in business demand for funds to finance capacity expansion. Thus fiscal expansion was ineffective, and austerity would be expansionary, even though the prediction that rising debt would quickly generate spikes in long-term interest rates had been false.

 

The Keynesian response to this epicycle was as follows: If uncertainty reduced business demand for funds to spend on investment projects it would do so by lowering the value of expected future profits from such capital projects. Such a reduction in value would apply as well to the existing capital traded on the stock market as well. Hence the uncertainty argument implicitly predicted that fiscal expansion would cause stock market values to collapse.

(my emphasis)

 That was the implicit consequence of the explanation of the failure of interest rates to rise. And that equity-value collapse had not happened. Equity values had--in both the U.S. and Europe--recovered nicely from their March 2009 panic lows.

To put this (almost certainly unnecessarily ) in Flavspeak. Investors buy shares because they think they're going to go up in the future. If they thought that their favorite investment targets were going to be impoverished by the future Obama taxes required to pay for today's Obamastimulus ,they'd put their cash back in the Mattress instead of the Market.

Instead the Dow is setting historic highs.

Of course is could be the Charlie CEO is spooked by those future Obama taxes. But if so he hasn't shared that with Ned Nextdoor neighbor.

 Krugman follows the above  by concocting the best argument he can think of for the austerity proponents .And then shoots it down.If you're interested check out Brad Delong