Free Markets, Free People


Deciphering Paul Krugman’s latest message

Get your “Captain Krugman” decoder rings out and follow me through this Paul Krugman piece.

Today the line of attack on what he calls the “Obama-McConnell tax cut deal ” is to put forward the argument that the reason we’re in this mess to begin with is because of the debt carried by American families. Yes, that’s right – you did it, now shut up and take the medicine. Oh and the banks – yes, the banks because they “abandoned any notion of sound lending and because everyone assumed housing prices would never fall”.

Yeah, you guessed it  – not a thing about the Community Reinvestment Act, Congressional pressure on banks to lend to very marginal borrowers or Freddie Mac and Fannie Mae.  It was you, dear citizen … and the banks.  The government?  Sparkly clean by omission.

Anyway, because that debt is so high in relation to income and the families are in the middle of trying to deleverage that debt, they’re not spending much – or as much as is needed to kick start the economy, in Krugman’s opinion (they might if they had more but then that means even deeper tax cuts and Krugman ain’t going there).  And of course there’s that problem with high unemployment to factor in as well.

So, backing into this favorite theme of the past two years (Deficit?  Screw the deficit – spend, spend, spend), what or who should be spending to get the economy going?

Why yes Sparky, he means the government.

What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained: we’re not talking about a brief burst of aid; we’re talking about spending that lasts long enough for households to get their debts back under control. The original Obama stimulus wasn’t just too small; it was also much too short-lived, with much of the positive effect already gone.

It’s true that we’re making progress on deleveraging. Household debt is down to 118 percent of income, and a strong recovery would bring that number down further. But we’re still at least several years from the point at which households will be in good enough shape that the economy no longer needs government support.

But wouldn’t it be expensive to have the government support the economy for years to come? Yes, it would — which is why the stimulus should be done well, getting as much bang for the buck as possible.

Remember that last phrase because that’s the point of the post.  Now, with all of that background, Krugman says that this “Obama McConnell tax cut deal” will provide some stimulus but not the sustained stimulus Krugman says is needed from government.  And that first stimulus was too small – even though it was much larger than Krugman said was necessary at the time.  Nope  a massive stimulus is still needed no matter what we have to do to pump that money out there (even while the Fed is trying to sponge up the multi-trillion dollar spill of cash they tossed out there before):

The point is that while the deal will cost a lot — adding more to federal debt than the original Obama stimulus — it’s likely to get very little bang for the buck. Tax cuts for the wealthy will barely be spent at all; even middle-class tax cuts won’t add much to spending. And the business tax break will, I believe, do hardly anything to spur investment given the excess capacity businesses already have.

This is the point where cognitive dissonance smacks right into the Krugman “reasoning”.  A) he wants a new and much bigger stimulus – that’s no secret.  B) he claims this bit of stimulus (tax cut deal) will “cost” more (deficit) than it will deliver (bang for buck).  C) you can’t be trusted (shades of Clinton) to spend your own money the way the government would (perfectly, of course – properly, with no waste, and at exactly the right time and in the right place – having a coughing fit yet?).

For such a supposedly gifted economist it is like he missed Econ 101 in favor of Propaganda 101.  Either that or he really does believe, in the face of much evidence to the contrary, that a government spending money in a recession always returns “more bang for the buck” than does an individual (millions of individuals) in a market being allowed to keep and spend more of his money.  I am forever at a loss to explain that sort of thinking.

Pushing money out into an economy just to be getting it out there isn’t going to solve our economic problems.   In fact, if government has to be the big consumer of loan money to do so, guess what there’s less of for the private side of things?  Can you say “vicious circle”?And what does Krugman think a pure borrowing-based second stimulus plan is going to do to the debt?  Given the “bang for the buck” we received with the last stimulus, what makes Krugman think this one would be a better deal and superior to letting people keep more of their own money?

What I expect, instead, is that we’ll be having this same conversation all over again in 2012, with unemployment still high and the economy suffering as the good parts of the current deal go away.

The long and short of it is, this about isn’t economics, it’s about politics.  What Krugman wants is anything he can call economic improvement because he knows that Obama and the Democrats are in awful political shape.  His belief is if the Obama administration will quickly pass a huge stimulus and pump money into the economy, things will look somewhat better than they do now and he can make rosy predictions that should help carry the day for Obama’s re-election in 2012.  If it all collapses after that, who cares?  There will be plenty of time to make stuff up on the fly again and, of course variously blame the Republicans, the American people and, of course, the banks for any problems the economy may suffer.

~McQ

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6 Responses to Deciphering Paul Krugman’s latest message

  • This is where that idiot professor from Maine gets his ideas about how our problems are all due to “too much consumption” and all started by Ronald Reagan. As I said in my comment on the other thread, these fools live in a magical reality where nothing is ever, ever their fault, and where government can do magical things if we Neanderthals on the right would just go along with them instead of pursuing our own selfish interests.

  • I do get tired of this crap from Krugman and the left.  The total package is estimated at $857 billion.  But, they include keeping the current tax rates as spending (or in Krugman’s case, stimulus).  That is flat out wrong.    If we total the false claim of spending by continuing the current rates, we get -$544 billion.  They also claim anther $68 billion by changes to the estate tax from the original $1 mill exemption and a rate of 55% down to exemption of $5 million and rate of 35% (the rate is 0% this year).  That leaves new spending of only about $245 billion for new tax breaks, extension of unemployment benefits and, of course, the unkillable ethanol and energy subsidies.
    So, our $857 billion bill has morphed into $245 billion of new tax breaks and a small amount for additional unemployment spending.  Claiming $652 billion to continue current rates is “new spending” is as stupid as claiming any tax rate less than 100% is new spending.  It only makes even a modicum of sense if you are a Marxist and believe it all belongs to the state in the first place.

  • There really is no reason to consider Krugman’s articles anymore. He is devoid of reality, and has been for some time.  No one takes him seriously, no economists do, no one in the business community does.  A few liberal politicians will try to use the things he says, but that’s about it.

    • But that’s the problem: he’s a VERY useful tool for liberal politicians and their mouthpieces in MiniTru.  People familiar with Crazy Paulie know that he’s a flack and a fool, but for people who don’t wallow in politics he is  “Nobel Prize-winning economist Paul Krugman”.  That’s a pretty hefty title that gives a lot of weight to his drivel.

  • This part is simply jaw-dropping:  “What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down.”
    Where does Krugman think the government gets this money to spend?  There are three answers.
    1) Taxes, aka, the private sector that he is trying to help.  This reminds me of that snarky sign, “The beatings will continue until morale improves- mgmt”
    2) debt, aka the $14 trillion gorilla in the room.  That is only if you don’t put the welfare state obligations on the books when they are made.  If you do, it looks more like a $100 trillion Godzilla wading through the middle of downtown Tokyo.
    3) run the printing presses, aka, Zimbabwe.

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