Free Markets, Free People
Well, as you can imagine, the Giffords shooting has sucked all the oxygen out of just about every other subject. And, as you can probably further imagine, the "let’s make a law" crowd is busily at work trying to again limit our freedoms in the name of "security".
We have a representative from PA who wants to outlaw "crosshairs" in political advertising. I have to wonder what part of "Congress shall make no law" in the 1st Amendment and political speech he doesn’t understand? Perhaps the word "no" as in none, zip, zero, nada?
The typical overreaction is underway. As is the inevitable. Gun control pops its ugly head up again as a New York Congresswoman prepares to introduce legislation banning high-capacity ammunition clips.
And then there’s Paul Krugman. The historically blind and deaf Paul Krugman. Check out these opening two paragraphs in a piece entitled “Climate of Hate”:
When you heard the terrible news from Arizona, were you completely surprised? Or were you, at some level, expecting something like this atrocity to happen?
Put me in the latter category. I’ve had a sick feeling in the pit of my stomach ever since the final stages of the 2008 campaign. I remembered the upsurge in political hatred after Bill Clinton’s election in 1992 — an upsurge that culminated in the Oklahoma City bombing. And you could see, just by watching the crowds at McCain-Palin rallies, that it was ready to happen again. The Department of Homeland Security reached the same conclusion: in April 2009 an internal report warned that right-wing extremism was on the rise, with a growing potential for violence.
Notice anything missing in his trip down memory lane? Yeah, 8 years of inflammatory rhetoric and what he now labels as “hate” directed at George Bush and the right. I’m sure you’re not surprised – this sort of memory loss is endemic on the left. The memory hole, which they seem unable to acknowledge, is why most on the right take the likes of Paul Krugman and their hate claims with the grain of salt they deserve. When their rhetoric was pointed out to them, their retort was “dissention is patriotism”.
Note too that the economist turned political hack continues to insist, in the face of almost conclusive evidence to the contrary, that the violence visited on Rep. Giffords was the result of the “hatred” from the right. And he uses the discredited Southern Poverty Law Center’s report (hidden in the just as discredited Homeland Security report) as “proof” of his claims.
Krugman must have sensed he’s on thin ice because a few paragraphs in he throws this out:
It’s true that the shooter in Arizona appears to have been mentally troubled. But that doesn’t mean that his act can or should be treated as an isolated event, having nothing to do with the national climate.
Holy Mars and Venus, Batman – is this guy living on the same planet we’re living on? Of course it can be an “isolated event” and it certainly can have nothing to do with the so-called “national climate”. The guy was a loon. A nutcase. He has serious mental problems. He’s a yahoo who became fixated on Rep. Giffords for no apparent logical reason other than she was a local politician. Trying to warp this into something it isn’t, however, is suddenly becoming the pastime of the left. Well, much of it anyway (there are indeed islands of sanity out there, but they’re becoming less prevalent).
Krugman then attempts to whitewash the left’s very recent past by claiming you’ll mostly hear only caustic remarks and mocking at worst. Michelle Malkin neatly disposes of that myth.
So will the Arizona massacre make our discourse less toxic? It’s really up to G.O.P. leaders. Will they accept the reality of what’s happening to America, and take a stand against eliminationist rhetoric? Or will they try to dismiss the massacre as the mere act of a deranged individual, and go on as before?
If Arizona promotes some real soul-searching, it could prove a turning point. If it doesn’t, Saturday’s atrocity will be just the beginning.
What then, as evidence continues to mount supporting it, if it was indeed a “mere act of a deranged individual” Mr. Krugman. Will we get an Emily Litella like “never mind” from you?
This is the latest in a long line of efforts by the left to shut its opposition up. Political correctness has finally begun to wear thin as most have now recognized it for what it is – an attempt to control speech. This effort is nothing less than that. It is the claim that speech must be modified because others who are deranged might act on it, even out of context. But that lack of memory about their own toxic speech and their spirited defense of it (again, see Malkin’s listing of the left’s happy talk about George Bush) smacks of such hypocrisy that the word is almost insufficient to define them at this point.
Freedom and democracy demand risk to work. They must not be held prisoner to speech codes and “security”. We must not let the priorities that underpin freedom be chipped away or removed by a bunch of scared rabbits. If Congress wants to beef up security around its members, I can understand that. However, that’s as far as I’m willing to go. Restricting the freedoms of the rest of us because of some nut is just flat unacceptable.
And by the way, Mr. Krugman – go see a doctor. I’m told the type of memory loss you’re suffering is the first sign of senile dementia. Have it checked out, will you?
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.
It is a zoo in Congress right now. And the left is not happy with the deal President Obama made with the GOP. Heck, even some of the GOP aren’t happy with it.
Frank Rich likened much of what is happening with a hostage situation, although he cast Obama in the role of the hostage and the GOP as the hostage takers. His attempted point was to excuse Obama’s behavior (and GOP outreach) by invoking the “Stockholm syndrome”.
Obama then took the meme and included it in his press conference. However he declared the GOP’s hostages to be the middle class and the unemployed.
Today, Paul Krugman carries on the meme with another set of hostages. This time the hostages are a set of economic circumstances set up by the tax deal that will reflect badly on Democrats in an election year (2012). Krugman throws around a bunch of accusations featuring implied GOP dirty tricks or desires (for instance: “Republicans may try using the prospect of a rise in the payroll tax to undermine Social Security finances. “). But mostly he’s not at all happy with the shrinking President:
Which brings me back to Mr. Obama’s press conference, where — showing much more passion than he seems able to muster against Republicans — he denounced purists on the left, who supposedly refuse to accept compromises in the national interest.
Well, concerns about the tax deal reflect realism, not purism: Mr. Obama is setting up another hostage situation a year down the road. And given that fact, the last thing we need is the kind of self-indulgent behavior he showed by lashing out at progressives who he feels aren’t giving him enough credit.
The point is that by seeming angrier at worried supporters than he is at the hostage-takers, Mr. Obama is already signaling weakness, giving Republicans every reason to believe that they can extract another ransom.
It was at this point – as usual when I read things like this – that I start to chuckle. Because when “pundits” like Krugman write such stuff, I have to wonder upon what they base their belief that the sort of behavior they claim Obama is now exhibiting is somehow different than what he’s exhibited in the past. In other words, when has Obama exhibited behavior different than what he is now that would leave one to believe he’s “strong”?
That seems to be Krugman’s point – he’s exhibiting “weakness”. He’s “signaling weakness”. Yeah? Well when has he ever signaled strength?
It is a point made over and over here but the left, it appears, is finally unwrapping the package they’ve put in the White House and are finding the box is pretty much empty. I’m constantly amazed that they’re still discovering that.
Look at this, for instance, from an interview aired today on NPR:
"STEVE INNSKEEP: Can you accept some changes to this plan or is it the kind of deal you cannot change?
"PRESIDENT OBAMA: My sense is there are going to be discussions between both House and Senate leadership about all the final elements of the package. Keep in mind we didn’t actually write a bill. We put forward a framework. I’m confident that the framework is going to look like the one we put forward…
"Here’s what I’m confident about, that nobody — Democrat or Republican — wants to see people’s paychecks smaller on Jan. 1 because Congress didn’t act."
This is no different than the health care bill where he airily said "we need health care legislation" then mostly stayed aloof from the both the process and the fight. Well, as we said then, that’s not leadership. And nothing has changed despite the constant and almost daily surprise the left undergoes as it constantly discover this guy is no leader.
Heck, I know why this deal is in trouble with Congressional Democrats even if he and Paul Krugman don’t. He’s simply not a leader, never has been, and all indications are he never will be. He seems overwhelmed by the job and really has no idea how to proceed. And he’s frustrated by his natural base turning on him (which is why he saves his harshest criticism for them) and outmaneuvered by a minority opposition that should be easy meat for a talented politician (and leader).
Same tune, different verse – and when the song changes rather dramatically in January with the seating of the 112th Congress, it’s only going to get louder and worse – for the left that is.
Face it lefties – the only thing that might actually see a Democrat in the White House in 2013 is if that Democrat happens to win a primary in 2012 against Obama. If there are really any hostages taken in all of this it is the entire leftosphere – and the hostage taker is Barack Obama.
In case you’re interested a group of progressive think tanks has produced an eighty-something page deficit reduction proposal. Paul Krugman says he’ll have to study it, however:
It’s at least as responsible as any of the other plans being advanced, with a very different emphasis: more reliance on revenue, no attack on Social Security. Some of the revenue comes from indirect taxes — green taxes and fuel taxes — but the rest comes from measures that would raise taxes mainly on upper-income Americans.
I guess agreement or disagreement rests in your definition of the word “responsible”. Let me just say I disagree. A quick look at the plan (here, PDF) shows it’s pretty much the same old stuff. Cap-and-trade, raise the income cap on Social Security, tax the crap out of the “rich”, an increased fuel tax and keep at least 50% of the electorate off the tax rolls. Meantime cut the bejesus out of defense spending – one of the few actual constitutionally allowed federal government expenditures – and lay all those “savings” on health care and infrastructure.
Well here, let’s use their own 5 step plan:
1. Jobs first. Jobs and economic growth are essential to our capacity to reduce deficits, and there should be no across-the-board spending reductions until the economy fully recovers. In fact, efforts to spur job creation today will put us on a better economic path and create a solid revenue base. We believe there should be no consideration of overall spending reductions until unemployment has fallen to 6% and remained at or below that level for six months (Irons 2010a).
No “across-the-board spending reductions” until the economy fully recovers. Really? So the assumption here is in many areas of government, there is no “fat” that can be cut and thereby reduce spending? That’s just nonsense and it puts into immediate question the credibility of this report. Of course, unsurprisingly defense is not one of those areas which shouldn’t see such across the board spending cuts.
So immediately we have a “keep spending” recommendation until they deem the economy to be fully recovered (what’s that point, 5% unemployment? 3% GDP growth?) with economic predictions saying that we may not see joblessness reduced significantly by 2012. So far, unimpressed.
2. Stabilize debt. Over the long term, national debt as a share of the economy should be stabilized and eventually brought onto a downward trajectory.
Well duh. The key question here, given the “let’s keep spending” recommendation above is what constitutes the “long term”? My guess is “never”.
3. Build on economy-boosting investments. We must build and maintain initiatives that directly support long-term job and economic growth. Failing to invest adequately in these efforts – or sacrificing them to short-term deficit reduction – would be a dereliction of sound public management.
Are you snickering yet? Or are you already in the full out belly laugh mode? If you are then you spotted the code words to “keep on spending” didn’t you? So we have goal 1 – keep spending until the economy recovers and goal 3 – keep spending, er “investing” in stuff that will directly support “long-term job growth” even at the expense of deficit reduction. But, wait, goal two – stabilize that debt folks. How do you do that in light of 1 and 3?
4. Target revenue increases. Revenue increases should come primarily from those who have benefited most from the economic gains of the last few decades.
Tax the rich. Wow … that’s new. Don’t forget cap-and-trade and increased federal fuel “fees” as well.
5. No cost shifting. Debt reduction must be weighed against other economic priorities. Policies that simply shift costs from the federal government to individuals and families may improve the government’s balance sheet but would worsen the condition of many Americans, leaving the overall economy no better off.
See unfunded mandates. See ObamaCare. See any number of “target revenue increases”. See the nonsense?
Krugman goes on to say:
I’ll need to work through the proposal, but one thing it clearly does is to explode the myth that there is no alternative to the Bowles-Simpson-type regressive proposal.
What myth? Did anyone honestly believe (or say) there wasn’t an alternative? The fact that one exists doesn’t make it worth a damn though. It simply exists. Lots of “alternatives” exist for all sorts of things. The fact that they exist doesn’t make them credible or viable. And my cursory reading of this paper presents nothing new and most of which has already been rejected by much of the American public.
And my favorite:
And it’s definitely worth noting that even with the revenue measures in the progressive plan, the US would have lower overall taxation than almost any other advanced country.
You mean like Greece and Ireland, Paul? Japan?
What a ridiculous argument for paying more taxes. The problem in America, Mr. Krugman, isn’t that Americans are taxed to little – its because the politicians in our government spend too freakin’ much. There’s not much in that plan that addresses that basic problem, is there? And that’s why it’s as worthless as Krugman’s commentary.
I noted yesterday that one of the more prolific hacks left off of Alex Pareene list (link in previous post) at Salon was Paul Krugman.
QandO has a long history of examining Krugman’s political thoughts and finding them mostly wanting. That’s not to say he’s a bust at everything he does – when he just talked economics he had some interesting things to say. But his venture into political advocacy has, shall we say, not helped his overall reputation in the least. One of the reasons is he’s prone to saying things like this:
The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty.
Don’t “deserve” wealth or poverty according to whom and by what standard, Mr. Krugman?
Who gets to decide what is or isn’t “deserved” if earned or obtained legally? And how does one make the blanket statement that “the poor certainly don’t deserve their poverty?” That, in many cases, is demonstrably false.
If we agree we are the sum of our choices in life, and those who’ve made consistently bad choices (drop out of school, take up drug use, commit criminal acts) end up in poverty, how is it they don’t “deserve” what they now suffer? Certainly I can think of examples of the poor who may be poor through no real fault of their own – the mentally deficient who haven’t the skills to earn high wages, etc. But for the most part, if everyone is offered essentially the same opportunities as others and they choose not to take advantage of them, how does one relegate their descent into poverty as “undeserved”? Especially when others in precisely the same circumstances make different decisions that raise them out of poverty?
What, in fact, that statement is meant to reflect is Krugman’s apparent belief that wealth is unequally distributed not because it is earned, but by an immoral and unfair system that needs to be fixed.
The market, in Krugman’s world, arbitrarily picks winners and losers and rewards them at whim apparently. Thus most of the rich and none of the poor “deserve” their financial status.
So this should come as not surprise:
Allow me to make a point: Economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished.
The market economy is a system for organizing activity — a pretty good system most of the time, though not always — but not according to any moral significance.
Really? So nowhere in such an economy is honesty, fairness, good customer service rewarded with business over competitors who exhibit none of those virtues? Instead, it’s just a “system for organizing” where consumers buy from which ever vendor they first come upon without ever once considering those virtues as a reason for buying? Does the system punish those who act in what one could consider an “economically immoral” manner – i.e. in violation of the laws of economics” or screwing over customers? Does it not mostly reward those who act in a manner that most pleases their customers and helps their reputation?
How is that not evidence of a moral code operating within a given market?
Well of course it is – but such a code is inconvenient to the Krugman’s of the world, because admitting that markets, unimpeded by government intrusion, would reward or punish those who transgress its laws would mean the argument for more government intrusion would fall flat. And certainly, admitting that the rich “deserve” their riches as much as many in poverty “deserve” their poverty would again admit to a morality that precluded government making everything “fair” by it’s attempts to redistribute that “undeserved” wealth.
Those key premises are what Krugman and much of the left base their criticism of capitalism on, never once admitting that a) capitalism as it should exist doesn’t and b) the reason the markets may not seem to be “working” is because of the amount of distortion they already suffer from government intrusion.
Of course, it is the age old cycle many of us have come to understand – government declares something to be a problem, declares it is the solution, exacerbates the problem and again declares only it can fix it with even more intrusion.
“Morality” is, at a base level, “good and bad”. We label what we deem “good” as moral. The bad stuff is “immoral”. How one can observe real markets at work, where the basic transaction is a voluntary exchange of goods for money between two people (entities) and not recognize the basic morality of such an act wouldn’t understand morality if it bit them on the leg. Billions of those transactions will happen on this, Black Friday. Consumers will go to stores they trust from experience, buy from vendors with good reputations and the best customer service and reward them with their business. That decision is one based in morality in which the consumer weighs the options and picks the vendor who best exemplifies their moral ideal in the marketplace. If they’ve been burned in the past by store X, that store most likely will not get their business – a decision based on the moral judgment of the consumer.
How a so-called economist doesn’t understand the basic morality of markets seems a bit beyond me. Which is why I put Krugman in the hack category. That morality, which is plainly evident to me, is inconvenient to Krugman’s thesis that government must intervene in the economy. He can’t really point to any success stories (well he tries by saying, finally, that massive government spending for WWII brought us out of the Depression and that’s suspect), so he’s left trying to explain why it is government’s job to save us from the inherent unfairness of the market.
You have to leave a whole bunch of stuff out to do that. And you have to establish nonsensical premises like “the rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty”, in order to advance your government intrusion thesis.
Thus the cycle repeats – government is again the only solution to the problem government created. After all, the markets put us 14 trillion in debt, not the profligacy of government – or so I fully expect Krugman to explain in some future bit of nonsense in the New York Times. It would make about as much sense as this nonsense.
Krugman’s latest approach to demanding more deficit spending – er, excuse me, “stimulus” spending – centers on the impending election. The Democrats wouldn’t be about to see an electoral tsunami if they’d just listened to him and spent more. The economy would be recovering and we’d only be talking about nominal losses in the mid-term as is historically the case with just about every President.
The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.
And he further states:
If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.
In fact, when you look back at the spending forecast that accompanied the Obama plan, you’ll find something very strange (as we’ve pointed out before). You’ll find that it spent more than Mr. Krugman said was necessary at the time:
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
It should be huge, huge I tell you! $600 billion at least. We ended up with $900+ instead new figures show. It was 50% bigger than Krugman called for but, now, it was “totally inadequate”.
If you, like me, have essentially turned off the one-note bleat from this guy it is because other than calling for more spending he never, ever reviews his work or analyzes the results of someone actually following his advice. It was huge, it was more than he asked for, and it FAILED.
Has that sunk in yet, Mr. Krugman – your suggestion was less than what was spent and the result was an increase in unemployment and a decrease in economic activity. That, to most, means the idea of a “huge” amount of deficit spending did not have the effect you and the administration claimed it would. It. Failed.
Unlike Mr. Krugman, most of us have come to terms with the Einstein definition of insanity and resist doing the same thing over and over again expecting different results.
Obviously that’s not the case with Mr. Paul “one-note” Krugman. Tuning him out is a perfectly acceptable reaction to his ceaseless call for more deficit spending.
I really don’t know how to actually characterize my reaction to this nonsense from Paul Krugman except to say if you thought he was in bizarro land before, check this out. The irony is he calls others stupid and invokes "Economics 101" when it’s clear … well you take a look. Here he’s talking about the proposed $50 billion "stimulus" focused on infrastructure. And he begins to pontificate:
Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time — and you’ll hear again now — that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.
Why is this claim stupid? Because Econ 101 tells us that there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market.
I had a friend who would accuse people like Krugman of being like a goose and waking up in a new world everyday. Apparently in today’s new world Krugman has forgotten that we just spent most of a trillion borrowed dollars on infrastructure stimulus. And then there was TARP, cash for clunkers, home buyers tax credit, mortgage payment relief and unending unemployment benefits. But it’s all too small now and it’s the fault of the usual suspects.
What Krugman doesn’t want you to remember, of course is his own recommendation on the size of the stimulus package:
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
In fact, the administration added 30% to his number and now, suddenly, it’s all too small. Not only that, it failed miserably. And, when you add it all up, it’s about 3 trillion in spending for “public goods” over two years added to the federal debt.
Result? 14.9 Americans unemployed, the economy in a shambles and consumers afraid to spend. And Krugman, in his new world today, demands more spending and has the temerity to call those opposing it stupid and his approach “econ 101”.
To add to the Krugman madness, we have him essentially pining for the good old days of spending like we did during WWII. Despite the fact that it all but destroyed the world and did destroy about 80 million lives, that’s the level of spending he now thinks is needed.
From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.
Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.
But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.
This is possibly the most blinkered and absurd bit of revisionist history I’ve read in a long time. There’s a "rest of the story" that makes this so much word salad that Krugman obviously studiously ignores in order to attempt this absurd plea to what, spend the equivalent of 30 trillion in deficit dollars (or to drive home the point that 3 trillion isn’t nearly enough)?
Victor Davis Hanson handily disassembles Krugman’s “work” and shows it up for the dishonesty that it is:
As WWII ended and the clean-up began, there was an enormous amount of pent-up global demand for goods. Given the wreckage in Europe, Japan, and Russia and the underdevelopment of India, Asia, and South America, we were about the only ones with the industrial and commercial wherewithal to supply the world rebound — often receiving cheap oil, gas, minerals, and interest in exchange, which supplemented our own vast supplies of comparatively cheap and easily recoverable resources. Nor should we forget the psychological element: Americans, after winning two wars, were enormously confident about their newfound international stature and influence.
At home, four years of consumer deprivation during the war and the weak demography of the 1930s had combined to create huge demand, all while society was increasingly leaving the farm for good and becoming suburbanized. The result was that in the late 1940s and 1950s, the birth rate soared and consumers enthusiastically made first-time purchases of washers, dryers, fridges, cars, etc. Thus, the American economy grew by leaps and bounds.
Today’s situation is not comparable: We are in hock to foreign creditors for trillions and have not been a net creditor since the 1980s. A China, Brazil, South Korea, Taiwan, or India is as or more likely to supply recovering demand for food, steel, or electronics. One can read Krugman-like arguments in Greek newspapers today — that only more massive borrowing can stimulate Greek demand, provide jobs, and grow Greece out of its recession. As if present-day deficits and aggregate debt with soon-to-be-rising interest payments don’t really matter.
It is always an indication that you probably shouldn’t pay much attention to a certain economist when it takes an expert in history to tell the economist his business.
But then that’s to be expected if you wake up in a new world everyday as it appears Paul Krugman does.
I discussed this earlier with a post about Paul Krugman and Gary Becker, explaining why the German approach – essentially getting government out of the way while providing incentives to businesses for expansion and hiring – was superior to the tried and consistently failed tactic of huge amounts of government deficit spending as a "stimulus". Krugman and others waved away the German recovery as simply an upsurge in exports, nothing more.
E21 has an excellent article out today in which it takes exception to the Krugman claims (note too that E21 refuses to call Krugman and economist but instead refers to him as a “commentator”):
U.S. commentators, like Jonathan Chait and Paul Krugman, have taken issue with holding out Germany’s economic recovery as a success story – one that contains lessons for U.S. policymakers. Contrary to their claims, Germany’s recovery does not appear to just be about trade flows and global demand for their manufactured goods. 50% of their second quarter GDP came from private sector consumption and investment growth.
Private sector growth – what a concept, no?
Here is an extended excerpt which is probably one of the best explanations I’ve seen. The last line is so irony laden that it almost makes you wince. Also, as you read this carefully you will again note the obvious – “this ain’t rocket science”:
The contractionary effects of deficit-financed stimulus were highlighted by European Central Bank (ECB) President Jean-Claude Trichet at the Jackson Hole conclave. While many commentators in the U.S. still depict the debate over stimulus as pitting sagacious “pure” economists that favor more deficit spending against the politically astute economic illiterates, Mr. Trichet explains that the Franco-German technocrats in Frankfurt view the economic literature as counseling steep budget cuts in the current environment. Many U.S. economists speak of the need to increase deficit-financed public expenditure to avoid a Japanese-style “lost decade”, yet it is precisely the exploding public debt ratios that Mr. Trichet identifies as the real cause of Japan’s malaise and the greatest risk to Western economies today. To those who believe sharp reductions in public expenditure are too risky, given overall economic weakness, Mr. Trichet responds that deficit-financed stimulus is unlikely to provide any measureable boost to demand in the current environment because the government purchases are offset by reduced private expenditure. And on this point, Mr. Trichet even goes even further:
“There is the additional argument positing that credible fiscal deficit reductions through expenditure cuts lead the private sector to expect a lower future tax burden, especially when the nature of the cuts make future tax reductions more likely. This can generate higher consumption expenditures and more investment.”
Lest anyone believe Mr. Trichet was talking about modest cuts to public expenditure to assuage irrational markets, he went on to suggest that cuts to government spending should be sufficient to reduce debt-to-GDP ratios by 30 percentage points over the medium term. Mr. Trichet cites numerous examples where cuts of this magnitude have resulted in improved short-run economic performance. That it takes a French lifetime bureaucrat to travel to the American West for these words to be spoken at a U.S. policy symposium says something fairly profound about the current state of policymaking in the U.S.
Again, as I mentioned in the first post I’ve cited, the proof is in the pudding. Germany is back to pre-recession unemployment rates and excellent GDP growth. And where, again, is the US during “recovery summer”?
Perhaps now you can understand the reason Mort Zuckerman has referred to the economic policies of this administration as our “economic Katrina”. At this point we’d better hope the worst we suffer is a lost decade like Japan’s.
Well, not really, but that pretty much describes metaphorically how often Paul Krugman and I agree on things. But today, Krugman, wondering what Ben Bernanke of the Fed is going to say today in his big speech believes it will probably be more of the same. Albeit, we’re in a recovery, more slowly than we’d like and things will soon get better. Krugman isn’t buying it (and neither am I. If this is a recovery, I’d hate to see a recession). :
Unfortunately, that’s not true: this isn’t a recovery, in any sense that matters. And policy makers should be doing everything they can to change that fact.
Krugman also zeros in on the main problem that those policy makers should focus on:
The important question is whether growth is fast enough to bring down sky-high unemployment. We need about 2.5 percent growth just to keep unemployment from rising, and much faster growth to bring it significantly down. Yet growth is currently running somewhere between 1 and 2 percent, with a good chance that it will slow even further in the months ahead.
In fact, the GDP number for this past quarter is 1.6%. That’s revised sharply downward from the original 2.4% reported and touted by Democrats recently. That, as Krugman points out, isn’t a good number when you are looking at unemployment.
Krugman then chastises those who are pumping sunshine up our skirts when the real economic news doesn’t warrant it – like the President and VP. Bernanke and Geithner:
Why are people who know better sugar-coating economic reality? The answer, I’m sorry to say, is that it’s all about evading responsibility.
Ya think! Gee wish I’d been saying that for, oh, I don’t know, 18 months. For 12 of that it was Bush’s fault. For the past 6, it’s been all sunshine, roses and “recovery summer”. In effect, although not at all as blatantly, Krugman is validating John Boehner’s call to fire Obama’s economic team. Because it is clear that the policy makers haven’t a clue of how to fix this mess.
At this point in his op-ed, Krugman reverts to his old self – a hack. After talking about evading responsibility, he goes for the “obstructive Republicans” canard.
And when he finally gets around to saying what he’d do, as you might suppose, it is spend more money that we don’t have.
Addressing the Fed he says:
The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.
In layman’s terms he’s saying let inflation loose and buy more debt (borrow). He then covers his rear by saying “hey, it may not work, but it is better than doing nothing”.
I’m not at all sure that’s the case. In fact, my guess is if you let the inflation dragon out of the cage, you’ll never recapture it until it has ravaged the economy. All that money that’s been pumped into the economy has to be wrung out at some point. And there are no painless ways to do that of which I’m aware.
As for the administration his advice is as follows:
The administration has less freedom of action, since it can’t get legislation past the Republican blockade. But it still has options. It can revamp its deeply unsuccessful attempt to aid troubled homeowners. It can use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families — yes, Republicans will howl, but they’re doing that anyway. It can finally get serious about confronting China over its currency manipulation: how many times do the Chinese have to promise to change their policies, then renege, before the administration decides that it’s time to act?
Sure, let’s hand even more money to the two financial black holes – Freddie and Fanny – that have already sucked down half a trillion dollars we don’t have trying to shore up their loses and return them to solvency. Republicans have every reason to howl about Freddie and Fannie. If Krugman were anything but a hack, he’d have to admit that.
And if he thinks the Chinese – who are actually in a real recovery – are going to stomp on their economic progress to fix ours, he’s dreaming. Both proposals are absurd on their face. But then when it comes to actual solutions, I’ve come to expect that from him.
However, at least in the first part of his column, he and I were in pretty much perfect agreement. I need to go take a bath now.