Paul Krugman: Proof that lots of degrees don’t make you smarter
I’m not an economist. In fact, I’m not even sure what an economist does. However, if it’s at all similar to being a political scientist (which, being that I have a degree in Poly Sci, I guess I am one), then I don’t think I need to be an economist to criticize a highly decorated one. Paul Krugman is an economist. In fact, he’s a super awesome economist, with degrees from Yale and MIT. He teaches at Princeton. He even won the Nobel Price for Economics in 2008. He is, by any metric, a guy who tests well.
That being said, both Al Gore and Barack Obama have received Nobel prizes, and I’m not sure if Krugman’s ever had an actual job (no, being a college professor does not constitute a real job…that’s why I aspire to be one someday). Krugman’s a theory guy, as opposed to a real world guy. He’s also a lunatic liberal, so it’s not surprising that he finds Keynesian economics, i.e., the government needs to spend itself into oblivion to jump-start the economy, to be an acceptable economic theory.
Krugman believes that we will enter an economic depression because the governments of the world are more concerned with short-term deficits than getting the economy moving. In his Wall Street Journal Op-Ed, Krugman states,
And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
Now, I’m not sure if the world’s concern is so much about inflation as simply going broke. Contrary to Krugman’s implication, the two don’t necessarily go hand in hand. He inexplicably points to Greece to support his contention, arguing that Greece’s spending cuts haven’t decreased its risks to investors. What Krugman fails to mention is that Greece is in its current position precisely because it has spent too much, and is now broke. Until it gets “unbroke”, investors probably won’t rush to it.
Krugman’s direct criticism, not surprisingly, is at the republicans and “conservative” democrats in Congress who refuse to authorize additional spending.
The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
As my daughter would say after reading Fancy Nancy, austerity is a fancy word for significantly cutting spending, something the Obama Administration would have to go through an intervention to do. Krugman wants the government to spend…a lot. Then, the theory goes, when the magic jobs fairy comes and sprinkles its jobs fairy dust on our crappy economy, all of that spending will become economic recovery. Oh yeah, then we jack up taxes to get us out of the hole. The problem is, the best government spending can do is maintain some jobs, or maybe create a job or two for a short period of time. It simply can’t afford to create sustained jobs, which is what we need.
It’s important to realize that the government can’t just keep spending money it doesn’t have. Eventually, for example, China will stop buying our bonds. Why? Because China isn’t a charity…it intends to be paid back some day. The more we spend money we don’t have, the less likely we are to be able to pay it back. In other words, we’re becoming a crappy credit risk; and who loans to a crappy credit risk?…only Jimmy in the alley behind “Pauly’s Gentleman’s Club.” And Jimmy don’t take kindly to deadbeats.
Also important is the destination of the spending. So far, the overwhelming majority of the stimulus funds have gone to state and local governments to keep government employees, like teachers, employed. So, the government is spending money it doesn’t have to keep its employees employed. That’s called maintaining the status quo, which as we all know, currently sucks. More recent efforts to spend have been on extending unemployment benefits. In other words, paying people to not work. That may be harsh, but it’s also true.
In the end, Krugman reveals his true motivation in criticizing spending cuts, and it’s not the economy:
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
Krugman is, first and foremost, a liberal. So, despite the premise of his article, he never really argues that deficit spending will improve the economy; at least he doesn’t describe how exactly that would work. Instead, he simply argues that spending during tough times will help…those out of work. And that may well be true. I thought the point, though, was to create jobs; not indefinitely prop up the unemployed.
There’s really only two things the government can do to stimulate the economy. First, cut taxes for everybody. Doing so gives people more of their own money to inject into the economy, which ultimately leads to job creation. Second, stop with the anti-business rhetoric. In other words, stop passing, or threatening to pass, laws that will make doing business more difficult or expensive (see: financial regulation and cap and trade). Instead, foster a pro-business environment that caters to our current economy. For example, get rid of the stupid drilling moratorium, issue more drilling permits, and stop taking tax money and subsidizing technologies that are too far off to be economically beneficial right now, like large scale solar and wind energy. After the economy has righted itself, such investments can be re-started.
Simply put, the White House needs stop listening to the Krugman’s of the world, and instead, go talk to Ma and Pa at their corner store.