Sunday, January 2, 2011

Krugman's "Death Panels" for the Economy

Paul Krugman definitely has thing thing about "death panels." In fact, he so much is enamored with them that apparently he believes that the American economy itself should be forced to die.

That is not what he believes he is saying, but as I see it, his recommendations are akin to bleeding the patient to death (and digging our economic hole even deeper). He writes in his most recent column:
If there’s one piece of economic wisdom I hope people will grasp this year, it’s this: Even though we may finally have stopped digging, we’re still near the bottom of a very deep hole.
So, what does Krugman recommend? Well, he seems to believe that we are not digging fast enough, and that more digging will get us out of the hole. Krugman declares:
So what can be done to accelerate this all-too-slow process of healing? A rational political system would long since have created a 21st-century version of the Works Progress Administration — we’d be putting the unemployed to work doing what needs to be done, repairing and improving our fraying infrastructure.
Yes, yes, bring back the WPA! Yeah, the organization with the alternative title, "We Piddle Around," and "We Poke Along." I'm not sure that a "rational political system" would be creating such waste, but to Krugman, the economy simply is a mechanistic mass of homogeneous factors into which one throws in a bunch of money, with an economy magically appearing.

What Krugman never will understand is that the kind of government he demands is a burden to the economy, not a stimulator. I have yet to see him suggest one thing that actually would make our economy stronger. Instead, he claims that we can have a recovery based upon government spending and subsidized "green energy" production.

Now, both Krugman and I see problems on the horizon, but for two very different reasons. First, here come Krugman's worries:
Realistically, the best we can hope for from fiscal policy is that Washington doesn’t actively undermine the recovery. Beware, in particular, the Ides of March: by then, the federal government will probably have hit its debt limit and the G.O.P. will try to force President Obama into economically harmful spending cuts.

I’m also worried about monetary policy. Two months ago, the Federal Reserve announced a new plan to promote job growth by buying long-term bonds; at the time, many observers believed that the initial $600 billion purchase was only the beginning of the story. But now it looks like the end, partly because Republicans are trying to bully the Fed into pulling back, but also because a run of slightly better economic news provides an excuse to do nothing.
Now, I am not sure how the Fed's QE2 or QE100 would "promote job growth" in the long term, given that it would more likely result in stagflation. For that matter, what this economy needs is real economic growth, and if that occurs, then "job growth" will follow.

Instead, Krugman really seems to believe that if the government creates official "jobs" and then pays people with printed money (QE2 version), then the result will be a growing, robust economy. Well, maybe Krugman and Brad DeLong believe that nonsense, but everything he is recommending will do nothing but make the economic hole we are in even deeper and the sick economy even more ill.

27 comments:

Anonymous said...

It's quite a pathetic position the Keynesian/Neo-Keynesians have.

The general fear is the debt deflation (which doesn't exist).
Over the last 180 years, 65 of 73 periods of deflation have not been coupled with/followed by a depression. 21 depressions have not been preceded by/coupled with deflation. Moreoever, the it can be proven that the deflations matched with recessions were not linked (Great Depression, Japan 1990's etc.)

http://www.minneapolisfed.org/research/sr/sr331.pdf

AP Lerner said...

"Paul Krugman definitely has thing thing about "death panels." In fact, he so much is enamored with them that apparently he believes that the American economy itself should be forced to die"

It's official. Prof. Anderson has officially become as ideologically twisted as Paul Krugman. Mission accomplished: you are now in the same class of economists as a Nobel Prize Winner. And like Krugman, you are officially useless to the debate. Congrats on contributing to the downfall of a once respectable profession.

Take care, and happy new year.

Bob Roddis said...

I wonder how AP "Hut Tax" Lerner expects us to debate him when he refuses to become familiar with even the basic Austrian School concepts, thinks having an "ideology" is a bad thing and promotes his own theories as "facts". He also never explains where all the stuff is going to come from to satisfy all of this unpayable debt.

APHTL misses all of Professor Anderson's points:

1. Government control of healthcare must lead to shortages where scarce goods and services MUST inevitably be assigned by a donut eater.

2. Krugman has admitted as much, perhaps unwittingly.

3. The government programs Krugman proposes day in and day out are the cause of our problems and will make us poorer and help kill the economy. They will also employ a vast swarm of donut eaters to make decisions for us, usually fatal.

Thus, the tongue and cheek statement that Krugman supports death panels for the economy.

This really isn't all that complicated.

Bob Roddis said...

I'm going to repeat this post from yesterday:

Dr. Tibor Machan explains Krugman’s Trashy Debating Style:

One thing does clearly stand out in his approach to making a case for more and more government involvement in the economy. This is that he relies extensively on name calling, on besmirching those with whom he disagrees. In a recent column he went so far as to dismiss all those who hold views opposed to his as zombies! Yes, zombies. That means that people, some very distinguished scholars, who are convinced that a public policy of laissez-faire when it comes to a country’s economic affairs is best are all mindless. They do not merely think mistakenly but cannot think at all.

When a critic of a position needs to resort to this kind of technique with which to attract readers of his missives to his own outlook, it suggests that the intellectual merits of that position are truly hopeless. And that is precisely so. Statism in economics has for a long time been proven and shown to be utterly unsupportable, be this the Draconian sort one found in Soviet Russia and finds in North Korea or the less drastic kind that has just produced the worldwide financial meltdown, namely the more or less interventionist welfare state.


http://tinyurl.com/26jv7pl

The difference between Austrians and Krugman is that the Austrian have issued a fair, thorough and complete evisceration of the Keynesian hoax in book after book. Any name calling comes only at the end of a long chain of logical and evidentiary proofs.

Krugman, like our own in-house critics, has no familiarity with Austrian theory, engages in no logical analysis, and relies PRIMARILY on name-calling and outright fraudulent historical narratives.

He knows in his heart that he has no case at all.

Daniel Hewitt said...

APL,
Did you read the entire post? The next sentence after what you excerpted begins with “That is not what he believes he is saying…”

Bob,
I don’t think that Krugman believes in his heart that he has no case at all. I think he is legitimately motivated by his own good intentions. I could not disagree more with the analysis he’s previously posted on this topic, but at least he’s provided something.

http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/

Bob Roddis said...

Daniel:

I agree with you that Krugman probably believes in his generic pro-government rhetoric as it enables him to be the focus of doing good for his inferiors.

I should have been more specific and said that his apparent lack of faith goes to his criticisms of the Austrian School. He may think he is the greatest thing in the world since Velveeta cheese, but he sure seems to know who the big dog is in this fight, and he won't ever look us straight in the eye.

In fact, no one ever does.

Anonymous said...

Krugman is a cheerleader now, not an economist. How has the Fed contributed anything positive in the last 15 years? Someone please tell me.

Anonymous said...

Krugman's position is - THE GOVERNMENT CAN DO NO WRONG.

He will make up or ignore anything he can do to stick to the above position.

Bob Roddis said...

Our statist opponents always seem oblivious to the fundamental nature of their government-run proposals:

Economics is the interaction of people freely making choices while subject to minimal restriction (no theft, coercion, fraud, etc.). Politics is coercion to force outcomes that otherwise would not occur. Thus, politics is violence against economics, or people, because it precludes freedom's running its natural course.

http://tinyurl.com/28qg4sr

The la-di-da attitude of the statist regarding the fundamental nature of government (a SWAT team) always amazes me.

James E. Miller said...

Not to be too narcissistic, but if anyone would like to see the kind of name-calling prominent Keynesians like to use, check out my recent piece on economicthought.net in which I criticize a Brad Delong speech:

http://www.economicthought.net/2010/12/delong-on-recession/#comments

Delong himself (at least I am almost positive it is him) actually bothered to comment on it twice and point out a small mistake I made. He then proceeds to call me crazy and ask why anyone would want to read what I have to say. As much as I disagree with Delong (and Krugman) I still respect them enough to not use blatantly disrespectful insults. Rather than tackle the Austrian theory, besides the infamous Slate article Krugman wrote on the "hangover theory," Keynesians like Delong tend to resort to name calling.

Daniel Hewitt said...

Brad DeLong is a special case. I cannot think of another economist who is as uncivil as DeLong is on their blog.

Krugman, to his credit, behaves somewhat more professionally than DeLong does.

Bob Roddis said...

Krugman actually publishes 98% of my comments on his blog as long as I call him a liar and fraud in a polite and respectful tone:

http://tinyurl.com/24m7b6r

DeLong generally deletes all critical comments:

http://tinyurl.com/2auht5z

DeLong's arrogance exceeds that of Krugman.

Roger Garrison takes down DeLong here:

http://mises.org/daily/3463

and

http://tinyurl.com/cqancx

Daniel Hewitt said...

Good point Bob. He is very good about letting criticism through. Pretty much all of my comments on his blog are critical :)

Another point worth mentioning is that Krugman manages to articulate his opinions without resorting to profanity, a skill which DeLong has yet to master.

Bob Roddis said...

“Progressive” ignorant mocker of the Austrian School and all-around horrible person Matt Yglesias has a twitter link to “Very interesting Minneapolis Fed interview with Gary Gorton” who states:

Region: You’re talking about a Kuhnian paradigm shift.

Gorton: Right, maybe, and the problem is that we don’t have any new paradigm, and the way I view it is that that has to be built brick by brick, and a large part of it, I think, is getting data. I think we really have to understand what happened. And that poses the challenge.

That’s sort of my talk tonight, is, here’s some data, here’s what I think happened, just a story, and here are some conclusions that we might conjecture about. But I’m afraid I don’t have a lot of faith in the older generation, and I include myself in that category.

****

But as far as the cause of bubbles, I wouldn’t rule out any other explanations, behavioral explanations or anything. I just don’t think we know very much about them and we need to learn a lot more.


http://tinyurl.com/23evbzw

AIG's financial products division employed Gorton's models in calculating insurance rates for credit default swaps on residential mortgage-based collaterized debt obligations. [3] Gorton assured AIG managers that the models were sufficiently "robust" to maintain accurate CDS insurance rates even in adverse economic situations.[4] AIG's reliance upon his predictions contributed to the company's multi-billion dollar losses in the subprime mortgage crisis.

http://en.wikipedia.org/wiki/Gary_Gorton

Throughout the interview, Gorton admits that FRB is prone to crises.

Who knew?

Anonymous said...

Robert Wenzel started censoring my posts after the third during the whole Ron Paul/monetary base debacle.

Anonymous said...

"Instead, Krugman really seems to believe that if the government creates official "jobs" and then pays people with printed money (QE2 version), then the result will be a growing, robust economy."

Hey, it worked for Dr. Frankenstein... Wake me up when they can "create" life in a test tube soup. That will happen sooner than a Keynesian Miracle. Rubbish. What an embarrassment Krugman is. He's the kind of economist you would interview in an asylum.

Medarian said...

Bob Roddis I have seen you talk about "un payable debt" again and again (not in this post but i have been meaning to write this up for a while). Anyway i was wondering what debt you were talking about specifically. If your talking about US Government debt it is low relative to other advanced nations (63% of GDP). Many nations have sustained/payed down debts and deficits much larger relative to the size of their respective economies. The U.S. does have a longer term structural deficit arising from primarily Medicare. But it is hardly fair to count debt that we are estimated to accumulate over the next 80 years as current debt. If you are talking about private sector debt your policies would be contradictory. They would most likely cause severe deflation which would increase the real value of the debts by a lot (Great Depression 29-32). Britain has accrued debts in excess of 200% multiple times and managed to pay it down without inflation. I say this with all due respect because i believe that the best way to understand another persons view is through respectful debate.

Bob Roddis said...

Medarian:

Federal debt, consumer debt, housing debt, business debt, state and municipal debt, unfunded liabilities for retiring baby boomer social security and medical care, endless wars etc. accompanied by generally lower real estate prices.

The creditors of this debt expect to get paid ultimately in stuff worth approximately the value of the debt. There's just not enough stuff to do that and there won't be. There's going to be a default or the debt will be satisfied with diluted funny money.

It's called the law of scarcity. If you take stuff from citizen A to satisfy a donut eater's pension, citizen A is poorer and no longer has the stuff. He won't be happy. If donut eater does not get his pension, he won't be happy.

If we keep following Krugmanite policy of debt and diluted funny money, the economy is going to keeping tanking and there really won't be any stuff with which to satisfy this debt.

What else is there to say?

Mike M said...

Bob,

I concur. In addition "There's going to be a default or the debt will be satisfied with diluted funny money."

Just for the record, debt repayment with diluted funny money is another form of default.

Bob Roddis said...

Mike M:

I agree. The first is an explicit default. The second is a surreptitious default. I suppose one can argue in good faith that there will not be any kind of default, but the statists will argue that the surreptitious default is not a default at all. That’s preposterous (and why it is pointless “debating” them). Further, the whole point of the Keynesian hoax is for the government to surreptitiously re-write contracts, changing the terms of debt instruments and engaging in the surreptitious lowering of wages and prices. Keynes himself spelled this out in “The General Theory”:

(i) Except in a socialised community where wage-policy is settled by decree, there is no means of securing uniform wage reductions for every class of labour. The result can only be brought about by a series of gradual, irregular changes, justifiable on no criterion of social justice or economic expedience, and probably completed only after wasteful and disastrous struggles, where those in the weakest bargaining position will suffer relatively to the rest. A change in the quantity of money, on the other hand, is already within the [p.268] power of most governments by open-market policy or analogous measures. Having regard to human nature and our institutions, it can only be a foolish person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter. Moreover, other things being equal, a method which it is comparatively easy to apply should be deemed preferable to a method which is probably so difficult as to be impracticable [which is why the statists hate the mention of the 1920 depression].

****

(iii) The method of increasing the quantity of money in terms of wage-units by decreasing the wage-unit increases proportionately the burden of debt; whereas the method of producing the same result by increasing the quantity of money whilst leaving the wage-unit unchanged has the opposite effect. Having regard to the excessive burden of many types of debt, [p.269] it can only be an inexperienced person who would prefer the former.


http://homepage.newschool.edu/het//texts/keynes/chap19.htm

Diluting the funny money can only shift purchasing power via surreptitious theft and lower prices and wages. The latter is a likely cause of the Keynesian recovery because it is a form of necessary price readjustment after a Keynesian bust, but which would have been better left to the market to correct on its own.

Anonymous said...

Trying to inflate our debt away won't help much.

http://economix.blogs.nytimes.com/2010/02/18/inflation-wont-solve-our-debt-problems/

Mike M said...

“Trying to inflate our debt away won't help much.”

I would agree partially. However: 1.) not sure how much of the debt is denominated in TIP instruments (plus see inflation note below), 2.) They would push as much of the rollover debt into longer term notes before outright engagement, 3.) Inflation would reduce the real cost of the unfunded liabilities which is the big elephant in the room.

Respects #1 & #3, the index used is the BLS calculation of CPI. Its calculation methodology has been so bastardized over the years it is nothing but a political number now. Thus the delta between CPI and real inflation would benefit the government.

Pushed to the wall, another way to do it is debase all at once. For example, announce that gold will be reserved at 30-40% of the money supply defined as X. The market and the government take gold to $5,000 an ounce and the Band Aid is ripped off all at once. This would be akin to what FDR did after confiscation via revalue from $20 to $35.
What’s the likelihood of this happening? After watching what the Feds have done the last few years I would assume nothing if it hits the fan. This assumes the world community gives us a choice and doesn’t call the question before we have time to act.
It’s a brave new world.

Bob Roddis said...

That NYT blog link from Anonymous has an amazing admission:

The country essentially inflated its way out of much of its debt during the Great Depression, and again in the 1970s, according to Harvard’s Kenneth S. Rogoff. But as anyone who remembers the 1970s can attest, inflation can be painful. It’s no fun to get your paycheck and then find out that you cannot buy as many groceries or as much gasoline as you did the week before because prices have gone up so much.

Who knew?

Can there be any question about the statists being morally depraved? They are oblivious to the immorality of debts and purchasing power being obliterated by their favorite policy, diluted funny money. It simply does not register with them as an immoral act. What's the point of "debating" such people? They're impervious to shame.

Mike M said...

"What's the point of "debating" such people?"

Sport? :-)

Bob Roddis said...

Mike M:

I think you may be right.

Anonymous said...

Sweet, it's officially okay for Keynsians to ignore Austrians now.

Bob Roddis said...

Sweet, it's officially okay for Keynsians to ignore Austrians now.

Keynesians ignoring Austrians is new? It has always been and continues to be "OK" to ignore Austrians in establishment channels. Keynesians have ALWAYS completely ignored basic Austrian AND libertarian principles and have NO FAMILIARITY, much less an understanding of either. Without any effort on the part of Keynesians to become familiar with these concepts, there really can be no give-and-take of debate. The only point of such a "debate" is to expose the Keynesian as the cowardly, conformist, incurious intellectual eunuch and bully that he is.

And no, it's not OK (ever) to inflict your ghastly thieving poverty-inducing funny money regime on other innocent people.