Friday, April 13, 2012

Krugman, "National Greatness," and Boondoggles

One of the mantras for the Neo-Conservatives has been "national greatness," which means that America ought to be producing huge, expensive public works projects. (One gets the sense that William Kristol and David Brooks wistfully see the Pyramids in Egypt and wish that we could leave something similar for future generations.)

Now Paul Krugman is taking that one step further, arguing that big public transportation projects are a sign of "national greatness," and that people like Gov. Chris Christie are cheating us of a future by engaging in "cannibalism." Yes, the same Paul Krugman who is calling for big increases in inflation, the same Paul Krugman who demands that the Obama government increase its rate of borrowing, the same Paul Krugman who has called for the Federal Reserve System to engage in the worst kind of financial trickery by buying short-term Treasuries, is now complaining that Christie's refusal to commit future generations of New Jersey taxpayers to massive cost overruns via a rail tunnel actually is an example of "cannibalizing the future."

I must admit that Krugman's audacity is breathtaking. Not building the rail tunnel, according to Krugman will "strangle the state's economy" as though all of New Jersey depends upon one rail tunnel to be operated by a government agency. Krugman writes:
America used to be a country that thought big about the future. Major public projects, from the Erie Canal to the interstate highway system, used to be a well-understood component of our national greatness. Nowadays, however, the only big projects politicians are willing to undertake — with expense no object — seem to be wars. Funny how that works.(Emphasis mine)
Throughout the column today, Krugman goes on and on about how passenger rail projects present a wonderful future and that anyone who is against them must be evil. He declares:
One answer is that the governor is widely assumed to have national ambitions, and the Republican base hates government spending in general (unless it’s on weapons). And it hates public transportation in particular. Indeed, three other Republican governors — in Florida, Ohio and Wisconsin — have also canceled public transportation projects supported by federal funds.
 What Krugman does not tell us is that projections of the Florida rail project from Orlando to Tampa (for which the feds promised the state $3 billion) were such that Florida taxpayers would be stuck paying billions of dollars more for the project that would have become a high-cost boondoggle. The non-Krugman account is found here.

Then there is California, something Krugman has not mentioned. In that situation, the Holy Democrats, which run the state and are engaging in fiscal cannibalism of their own in propping up the state's government employee unions, have engaged in utter financial nonsense in promoting the "Bullet Train" from San Francisco to San Diego. The report is here. Steven Greenhut has more on the California rail rip-offs. (And even Slate gets into the act.)

My guess is that Krugman is like many Progressives in that he has a wonderful future planned for the Great Unwashed who now commit the sin of driving cars and shopping at Wal-Mart. Granted, he has no plans to take part in that future, which is reserved for the ignorant mundanes who need to be saddled with massive and unpayable debts, which would cannibalize their own futures.

But, why should the mundanes be permitted at all to plan for themselves? No, they need Paul Krugman and the Progressives to do that for them.

20 comments:

jason h said...

'Cannibalizing the Future' Kroogie?

You mean borrowing from the productivity of some future economy to give the current economy 'traction'...AKA the foundation of modern Keynesian economics.

I imagine him sitting in a high-back chair stroking his cat when he writes this stuff.

Mike Cheel said...

From:

http://www.washingtonpost.com/blogs/ezra-klein/post/private-passenger-rail-comes-to-florida-could-other-states-follow/2012/04/03/gIQAAjcssS_blog.html

"One frequent criticism of passenger rail is that it rarely pays for itself. The trains typically require hefty public subsidies — Amtrak, for one, has received more than $30 billion from Congress since 1971 — and that makes new lines politically difficult to build here in the United States."

Also see:

http://en.wikipedia.org/wiki/Amtrak#Causes_of_the_decline_of_privately_operated_passenger_rail_service

I have said before if it is profitable it will be built.

Lord Keynes said...

"Yes, the same Paul Krugman who is calling for big increases in inflation"

Yeah, that's just an outright falsehood. Krugman's actual words:

""Fundamentally, the right wants the Fed to obsess over inflation, when the truth is that we’d be better off if the Fed paid less attention to inflation and more attention to unemployment. Indeed, a bit more inflation would be a good thing, not a bad thing. "

Notice how a "bit more" becomes "big increases in inflation" in the dishonest world of the Austrians.

William L. Anderson said...

How in the world can one bring that kind of inflation under control? If the Fed cranks it by directly purchasing short-term government paper (as Krugman has endorsed -- and not even LK can deny that), then what happens when inflation continues to grow?

Sooner or later, if we try to base everything on what essentially are money-printing schemes, then when inflation starts to get to double-digits, then what? Cutting back is painful.

Pulverized Concepts said...

http://nailheadtom.blogspot.com/2011/12/twin-city-light-rail-update.html

JG said...

Living in the Greater New York area I've noticed that the surrounding cities that have enjoyed the greatest prosperity all have one thing in common: commuter rail access to Manhattan. Stamford (CT), Jersey City (NJ), Hoboken (NJ), all enjoyed booming economies after they upgraded their rail networks.

Krugman is right to criticize Christie for his decision to kill the NJ Transit project. Christie chose short-term bragging rights as a cost-cutter over long-term prosperity that the NJ Transit project would have brought.

Dennis said...

People said the same thing about inflation in the 1970's: a "mild" amount is good, so why worry? Soon enough, inflation jumped into double digits as central banks found that keeping inflation at "mild" levels proved impossible. Eventually, interest rates had to be raised to ruinous levels to stop the destruction of the economy, giving us a severe recession that took years to resolve.

Mike Cheel said...

@LK

"Notice how a "bit more" becomes "big increases in inflation" in the dishonest world of the Austrians."

You need to consider past posts and not just the one at hand. He has cried for more inflation plenty of times and to sit there and cherry pick the wording in one post and ignore everything in the past is just being dishonest.

Mike Cheel said...

@JG

"Krugman is right to criticize Christie for his decision to kill the NJ Transit project"

So if all of these places became so profitable and rich then why should citizens who do not use these projects have to foot the bill? Why not let the businesses that will become rich and prosperous create it?

Anonymous said...

When Krugman talks about the government buying short-term bonds... What is the difference between that and Corporations buying back stock to boost share price? I mean, they're both gimmicks (in a way) designed to improve certain numbers on the balance sheet, but at least the corporations have to spend actual money to do this instead of printing it.

Tel said...

"Indeed, a bit more inflation would be a good thing, not a bad thing."

Krugman could easily get the "bit more inflation" he is looking for by just including food and fuel in his calculations.

Anyhow, although I agree that mild inflation is harmless enough, and it has a debt-reset effect (which must eventually happen by one method or another, because current debt levels are clobbering us), there are two things to consider here: [1] the resetting of debt always hurts someone, in this case mostly the retiring "Baby Boomers" who are watching their pension funds go "foomp" in a puff of rising prices, and [2] inflation creates it's own expectation of future inflation (a lock-in effect). Denis rightly points out: these expectations are very difficult to bring under control.

Worse, if you give the bureaucrats an inch, they take a mile, then keep on taking, they are completely sans self control. If those guys were wise and trustworthy we wouldn't be puzzling over ways to get out of this mess.

macroman said...

Why am I supposed to accept the reports of three guys who call themselves the reason foundation as the last word on the economics of the Californian train? Has nobody else written anything about it? Do these guys factor in what the state will otherwise pay on roads and airports if the train is not built? Do they factor in the cost of air-pollution in the absence of the train? If you can tell me they do, then I could spend some time reading them. Otherwise I assume it is probably not worth it.

macroman said...

Prof Anderson How in the world can one bring that kind of inflation under control?

In fact, controlling inflation is something the Fed knows exactly how to do. The one-word answer that every economics professor should know is "Volker". The two word answer, also well known, is "selling securities".

macroman said...

Mike Cheel I have said before if it is profitable it will be built.

And if you can think of a way to charge all those who obtain the external benefits of the railway, then it might well be profitable (but I would settle for "breaks even").

As Bob Roddis will tell you, economic calculation is everything. What he or Prof Anderson will not tell you (I assume because they don't believe it) is that there are external benefits and the market's failure to "capture" those benefits distorts the economic calculation.

JG said...

Mike Cheel,

"So if all of these places became so profitable and rich then why should citizens who do not use these projects have to foot the bill?"

For the same reason why people who don't own cars must pay taxes that support the construction of roads. For the same reason why single people without kids still pay property taxes that support schools. Because when you live in a modern, crowded society you can't have public policy tailored to the personal priorities of each and every citizen.

Joseph Fetz said...

Macroman, take a look at the Fed's balance sheet and get back to me. LOL

macroman said...

Joesph Fetz Macroman, take a look at the Fed's balance sheet and get back to me. LOL

I don't get it. Are you suggesting the Fed has no securities to sell?

Joseph Fetz said...

No, they have PLENTY of securities, but that is part of the problem. They have so many securities at such a low yield, that if interest rates rocketed they would have to sell them at such a low price in order to make the coupon payments worth it. Also, more than likely the banks would simply use their funds at the fed to buy the treasuries, so it would have no affect on money supply. Further, in the event of a case like this, the Treasury would most certainly have to monetize more debt just to keep up, thus presenting a counteracting force.

While it is true that there is no predicting future occurrences, it is pretty clear that the Fed could just sell its Treasury holdings is cluttered thinking. Sure, it's easy to buy securities when you're the one printing the money. But, when the market takes a drastic turn, selling those treasuries is not an equally effortless action, especially when what you're trying to sell is turning to junk.

macroman said...

Joseph If inflation looks like getting out of control it will be because the banks have started lending "their funds at the fed". So the Fed would be trying to get the banks to use these funds to buy securities. So we need not worry that this won't work because the "the banks would simply use their funds at the fed to buy the treasuries"

Joseph Fetz said...

That makes zero sense. First of all, the banks cannot use customer deposits to purchase treasuries (the great bulk of the increased money supply is that of deposits). Next, we are assuming that in the event of an inflation (and the subsequent rise in interest rates) that the banks would want to purchase treasuries. However, if they did, would they rather risk their own cash on hand, or those excess reserves that are sitting at the Fed? The answer is pretty clear. The only thing the Fed can do to influence them is change reserve requirements, but then the banks can just sit and do nothing.