Saturday, July 28, 2012

Krugman: Free Nonsense

There is a reason that Keynesianism is popular with politicians and academic Progressives: Government can step into a crisis with its omniscience and perform magic tricks -- at no cost! Thus, Paul Krugman gives us that theme in a recent column and a blog post.

Government, argues Krugman, should be borrowing even more money because interest rates have been pushed to near-zero and it should use that money to "invest" in propping up public employee unions. No, he didn't say that last part, but the very people he is claiming should be rehired by governments pretty much are represented by unions.

Why the situation exists is because of a mysterious lack of "aggregate demand," or so we are to believe:
So what is going on? The main answer is that this is what happens when you have a “deleveraging shock,” in which everyone is trying to pay down debt at the same time. Household borrowing has plunged; businesses are sitting on cash because there’s no reason to expand capacity when the sales aren’t there; and the result is that investors are all dressed up with nowhere to go, or rather no place to put their money. So they’re buying government debt, even at very low returns, for lack of alternatives. Moreover, by making money available so cheaply, they are in effect begging governments to issue more debt. 
And governments should be granting their wish, not obsessing over short-term deficits. 
Yes, irresponsible Americans are paying debts, which is driving us into depression. If we were willing to stop paying our mortgages, car payments and credit card payments, then we could have prosperity. But since Americans are foolish, the government needs to rescue us by ramping ujp the spending.

No doubt, the message that government spending essentially offers only benefits and no costs is very popular in Washington and at Princeton. Just think; the government by simple declarations can repeal the Law of Opportunity Cost. It's magic, I tell you! Magic!

Robert Higgs notes that the Progressivism to which Krugman subscribes has the following tenets of faith:

1. If a social or economic problem seems to exist, the state should impose regulation to remedy it.

2. If regulation has already been imposed, it should be made more expansive and severe.

3. If an economic recession occurs, the state should adopt “stimulus” programs by actively employing the state’s fiscal and monetary powers.

4. If the recession persists despite the state’s adoption of “stimulus” programs, the state should increase the size of these programs.

5. If long-term economic growth seems to be too slow to satisfy powerful people’s standard of performance, the state should intervene to accelerate the rate of growth by making “investments” in infrastructure, health, education, and technological advance.

6. If the state was already making such “investments,” it should make even more of them.

7. Taxes on “the rich” should be increased during a recession, to reduce the government’s budget deficit.

8. Taxes on “the rich” should also be increased during a business expansion, to ensure that they pay their “fair share” (that is, the great bulk) of total taxes and to reduce the government’s budget deficit.

9. If progressives perceive a “market failure” of any kind, the state should intervene in whatever way promises to create Nirvana.

10. If Nirvana has not resulted from past and current interventions, the state should increase its intervention until Nirvana is reached.

And Paul Krugman is there to give us this road map to Nirvana!

21 comments:

Edward said...

"Yes, irresponsible Americans are paying debts, which is driving us into depression. If we were willing to stop paying our mortgages, car payments and credit card payments, then we could have prosperity. But since Americans are foolish, the government needs to rescue us by ramping ujp the spending.

No doubt, the message that government spending essentially offers only benefits and no costs is very popular in Washington and at Princeton. Just think; the government by simple declarations can repeal the Law of Opportunity Cost. It's magic, I tell you! Magic!"

You know, this blog has set itself to a new low. I only read because I'm morbidly fascinated, the way someone can be morbidly fascinated with watching a train wreck in motion. Nowhere does Krugman claim that people paying down debts are irresponsible, I get the sense, I may be wrong but I get the sense that Krugman thinks individual cash hoarding is understadble in the aftermath of a financial crisis but it has a very bad side effect. You didn't even TRY to address the mystery of insanely low borrowing costs. Is it the Fed ? It might be , but when the Fed halted QE2, people predicted inflation and interest rates would go up. they did not. It might be conventional monetary policy setting interest rates near zero that creates this bond bubble, But then The interest rate on T-bills also known as the fed funds rate, plunged in 2008 BEFORE the fed announced ZIRP.
What would it take to disprove the Austrian model? I know what it would take to disprove the market monetarist model. Since we are 11.5 percent below trend in NGDP growth, if the fed expands NGDP 11.5 percent to meet the trend, and unemployment doesn't substantially lower, than I'll know the problem is structural. Set up a falsifiability test and then maybe, other economic schools MIGHT start taking the "Austrian school" seriously

Bala said...

Edward,

Good demonstration of scientism there. I guess logic just doesn't make the grade for you, does it? Only "falsifiability" helps, doesn't it? OK!! Here goes. Falsify the statement "Man acts" and you would have falsified all of Austrian Economic theory. Go ahead! Do it!! I'm holding my breath....

Bala said...

And what is this Austrian "model", Edward? Would you care to put up a photograph of hers? Because if you knew the least bit about the Austrian approach, you wouldn't call it a "model".

Edward said...

Bala,

"Good demonstration of scientism there. I guess logic just doesn't make the grade for you, does it? Only "falsifiability" helps, doesn't it? OK!! Here goes. Falsify the statement "Man acts" and you would have falsified all of Austrian Economic theory. Go ahead! Do it!! I'm holding my breath....

Dont hold your breath, you might turn blue :-). And I dont have to disprove the statement "man acts" its a trivially true statment that tells us very little about anyything execpt for maybe marginal utility. A Chicagite or a Keynesian can just as easily hold wuthis axiom

Edward said...

"Chicagoite"

Bala said...

"And I dont have to disprove the statement "man acts" its a trivially true statment that tells us very little about anyything execpt for maybe marginal utility"

See how quickly you demonstrate your vacuity (like every other troll who infests these pages)? Thanks for doing that this quickly.

Bala said...

""And I dont have to disprove the statement "man acts" its a trivially true statment that tells us very little about anyything execpt for maybe marginal utility"

Yeah!!! And marginal utility explains precious little else in economics.... Genius!!!!

Zachriel said...

Bala: "Man acts."

Bala: See how quickly you demonstrate your vacuity

Your own comments are vacuous and unhelpful.

Bala said...

"Your own comments are vacuous and unhelpful."

Zac - That's reflected vacuity. It's your own vacuity that you must be perceiving because I understand the full depth of that proposition. As for the unhelpful part, some people (like you) are beyond redemption and I have better things to do with my precious time than to educate trolls who have no interest in learning but are instead interested only in spraying their nonsense all over the place.

Incidentally, I have shown many a time that you are the epitome of the intellectual vacuum.

Zachriel said...

Bala: no interest in learning

We had hoped you would respond by explaining your position.

Mike M said...

Bala,
I think what we see here from Zac, LK, Anonymous and the like are the following:

There are no limits to which the statists/collectivists will defy logic, evade arguments, rationalize positions, redefine words, and bastardize history and meaning to achieve their goals of subordinating liberty of the individual to the “wisdom” of the elite.

The pathetic part of it all is they actually think they are part of the elite. That somehow if their goals were actually achieved and society was to be reorganized as they desire, they would become part of the favored class. What they would find is many would be victims of a “night of long knives” event.

The collectivists all suffer from the same defect in their mental pathology. That is, collectivism hasn’t worked because THEY haven’t administered it. Or in the spirit of Anderson’s current post, it hasn’t worked because they haven’t done enough of it.

Zachriel said...

Mike M: There are no limits to which the statists/collectivists will defy logic, evade arguments, rationalize positions, redefine words, and bastardize history and meaning to achieve their goals of subordinating liberty of the individual to the “wisdom” of the elite.

Bala didn't present an argument. He spouted a platitude, then refused to discuss it further.

Mike M said...

Zac,
Shall we interpret your response to be that you identify yourself as a collectivist?

Zachriel said...

Mike M: Shall we interpret your response to be that you identify yourself as a collectivist?

collectivism, a political or economic theory advocating collective control especially over production and distribution.

No.

Bala said...

Zac,

My dear genius!!! My argument is all of MES and HA. Read it by yourself. Stop being laxy and expecting an entire Economics education on comment boards.

Mike M said...

Zac,

Thanks for the cut and paste definition from Merriam-Webster online dictionary. Wasn't necessary but it was the thought that counted.

The reason I asked is another definition includes the philosophy of the group above the individual. The subordination of he individual's interest to the group for the "common good" howver it may be defined by the elites in charge at the time.

I asked because while you may not identify with the Webster definition, other rational definitions seem to fit many of your posts here.

ALima said...

How would the government expand "NGDP" by ~11%? Answer: Magic!
Let's instead try an experiment that can easily be carried out. Eliminate taxes. Let's just see what happens. Nothing terrible I bet.

ALima said...

It's the foundational axiom of praxeology. How is that vacuous?
Anything that interferes with the freedom of human action is harmful to the economy.

ALima said...

Man acts tells us us much. Man acts to improve his current condition. If anything is allowed to stop this his condition becomes static or worsens.

Zachriel said...

Mike M: The reason I asked is another definition includes the philosophy of the group above the individual.

"The needs of the many outweigh the needs of the few or one."

Mike M: I asked because while you may not identify with the Webster definition, other rational definitions seem to fit many of your posts here.

That is not our view. While humans are social animals, individual liberties are essential.

ALima: Anything that interferes with the freedom of human action is harmful to the economy.

Everything interferes with human action, including traffic lights. People make trade-offs.

Markus Bjoerkheim said...

Prof. Anderson,

When you critique krugman and increased government spending in the current situation where the economy is below "full employment", on the basis that the activities government will spend money on are often unionized;

"Government, argues Krugman, should be borrowing even more money because interest rates have been pushed to near-zero and it should use that money to "invest" in propping up public employee unions. No, he didn't say that last part, but the very people he is claiming should be rehired by governments pretty much are represented by unions."

Aren't you then misinterpreting the actual problem? Which to me seems to be

1. The paradox of thrift
2. Public employee unions

1 - Krugman argues for dealing with long term fiscal solutions that doesn't cut in the short term. Leaving out if he actually will argue for cutting spending 5 years from now or the desired size of gov, would you really recommend large cuts in govt spending in the current economy? That seems to me to be completely ignoring the paradox of thrift!

2 - the public unions is a completely separate problem it seems to me. Although not something I know a lot about, freeing up the education system along the lines of Milton Friedman's suggestions in "Capitalism and Freedom" seems to be the way to go.

Markus Bjørkheim - jmu undergrad