Friday, January 4, 2013

Krugman and Class War

Many times on this blog I have said that Paul Krugman is a political operative, not an economist, and he shows his true colors once again with the latest federal budget madness. I say this because an economist should look at what Congress and President Obama have done and be able to conclude easily that we are looking at a disaster in which we are seeing an acceleration of a process that is leading to financial ruin.

Krugman, of course, only is concerned about preserving and expanding the Welfare State, increasing the reach of the State over the lives of individuals, confiscating more wealth, and guaranteeing that future generations are going to live in a more stratified and, frankly, oppressive society. That is what Krugman considers to be a "victory." He writes in his latest column:
For the reality is that our two major political parties are engaged in a fierce struggle over the future shape of American society. Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy. Yes, it’s essentially a class war.
 As I see it, Krugman believes that the American middle class should be heavily dependent upon government, both for employment and welfare benefits. In his view, if the government prints $60,000 (through its method of borrowing with the Fed monetizing the debt) and then pays for an employee in a federal regulatory agency, then the government has "created a middle-class job." However, the reality is that the government created nothing; it destroyed economic opportunities elsewhere, transferring resources from productive to unproductive uses.

Furthermore, he holds that any attempt to rein in spending would be tantamount to "warfare" on the "middle class," even though historically the American middle class has arisen precisely because capital development has allowed for people to participate in larger-scale wealth creation, benefiting themselves and their families. Krugman, unfortunately, does not recognize the role of real productivity in creating wealth; instead, it is all about spending, spending, and more spending.

Lest anyone think this is a faulty analysis of how Krugman views the economy, his following statement throws light on his thinking:
There were also some actual positives from a progressive point of view. Expanded unemployment benefits were given another year to run, a huge benefit to many families and a significant boost to our economic prospects (because this is money that will be spent, and hence help preserve jobs). Other benefits to lower-income families were given another five years — although, unfortunately, the payroll tax break was allowed to expire, which will hurt both working families and job creation. (Emphasis mine)
Again, unemployment benefits are seen as wealth generating as opposed to what they really are: wealth destroying. Yes, individuals who are unemployed receive some relief, but we still are dealing with transfer payments, period, even though Krugman actually seems to think that spending is more productive than actually producing a good or service that others wish to obtain. It's loopy thinking, but that is what passes for academic economics these days.

His last statement, however, makes no sense when compared to what he already has been saying. Throughout the column, he has claimed that taxes are good, they create wealth, that transfers are wealth-creating, but now a two-percent hike in the Social Security tax harms the economy. Does he not realize that every penny taken from those taxpayers will be transferred to others who will spend the money? And is not spending the greatest wealth creator of all?

So, we see Krugman contradicting himself, although regular readers of his work understand he has been doing that for years. Still his idea that wanting tax rates that do not have higher pay earners paying out half or more of their income in taxes somehow constitutes "class warfare" still is puzzling. Is Krugman saying that ALL income is transfer, and allowing others to keep some of their income is aggression against others? If so, then all of us are aggressors -- and all are victims of aggression. It is nonsensical, but that's Paul Krugman.

15 comments:

Mike said...

It’s a fairly straight forward question you need to ask yourself.

Do you wish to be a citizen or a subject?

Being a citizen is hard. But the reward is liberty, self fulfillment and a purposeful life.

Being a subject is easy. However history has shown the rewards are short term and illusory.

Krugman wants a country full of subjects with the privilege of being a member of the elite class that lords over them.

Salamano said...

if the government prints $60,000 (through its method of borrowing with the Fed monetizing the debt) and then pays for an employee in a federal regulatory agency, then the government has "created a middle-class job." However, the reality is that the government created nothing; it destroyed economic opportunities elsewhere, transferring resources from productive to unproductive uses.

I hear what you're saying when you point out that, when viewed in a certain light, we're "all" aggressors and victims in the pervasive wealth transfer world. But, I was having a little trouble with the above quote, just because as I see it, the equation doesn't stop there.

Are there not follow-on effects of giving someone $60,000 out of whole cloth? Namely, his/her spending of such money, and perhaps being (to use a notorious term) a "multiplier" based solely on the money that they themselves would never have received, but surely consumed it where others who originally earned it would have saved it?

Will "take no prisoners" Hart said...

He also can't keep track of what he says. This is Krugman in 2005 - "Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job." Unbelievable, huh?

sol_moras_segabinaze said...

If unemployed benefits creates wealth, why have jobs at all?

Let's just fire everybody and have a blast with all the free lunch we can get.

This is all really tragicomic.

Anthony Lima said...

There is no multiplier. No follow on effects either. Why is it better to spend the money rather than save it?
The most important point is this: How is it right that the person who earned the money shouldn't get to choose what is done with the money?
Even in the most terrible economy imaginable how is it "fair" that someone who didn't do anything that anyone wanted done gets to choose what is done with the money?
You are coming at this from the perspective of what is "good" for the economy, when we are not at all sure that taxing some people to give the proceeds to another is "good" for the economy much less the person that got the money. It could give them a false sense of importance.
Stop thinking about how to "improve" the economy and instead think about making things right with the individual.
The rest will follow.

Dinero said...

"....., if the government prints $60,000 (through its method of borrowing with the Fed monetizing the debt) and then pays for an employee in a federal regulatory agency, then the government has "created a middle-class job."

A private sector employer cannot compete with that.

hamsterdameconomics said...

@Will Hart Can you provide a link to where Krugman said that? Thanks!

Bob Roddis said...

The source of the Krugman quote "Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect…." is from the book "Macroeconomics" by Paul Krugman and his wife, Robin Wells:

http://tinyurl.com/ao57n77

We libertarians and Austrians need to accept the grim fact that none of our opponents will ever debate our ideas in a fair and honest manner and will instead invariably twist and distort our positions. They do this apparently because, in their hearts, they must know they would lose the argument on the merits.

Will "take no prisoners" Hart said...

Thanks, Bob. I had forgotten where I got it from.

William L. Anderson said...

Thanks, Bob! I was not aware of that, but it is typical of Krugman to say what is politically expedient at the time, knowing that the NYT and other Progressive outlets won't call his hand.

My basic point in criticizing Krugman's economic views is that he ignores the fundamentals of economic analysis, and that means he ignores opportunity cost. One cannot get more fundamental than that, but if the bedrock of economic analysis is removed, then one has nothing but conjecture.

Anonymous said...

"transferring resources from productive to unproductive uses."

Unemployment is a very unproductive usage of a resource. Are you saying the government can't do better than that?

Dinero said...

long term paid unemployment could "crowd out" paid employment

Mike said...

Anonymous said: "Unemployment is a very unproductive usage of a resource. Are you saying the government can't do better than that?"

By what authority is it the governement's concern?

Anonymous said...

Is that a concession that the government can do better than that, or are you shifting the goalposts?

Anonymous said...

And Dinero, "can" is a big step back from "will".