Thursday, February 28, 2013

Ben Bernanke, Inflationist

Hail, Ben Bernanke! He has received praise from on high, or at least from someone on the Princeton faculty (lavishing accolades upon the former chair of the economics department). Paul Krugman has taken notice that Bernanke isn't about to be the skunk at the party. No, Uncle Ben wants us and our government to spend as though there is no tomorrow. (And with Bernanke running things at the Fed, there very well might not be a tomorrow.)

Krugman compares Bernanke's call for more inflation and expansion of government spending with the earlier opposition some people had to the war in Iraq. (The idea here is that having the courage to speak out against a war in its early stages when the war was popular is the same as having the "courage" to call for the Fed to print more money.)

That's right. Krugman wants us to believe that it takes real courage for someone to demand that the government pretend as though the economy is doing well by borrowing, taxing, printing, and, of course, spending. (Of course, wars entail government spending, lots of government spending, so how could a Keynesian be against that?) Yes, yes, Ben Bernanke also believes in the Inflation Fairy.

In reading Krugman and now Bernanke, I have come to understand that these men see no downside at all in runaway government spending. There is no transfer of wealth from individuals to the state and then to politically-connected people; no. government spending in and of itself creates wealth. Thus, when governments spend money, they actually are producing consumption (or something like that).

Krugman gives all of the usual accolades to government spending (We don't have near enough of it), but my favorite portion of his column is what follows:
The point is not that Mr. Bernanke is an unimpeachable source of wisdom; one hopes that the collapse of Alan Greenspan’s reputation has put an end to the practice of deifying Fed chairmen. Mr. Bernanke is a fine economist, but no more so than, say, Columbia’s Joseph Stiglitz, a Nobel laureate and legendary economic theorist whose vocal criticism of our deficit obsession has nonetheless been ignored. No, the point is that Mr. Bernanke’s apostasy may help undermine the argument from authority — nobody who matters disagrees! — that has made the elite obsession with deficits so hard to dislodge.

And an end to deficit obsession can’t come a moment too soon. Right now Washington is focused on the idiocy of the sequester, but this is only the latest episode in an unprecedented run of declines in public employment and government purchases that have crippled our economy’s recovery. A misguided elite consensus has led us into an economic quagmire, and it’s time for us to get out.
So,there you have it. The CAUSE of the current economic malaise is the lack of government spending. Now, since government spending comes the wealth government confiscates from private individuals who actually produce it might lead us to think that the reason government spending is not as high as Krugman wants it to be is that the economy is depressed. If the economy were doing better, government would be able to take more in taxes and, thus, increase its spending.

In Wonderland, however, things are backward. Government spending creates the wealth that comes from private firms. The more government spends, borrows, prints, and takes in taxes, the wealthier all of us become. Why? Because Krugman, Joe Stiglitz, and now Ben Bernanke tell us that is so.

22 comments:

Dinero said...

Hi

If it is someones political outlook that government spending, when done correctly, produces more prosperity than it costs, then, yes it does follow that government's need to tax, or oppotunity costs are, in the final measure, not a burden.

William L. Anderson said...

What is the definition of "when done correctly"?

Dinero said...

the definition of "done correctly" would be that it does not harm the economy and creates more prosperity than if it were not done.

Anonymous said...

As I understand what Krugman advocates is increased government investment spending when the economy is depressed and there is high unemployment, but not when there is full employment, in that case the government should cut back spending.
It makes sense to me that the best time for the government to build roads, schools, repair infrastructure is when we are not in full employment and unemployment is high.

In order for someone to earn money, someone somewhere must spend money. I can work hard to produce fabulous furniture but if nobody spends their money buying any of it then I earn nothing. The more we collectively spend the more we collectively earn and thus produce. When the government spends a dollar it doesn't disappear it becomes someones earnings, that dollar of earnings is then taxed, saved and spent in the economy and so on so forth. So yes the government can employ people and firms to build public goods which will stimulate the economy.

Dinero said...

"Stimulate" is a bit a of a contentious word round here. A more neutral word would be help.

Zachriel said...

William L. Anderson: government spending in and of itself creates wealth

It can stimulate activity when there is slack in the economy.

Anonymous: So yes the government can employ people and firms to build public goods which will stimulate the economy.

Stimulus can create short term economic activity, while wise spending can create conditions for long term growth.

Alberquerque Economics said...

'Stimulus can create short term economic activity, while wise spending can create conditions for long term growth'

It's possible for governments to spend wisely surely? Just as it's possible that private institutions can sometimes spend unwisely. But is it wise to have so many unemployed people when it is within our power to employ them? Why can't we use this opportunity to once again have the best infrastructure in the world? Instead of handing out money to the mass of unemployed why don't we just employ them? Their morale will improve, skills will be enhanced and people will be trained. When the economy gets going again the government can step back and employers will have access to people that have been working rather than have been idle.



Anonymous said...

I haven't commented before, but I thought you might like to know that I've been following your blog (and various others) for a while. I'm not trained in economics, but I do have a scientific background, so I've been trying to educate myself in the field a little bit by reading around all the different opinions. I was intrigued by the Austrian thesis, because it's often the case that short term fixes have unexpected longer term consequences. But I'm afraid that your blog has largely convinced me that the Austrian viewpoint has little or no merit. Your arguments are poor and contradictory, you continually misrepresent your opponents views, you repeat logical fallacies or twist language to shore up your arguments and you don't confront the arguments that are made against your viewpoint. I'm afraid this reminds me of the sort of things I see in creation science - it just seems like pseudoscience in support of a political agenda to me. However I'd like to thank you for your writings - they have been entertaining and reading them has been useful to me, although they have essentially convinced me that your opponents are right.

William L. Anderson said...

A few years ago, I was covering a trial (Tonya Craft accused of child molestation) and a commenter claimed that he (or she) had been following the blog and that my arguments convinced this person that Tonya was guilty. Of course, we knew the poster was one of the witnesses who was reading the blog in violation of the rules of the court. (There were lots and lots of violations by the prosecutors and even the judge, but that is what passes for "justice" in Northwest Georgia.)

I really am not fooled by your post. And tell me please which logical fallacies I am committing. And which of the Austrian points has "little or no merit"? Is it the Law of Scarcity, the Law of Demand, the Law of Supply, Marginal Utility, Law of One Price? Which is it? Those are the Austrian points I use in this blog.

I claim that the laws of economics are universal and that they don't suddenly change because the central bank has pushed down interest rates. Please tell me where the fallacy is in that?

No, this is a typical troll post passing as something by the "disinterested observer."

Bob Roddis said...

It can stimulate activity when there is slack in the economy.

There is NO SUCH THING AS SLACK in an "economy". Economies don't have "slack" nor do they have or lack "momentum". What an ignorant basis for calling in the SWAT teams.

Any such "stimulated" activity will be contrary to consumer demand, will distort prices and will be unsustainable. It will make most everyone poorer in the long run except perhaps for the government cronies who get the new goodies first.

William L. Anderson said...

By the way, Tonya was acquitted. Since then, all three girls who made the accusations have recanted. Not that it was anything but obvious that the whole thing was contrived.

Zachriel said...

Bob Roddis: There is NO SUCH THING AS SLACK in an "economy".

When unemployment suddenly doubles there is obviously some sort of dislocation occurring; people who used to work, suddenly can't find work.

Bob Roddis: Any such "stimulated" activity will be contrary to consumer demand, will distort prices and will be unsustainable.

A stimulus is unsustainable, hence, should be a temporary measure.

Pulverized Concepts said...

OK, my self-employment, which could be a huge company, is the production of book safes, , preferably from useless hardcover economics texts by pseudo-economists like Galbraith (both of them), Walter Heller and, of course Paul Krugman. Hollowed out,hey're very handy for hiding small amounts of cash, jewelry, important documents, etc. However, no one wants them. After spending considerable time and effort in their manufacture, I can't seen to sell them. Maybe if the fed put more cash into circulation, those unemployed folks would have more of it to both purchase one or more of my book safes and need a place to store it. It hasn't happened yet though, so I guess we need more stimulus.

Locus said...

Stiglitz? Here's Krugman's favorite government debt expert in all his glory,

http://www.youtube.com/watch?v=sAAnV-AolTI

Bob Roddis said...

Bob Roddis: There is NO SUCH THING AS SLACK in an "economy".

When unemployment suddenly doubles there is obviously some sort of dislocation occurring; people who used to work, suddenly can't find work.


The unemployment was caused by prices having been distorted by prior central bank action and/or funny money loans. Things must be repriced with unadulterated prices. This is not "slack" or a lack of "momentum". "Stimulus" will only continue the problem of mispricing thereby prolonging the misery.

Zachriel said...

Bob Roddis: This is not "slack" or a lack of "momentum".

Regardless of what you think the cause might be, there's a large amount of people looking for work who can't find it. That represents an unused portion of economic capacity, also known as "slack".

Pulverized Concepts said...

That represents an unused portion of economic capacity, also known as "slack".

There are other examples of unused economic capacity as well. The various levels of government could dispose of property that they now control. The feds could sell millions of acres of land (all of which they stole from the natives, but that's another story). People that work only 8 or 10 hours a day could work a couple more hours each day and forego weekends and vacations. States and counties that have tax-forfeited property could sell it and get it back on the tax rolls so they could hire more administrators. The US Postal Service could sell advertising space on the side of their ubiquitous delivery trucks and mail carriers could wear product patches like NASCAR drivers do. Rather than spending billions each year with no return, the government could establish a program of grazing sheep and goats on suburban lawns, eliminating the global warming menace posed by lawn mower engine exhaust and providing meat and wool for the impoverished and employment for shepherds. I'm sure that a genius like yourself can come up with many more examples of unexploited economic opportunities. Maybe you should inform the Bernank.

Zachriel said...

Pulverized Concepts: There are other examples of unused economic capacity as well.

Yes, because the sudden unemployment of millions of workers is the same as not enough suburban lawn grazing, exactly the same.

Mule Rider said...

Anonymous said...

"I haven't commented before...

...they have been entertaining and reading them has been useful to me, although they have essentially convinced me that your opponents are right."

I find it highly amusing - and even somewhat shocking - that, for as long as the internet has been around, there are still people out there who think they can spew these kinds of puerile diatribes and think they are impressing anyone and/or convincing people they have a friggin' clue.

If you insist on putting out a bunch of weasel-worded nonsense and then spend hours gazing at your own navel, do it on your own blog/website.

Dinero said...


Krugman does not overlook the cost of Government activity. His analysis is that the the country is better off with it than without it. Your critisism of Krugmans logic seems to overlook that.

Dinero said...

He does think it creates prosperity.

Anonymous said...

When unemployment suddenly doubles there is obviously some sort of dislocation occurring; people who used to work, suddenly can't find work.

This is the market's reaction to miss-allocated resources and is an important economic signal. In the 2008 downturn we had lots of unemployed realtors, construction workers, and mortgage brokers. Why? Because too much phony money was allocated to housing. The problem is not that the housing bubble crashed, the problem is that Government propped it up too long before it crashed.