Krugman's Hocus-Pocus Economics

Well, following the elections, which were pretty disastrous for the Democrats, at least regarding the U.S. House of Representatives, I figured Paul Krugman's first column would be yet another attack on the Republicans. Instead, he attacked President Obama for not having enough "audacity" in his economic programs.

We have been down this road before. Krugman's favorite theme -- other than Republicans come from the Pit of Hell -- has been that Obama did not spend enough, inflate enough, or regulate enough. What Krugman wants us to believe is that the most leftist president of my life somehow did not have the courage to tax, borrow, and spend, and that Obama's lack of "courage" is what blew up the House.

Writes Krugman:

Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies.

The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.

Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.

But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.

And there's more:

I felt a sense of despair during Mr. Obama’s first State of the Union address, in which he declared that “families across the country are tightening their belts and making tough decisions. The federal government should do the same.” Not only was this bad economics — right now the government must spend, because the private sector can’t or won’t — it was almost a verbatim repeat of what John Boehner, the soon-to-be House speaker, said when attacking the original stimulus. If the president won’t speak up for his own economic philosophy, who will?

There is much economic "hocus-pocus" in these statements, a veritable treasure trove of Frederic Bastiat's "Fallacy of the Broken Window." For all his "the stimulus should have been bigger" line, never does he in this or any other column explain how that move would result in a long-term recovery. Oh, yes, he says it would give the economy "traction," as though an economy is a perpetual motion machine that just needs a little push.

So, what should Obama do? Krugman (of course) has the right answers:

There is an alternative: Mr. Obama can take a stand.

For one thing, he still has the ability to engineer significant relief to homeowners, one area where his administration completely dropped the ball during its first two years. Beyond that, Plan B is still available. He can propose real measures to create jobs and aid the unemployed and put Republicans on the spot for standing in the way of the help Americans need.

Would taking such a stand be politically risky? Yes, of course. But Mr. Obama’s economic policy ended up being a political disaster precisely because he tried to play it safe. It’s time for him to try something different.

The only way to "engineer relief" to homeowners is to give them checks or pay their mortgages if they default. It does not take a Nobel Prize to know that a government program that taxes homeowners who are paying their mortgages in order to give to people who are unable to do so is not going to save the housing industry, but it will send a message to people who work and pay their bills that the government thinks them to be an unlimited ATM for the president to buy votes.

Obama playing it safe? The guy who has pushed through a 2,500-page bill that no one has read in its entirety (and no one person knows exactly what is in it) to engineer a complete government takeover of medical care is "playing it safe"? Maybe in Krugman's world, but definitely not in the world where the rest of us live.