Saturday, December 24, 2011

Krugman, Keynesianism, and Post-Truth Economics

In his column attacking Mitt Romney, Paul Krugman says that Romney is engaging in "post-truth politics," and maybe he is right. Mitt Romney, after all, is a politician, although I would also say that Barack Obama has been engaging in a post-truth presidency, something Krugman never will admit because, after all, he is first and foremost a partisan Democrat.

(You see, we are supposed to believe, if we read Krugman, that Obama can pour hundreds of billions of dollars into "green energy" projects like corn-based ethanol, and out of all this spending will come "clean energy" and prosperity. This literally is impossible, but being that Krugman is a "post-truth economist," I guess everything is possible in Wonderland and at Princeton.)

Keynesian economics promises us a permanent economic boom just as long as governments have the courage to spend money. (I say "economics" although economic analysis actually comes from the fact of scarcity, something that Keynesians deny, if not in word, then certainly in action.) Furthermore, as we have seen from Krugman these past few years, empirics are for people who don't believe in Keynesian Truths. Other theories must be set up for falsification, but Keynesianism is Truth in its Own Right.

Why do I say this? For more than three years, Krugman has insisted that had the Obama "stimulus" been $1.2 trillion instead of a chintzy $800 billion, we would have been in a full-blown recovery by now. How do we know that it is true? Because Keynesian economics is true, and therefore, the Keynesian "stimulus" always works, and since this stimulus did not work, the problem was that the government did not spend enough money.

This is what one calls the informal fallacy of "Begging the Question," and it provides the sandy foundations for Keynesian thought. But Krugman and the Keynesians are not satisfied with just committing informal fallacies; no, they also are champions of promoting the infamous "Broken Window Fallacy" first given us by the great Frederic Bastiat, who understood the Law of Opportunity Cost far better than anyone today at Princeton University's economics department.

And, no, government really isn't Santa Claus and, no, someone who questions the out-of-control spending in Washington is not a Scrooge. But given that we are in an age of politicized Post-Truth Economics, I guess one can score more political points if one really claims that when governments print money, they are showering us with wealth.

30 comments:

Anonymous said...

Just a comment on the "Broken Window Fallacy" with regard to the subject at hand...

What if private industry (the 'shopkeeper' in the parable) had in mind solely and exclusively to, instead of producing more goods (perhaps because they are already meeting demand, or that there is no demand), to sit on his money until such future time when circumstances improve?

Would not the breaking of the window (or Keynesian spending) represent the only actual spending that would be done, because it is already postulated that no other spending would occur in alternate scenarios?

What if all private industry elected to pay off debt or otherwise hold onto their cash when all facing the same demand-shock situation? Surely the short-term results are rather painful, no? Would not the mass 'breaking of windows' represent the only possible short-term course change?

Granted, when the 'shock' is over, all the industries with their side-lined cash will be able to mobilize massively in response-- but what if it's simply not possible to create that 'future time' in the present because of the built-up debt bubble? Would that not mean politicians living in the present would be lambs-to-the slaughter, hopelessly incapable of turning things around 'naturally' and being blamed for it by the public who partook in the mythical season of plenty and now are upset when the clock struck midnight?

Unless-- of course, the politicians resort to the mass breaking of windows to force that sideline cash into action. Better yet, they can force that cash into play in ways that please them (and their friends), and not the industry. 2 birds with 1 stone. Since the alternative is certain political destruction anyway, why wouldn't folks in power try this route? What other options do they have?

Anonymous said...

"Welcome to Post-Truth Politics." - I almost spit out my coffee when I read this, especially from Krugman of all people. Let's set aside whether or not Romney was lying - It seems in Krugman's fantasy world there was a "good old days" where politicians never lied or made exaggerations... But that's what being a successful politician is all about!

Perhaps he isn't that naive/stupid but instead desperate to get a headline on RealClearPolitics and fishing for a soundbyte. Or maybe he is.

Anonymous said...

Why do I say this? For more than three years, Krugman has insisted that had the Obama "stimulus" been $1.2 trillion instead of a chintzy $800 billion, we would have been in a full-blown recovery by now. How do we know that it is true?

I believe Krugman claimed the stimulus would need to be much larger than the amount you have listed. (1.2 trillion)

Bala said...

"I believe Krugman claimed the stimulus would need to be much larger than the amount you have listed."

Has he committed to an amount? That would be the interesting part.

William L. Anderson said...

Whatever the amount, the stimulus never will be enough, according to Krugman.

Bob Roddis said...

I thought at one point after the fact Krugman said that it turned out "the gap" was near $2 or $3 trillion. Or something.

No matter. No normal person believes this stuff. We just need $20 million in spending on TV ads to stimulate the brains of average people by informing them that the political establishment actually believes that funny money and unpayable debt cause prosperity. Then let the statists explain "the gap" to the high school grads of government schools.

Bala said...

"Whatever the amount, the stimulus never will be enough, according to Krugman."

That was my point. Not committing to any figure makes it very easy.

Dan said...

"Whatever the amount, the stimulus never will be enough, according to Krugman."

Well that's the heart of Keynesian economics right there, no matter what, they can always claim they were right if Keynesian spending doesn't work. 800 billion clearly wasn't enough, so I say that if it was only 1.6 trillion we would have a recovered economy. Oh the government spent 1.6, I mean 2.5 trillion that would have done it.

Just keep pushing that number, ignore those ideas of opportunity costs and government crowding out private investment, that doesn't matter when you have smart planners, the planners will make everything work because they're smart. Oh help us.

LK said...

"Why do I say this? For more than three years, Krugman has insisted that had the Obama "stimulus" been $1.2 trillion instead of a chintzy $800 billion, we would have been in a full-blown recovery by now. "

Obama’s stimulus was only about $780 billion, not large relative to the size of the US economy or the severe contraction caused by the financial crisis.

It is also laughable of course how contemptibly ignorant you are of anything outside the United States: a vast number of other countries have used Keynesian stimulus, keep unemployment down and continue to get positive GDP/GNP growth:

South Korea
http://www.tradingeconomics.com/south-korea/gdp-growth

Australia
http://www.tradingeconomics.com/australia/gdp-growth

Germany
http://socialdemocracy21stcentury.blogspot.com/2010/09/germany-success-of-keynesianism-and.html

Sweden
http://www.tradingeconomics.com/sweden/gdp-growth

Norway
http://www.tradingeconomics.com/norway/gdp-growth

Belguim
http://www.tradingeconomics.com/belgium/gdp-growth

LK said...

As for the US, you are also clearly bandying about the figure of $800 billion with even properly understanding it. It was $780 billion over 3 years:

http://topforeignstocks.com/2009/03/10/stimulus-packages-comparison-us-stimulus-is-the-largest/

And as for the effects of the stimulus in the US, the country was the centre of the global fianncial crisis and the real economy hit very hard by it.

That explains why stimulus of 1.1% of GDP (in 2008), 1.6% of GDP (in 2009), and 1.8% of GDP (in 2010) has not made a dent in unemployment. It has counteracted the slump of 2008-2009 driving the econony back to real positive GDP.

Anonymous said...

Why do you repeatedly try to falsely associate Krugman with ethanol? You done this several times and I'm sure I've pointed it out to you before, but you keep on doing it.

See
http://www.nytimes.com/2007/01/29/opinion/29krugman.html?scp=1&sq=krugman+ethanol&st=nyt&gwh=D7838ED3785AA6100AD1A82388155682

Mike M said...

Regarding LK’s posts,
His is a progressive statist that believes in “Consequentialism”
Noting to see here, move along

William L. Anderson said...

I remember that Krugman column on corn. However, there are a few things to remember:

1. Krugman cannot make an opportunity cost argument because Keynesians hold that as long as there are "idle resources," it does not matter what is spent as long as there is spending;

2. Krugman has praised the subsidies poured into the other "alternative energy" ratholes and they are as bad as ethanol;

3. Krugman has been silent on the ethanol ripoff since Obama took office. He used ethanol as a tool by which to bash Bush and the Republicans, but now that the Democrats also are in on the ethanol gig, he has been quiet.

So, claiming that Paul Krugman is an opponent of this boondoggle is stretching it a bit. He was an opponent when he could use it against Bush, but now that Obama is president, Krugman hardly is going to claim that Obama is wasting money. In fact, Krugman has been saying that Obama has not been wasting ENOUGH money!

libertarian89 said...

No LK. The CBO eventually revised the number to 848 Billion ( whats another 70 billion anyways, come on LK) and the spending has not stopped since because the Dems have not passed a budget in over 1000 days so the spending has been built into the baseline. We have had it for years. The spending has not stopped.

Couple that with the Bush stimulus in 2008. Two wars (which are stimulative right?) additional spending from the omnibus bill in 2009, total Gov't spending close to 25% of GDP and record deficits for most of the Obama administrations time in office.

Not to mention record amounts of monetary stimulus too.



Thats not "enough"? Or wait, maybe the wars are not "big enough" right?

Schiff mocks the silly Keynesians here:

http://www.europac.net/commentaries/why_not_another_world_war


So doing more of something that already failed to achieve your desired objective will somehow just "work"?

We tried the Keynesian medicine and the patient is still sick and all LK and the Keynesians want to do is just give the patient (the economy) a higher dosage. How pathetic.

LK said...

"The CBO eventually revised the number to 848 Billion ( whats another 70 billion anyways, come on LK) "

LOL... You're confusing the cost of H.R.3590: the Patient Protection and Affordable Care Act with the stimulus.

H.R.3590 will have an estimated net cost of $599 billion over 10 years, and a gross total of $848 billion over 10 years.

$599 / 10 = estimated net cost of $59.9 billion a year.

"and the spending has not stopped since because the Dems have not passed a budget in over 1000 days so the spending has been built into the baseline. We have had it for years. The spending has not stopped."

That's the whole point: it was spending extended throughout a number of years. By focusing on 800 billion figure, the actual effect is exaggerated, as it's spread out over years in a $14 trillion US economy.

"Couple that with the Bush stimulus in 2008."

The $168 billion Bush stimulus in 2008 was about 1% of GDP, and its effect pettered out by 2009.

"Not to mention record amounts of monetary stimulus too."

If you knew a thing about Keynesianism, you'd know that Keynesian theory says so-called monetary stimulus is virtually useless in current circumstances: lending is demand-constrained, the private sector is already overindebted and, anyway, banks lending standards have rightly risen. Only fiscal policy will be effective in such circumstances.

libertarian89 said...

No the CBO revised the number up to close to 850 Billion. That was the total cost of the stimulus. It was built into the baseline and we have been spending heavily since.

Massive deficits, gov't spending 25% of GDP, OVER 1 Trillion of stimulus spending the the span of about a year and a half, coupled with two wars (wars are stimulative right? i guess only if they're "big" enough), unemployment extensions, payroll tax cuts, and this isant "enough" stimulus?

You have to be kidding. The point is that all this "stimulus" was the wrong thing to do and only worsened our situation, not that it wasn't "enough". Thats a damn joke. If Keynesian policy fails to achieve its desired objective, its always because its not "enough".

If only we had borrowed and spent more money we diddnt have on government boondoggles would we have prosperity. As if borrowing and spending other peoples money creates sustainable growth or even can "cure" a recession for that matter. It cant and never has.


Keynesianism is a sad pathetic joke.

LK said...

"No the CBO revised the number up to close to 850 Billion.

First, get your facts right. Your original figure of $848 Billion is nothing but the gross cost of H.R.3590. It was NEVER any estimate of the cost of stimulus.

There have been revisions of the cost of the stimulus:

"Congress’s scorekeeping agency now says President Obama’s stimulus spending program will cost only $814 billion over 10 years, or nearly $50 billion less than predicted in January. .... When the stimulus passed last year, CBO said it would cost $787 billion over 10 years. In January 2010 CBO revised that estimate upward to $862 billion in part because the unemployment rate was so high the government was spending more on jobless benefits. Tuesday’s estimate reduces the cost estimate to $814 billion."

Stephen Dinan, "Stimulus cost drops by nearly $50 billion," The Washington Times, Tuesday, August 24, 2010

"Congress' chief scorekeeper has again raised the cost estimate of President Obama’s two-year-old economic-stimulus program, calculating it will end up costing taxpayers $821 billion — or $34 billion more than originally projected .... Estimates for the actual cost of the stimulus have changed dramatically, rising from the initial $787 billion price tag to reach $862 billion, then falling to $814 billion and now ticking back up to $821 billion.

The increased overall 10-year cost of the stimulus comes mostly from higher Medicaid spending in 2010 and a higher payout of refundable tax credits in 2011, CBO analysts said."


Stephen Dinan, "CBO raises its stimulus cost estimate, again," The Washington Times, Wednesday, February 23, 2011.
-----

So currently it is $821 billion over 10 years, with 70% spent by the end of September. That is roughly $300 billion in 2009 and $400 billion in 2010. That in a $14 trillion US economy.

Screaming $800 billion!! or $821 billion!! is idiotic without looking at the annual breakdown as a percentage of GDP.

Massive deficits, gov't spending 25% of GDP,

LOL.. Deficits are mostly due to tax revenue loss. Not all of the deficit is stimulative. In fact, you can have a deficit with contractionary fiscal policy, just like Ireland which has cut total government spending.

"i guess only if they're "big" enough), unemployment extensions, payroll tax cuts, and this isant "enough" stimulus?

Correct, you buffoon. It is not "enough" relative to what is needed to close the output gap.

Pity you're ignorant of even basic Keynesian theory.

And, like Anderson, you won't have the foggiest idea what has gone on outside the US: where numerous nations have kept unemployemnt low with good GDP growth, by means of Keynesian stimulus that was sufficient relative to what was needed in their respective economies.

libertarian89 said...

Deficits were still high and increasing under the spendthrift Bush administration. Regardless of how you nitpick the numbers we had over a trillion in stimulus spending plus the wars.

There is no "Gap" that needs any filling anyway. So "Filling" that alleged output gap with more government spending on government boondoggles and other sure as hell wouldnt have "restored full employment" or created any meaningful or sustainable growth. Keynesianism never does.

I dont care whether the stimulus was 1, 2 3, or 40495820934834950934850.86656 Trillion, it would not have grown the economy in any meaningful way. It would not have "cured" the recession, or restored "full employment." ( As if a thing were even possible or desirable for that matter).

The stimulus diddnt work not because it wasnt "big enough" but because it was the wrong thing to do from the start. I dont care how much more of it we do it wont "fix" the economy anytime soon.


Maybe we should take peter schiffs advise and create a mock war to "stimulate aggregate demand." LOL. LK and the keynesian clowns really amuse me.

libertarian89 said...

Murphy and Shostak blow up the whole silly notion of "filling the output gap" with fiscal stimulus in order to "boost aggregate demand."

http://mises.org/daily/4711

http://mises.org/daily/4706


Now matter how you look at it we gave the patient (the economy) the keynesian medicine (stimulus) and the patient is still very sick and all the keynesians want is simply more of what already failed to cure the patient to begin with.

As if another 400 extra billion dollars of borrowed money spent on government boondoggles and other unproductive wealth destroying projects would've done the trick. LOL pathetic.


Wait diddnt Japan try "stimulus" too? So after decades of trillions of yen worth of fiscal stimulus where's japan's recovery? I guess they diddnt do "enough" either right? Looks like they had over 20 different "stimulus" packages. Maybe number 21 woulda done the trick.

http://mises.org/daily/1099


Keynesianism is truly laughable.

Bala said...

LK,

Will you please explain the theory based on which you make the following assertion?

"numerous nations have kept unemployemnt low with good GDP growth, by means of Keynesian stimulus that was sufficient relative to what was needed in their respective economies"

Please note that what you really need to explain is the "by means of". The facts as we will all agree are

1. That the governments of these countries spent money on particular things (spending has to be on something at all)
2. That the measures you identify - unemployment and GDP growth - had particular values.

Now please explain the theoretical background that justifies the statement "by means of Keynesian stimulus".

Bala said...

"Pity you're ignorant of even basic Keynesian theory."

Not everyone is insane enough to waste a significant portion of their life understanding what is fundamentally garbage, you see. You may be a happy garbage collector, but it is a tad unfair to judge others by your yardsticks.

libertarian89 said...

Nice point Bala. I agree. You dont need to be an expert in keynesianism to know why its complete nonsense. Its not that hard to figure out.

LK said...

"So after decades of trillions of yen worth of fiscal stimulus where's japan's recovery?"

LOL.. Japan had a recovery from 1994 down to 1996 when they did in fact use stimulus: then in 1996–1997 the Japanese Prime Minister Ryutaro Hashimoto turned to severe and contractionary fiscal policy and austerity, including personal income and national sales tax increases. This plunged Japan back into a long recession, derailing their recovery badly.

They got out of the lost decade by about 2003, and have had positive GDP growth ever since, outside of global recessions 2001-2002, and 2008-2009.

They used stimulus to escape the recession of 2008-2009, and got out of recession by Q2 2009:

http://www.tradingeconomics.com/japan/gdp-growth

You score massive points on ignorance.

libertarian89 said...

Ben Powell tells a much different story.

http://mises.org/daily/1099

So does Senholz

http://mises.org/daily/889


Japan is a living a breathing example of the failure of keynesianism. Despite engaging in massive amounts of Fiscal stimulus during a "liquidity trap", they still have yet to even fully recover from their lost decades with anemic growth and debt/gdp north of 200%.

Economies mirred in recessions do not need to be "stimulated" to "full employment" by government borrowing and spending. Its complete nonsense.

LK said...

"Japan is a living a breathing example of the failure of keynesianism. Despite engaging in massive amounts of Fiscal stimulus during a "liquidity trap"

Garbage.

The turn to austerity in Japan in 1996–1997 under Prime Minister Ryutaro Hashimoto caused a severe recession that lasted from June quarter 1997 until the September quarter 1999. Austerity and contractionary fiscal policy are the antithesis of Keynesian stimulus.

So much for this B.S. about "decades" of stimulus in Japan.

libertarian89 said...

I guess when you have six stimulus packages in 3 years totalling 66 trillion yen (92-95) and then not "stimulate" for a year after you can call it "austerity" but spending was never cut, or reduced for that matter. The stimulus programs from the previous years were still in place. Japan was still "stimulating". Bottom line, regardless of the timing, they spent a boat load of borrowed money. It diddnt work. Plain and simple.

Ben Powell explains it well in the article.


So much for the B.S notion of fiscal "stimulus" spending on government boondoggles to "boost aggregate demand" in order to "fill the output gap" and promote "full employment(As if such a thing is desirable)."

What a load of crap.

Bala said...

LK,

Even if everything you say is true about Japan, you till need to answer the question I raised in my post on December 25, 2011 at 1:30 AM.

Could we have that answer soon, please?

Bala said...

I mean "still" not "till". Sorry

Anonymous said...

Dr. Anderson-

Thank you so much for taking the time to refute the nonsensical BS that spouts out from Keynesian igno-tards. It's always entertaining to read Austrian economics in action.

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