Tuesday, June 5, 2012

This Goldstein Economy

Goldstein strikes again. We are not at war with Eurasia; we are at war with Eastasia!

Likewise, the economy was doing just fine UNTIL THE REPUBLICANS TOOK OVER THE HOUSE IN 2011!! We'd be in recovery by now and everyone would have a job!

For two years -- two years -- Barack Obama had an overwhelming Democratic majority in the House and a filibuster-proof majority in the Senate, but apparently even then Goldstein was lurking, directing everything in the shadows, keeping the government from spending like it should. Or so Paul Krugman would have us believe.

As I have said many times, I have no hope that Republicans in power would do any better than has Obama, especially given the fact that the housing bubble occurred under the watch of a Republican president and a Republican Congress, at least until 2006. However, I do believe that academic economists should do more than just shill for a political party, and that also means taking a critical look at what those parties are doing in regards to public policies. Instead, Krugman feeds the Democratic Underground more red meat and calls it "economics."

Krugman's latest assertion is that Obama is not spending very much at all, and if one counts state government spending, we are in a nation-wide "austerity" program. He writes:
What do I mean by saying that this is already a Republican economy? Look first at total government spending — federal, state and local. Adjusted for population growth and inflation, such spending has recently been falling at a rate not seen since the demobilization that followed the Korean War. 

How is that possible? Isn’t Mr. Obama a big spender? Actually, no; there was a brief burst of spending in late 2009 and early 2010 as the stimulus kicked in, but that boost is long behind us. Since then it has been all downhill. Cash-strapped state and local governments have laid off teachers, firefighters and police officers; meanwhile, unemployment benefits have been trailing off even though unemployment remains extremely high. 
 Speaking as someone who has had to deal with several years of furloughs because state tax receipts did not match overoptimistic projections (Gov. Martin O'Malley each year has presented budgets to the state legislature that seem to be from another planet and another economy), I know that spending is not what state politicians want it to be. However, in reading Krugman, one would think that this fall in projected spending is due to a Goldstein-like plot rather than a reflection of the hard fact that this economy is in a depression.

Yes, I know it is shocking to readers, but when economies are moribund, tax receipts tend not to be as high as politicians and Keynesian economists want them to be. However, that is a reflection of reality, not a dastardly Goldstenian Plot hatched by black-cape-wearing Republican politicians. 

Furthermore, the fall in projected tax revenues is an effect, not a cause of the depression. I know that Keynesians don't believe that; furthermore, I realize that Keynesians believe that if states raised tax rates to astronomical levels and the U.S. Government would double the amount of its borrowing, that the economy would be back to levels of prosperity in no time.

However, according to Krugman, while Goldstein has kept the Obama administration from bringing back prosperity, nonetheless this government has some "proud" and great economic achievements:
At this point, however, Mr. Obama and his political team don’t seem to have much choice. They can point with pride to some big economic achievements, above all the successful rescue of the auto industry, which is responsible for a large part of whatever job growth we are managing to get.
 Yes, the creation of "Government Motors" is a big engine of the prosperity that is left. Now, Krugman does not cite facts and figures for proof; instead, he blurts out an ex cathedra statement, knowing that the Democratic Underground and the Daily Kos will jump on that statement as being authoritative and a Self-Revealing Truth.

So there you have it. If we want real prosperity, we have to raise taxes, borrow more money, put more public employees on the payroll, and bail out failed industries. And when that rendition of the Broken Window Fallacy fails, there always is Goldstein to blame.


Unknown said...

Prof. Anderson, I think you're missing out on a classic bit of Krumanite sleight of hand, data manipulation for which the man is justly famous. You have to read the blog as well as the column to see how he arrives at the idea that total government spending is "falling." He had to work long and hard at this to prove his point, since the actual data did not support his thesis. He is not comparing govt. spending to the actual GDP. Here he goes:

"The chart below makes a first stab at such a calculation, but requires some further comment; when all is said and done, the role of government hasn’t actually grown.

So, both lines below show total (federal, state, local) government spending as a share of potential GDP, the CBO’s estimate of what the economy would be producing at sustainable full employment:"

So Krugman is demonstrating that total govt. spending is falling against a GDP that doesn't actually exist; it's a GDP that is considerably higher than reality. Against this (dry-labbed) GDP, govt. spending is not keeping pace. No one can goal-seek data like the Krugmeister. You have to watch him every second. Fortunately, you do.

RealityEngineer said...

I'd suggest looking at
total government spending per capita adjusted for inflation since the Korean war to see how different the reality is from his description of it. It has been constantly growing. After a spike recently there was a minor slowdown in growth but the projections are for it to be back on trend.

Don said...

Ummm...maybe the burden of proof is on you to show that the bailout of GM was actually a failure Anderson. Care to empirically prove how laying off thousands of auto employees is better than keeping them working? Especially when there is demand for the goods they are making?

Anonymous said...

If there's demand for the goods they're making, why did they need a bailout? There are demands for iPods, but I don't recall Apple ever asking for a bailout.

Séamas Poncán said...

Hey Don: Read this

Anthony Lima said...

It's not empirical but you have to imagine that GM is making cars that are less valued by car buyers. If this is the case then the government employees kept an organization for building cars that are less valued together and kept workers producing something that was less valued. They could have all disbanded and gone to more productive work. The government employees kept that process from happening and now GM will probably go bankrupt anyway in a few years.

Fearsome Pirate said...

Don, you apparently didn't know this, but making cars requires consuming scarce resources, such as energy and steel. The resources GM consumed were more valuable than the cars it produced. It was wasting things of value, which is why it didn't make money.

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