Friday, December 21, 2012

On Second Thought...

I do have a brief commentary about Krugman's latest political column masquerading as Serious Economic Analysis. Like all Progressives, Paul Krugman believes that the State can create an economy by coercion. If it is ordered into being, then it is so.

Furthermore, political victories by the Democratic Party always make the economy better. That is why the economy has done so well in the past four years. (Don't forget that Democrats had absolute majorities in both houses for two years with Obama being permitted to do anything he wanted, but unemployment went up, not down.)

Of course, this notion that government can order anything into being via coercion has tragic results. In writing about the Sandy Hook massacre, Jeff Tucker writes:
In the days that followed the killing, my browser kept taking me back to a Wikipedia link about the Gun-Free School Zones Act of 1990. The law, still intact after many challenges and rewrites, reads: “It shall be unlawful for any individual knowingly to possess a firearm that has moved in or that otherwise affects interstate or foreign commerce at a place that the individual knows, or has reasonable cause to believe, is a school zone.”

Guns of all sorts are banned anywhere near schools. If the government’s laws had worked, this killer would have realized that his plan was unachievable. After all, the world’s most powerful government had banned the whole idea of guns at school.
To put this in an economic context, Krugman actually seems to believe that if Democrats have enough political power and Barack Obama orders the economy to improve, then it will improve. Raising taxes will have no effect except to allow for more spending, and everyone knows that government spending is the key to economic recovery, as there can be no downside to expanding the government checkbook.

Should prices be "sticky," then government can inflate, which cuts the real prices and creates prosperity, since everyone knows that printing money is the key to making us richer.

The problem is that politics generally is the enemy of prosperity. Politicians see no problem in destroying businesses and throwing sand in the gears of entrepreneurship, since the media then will be the megaphone for trumpeting the message of the politicians: See? Businesses always fail! That is why you need us to help you!

Well, Krugman, Obama definitely has won the political PR battle (given the love affair the media has with him), and he has the numbers. We shall see how this turns out. Although I do not believe that the "fiscal cliff" can throw us into recession, nonetheless it will impede the recovery, but that is OK, since in the end, the politicians will win.


Anonymous said...

Professor Anderson, can I ask you what your favorite economics books are and which ones you would recommend to anyone who wants to become an expert economist? Enjoy the holidays!

Pulverized Concepts said...

There isn't any political PR battle to be won, the media is a tool of the state, with the ineffective exception of a small portion of the blogosphere. This is the case even at lower levels. Small local papers, for instance, were and are reluctant to examine the pros and cons of government-run lotteries because those same lotteries buy advertising in those increasingly irrelevant and ignored papers.

William L. Anderson said...

To answer the question regarding books, I would recommend Murray Rothbard's Man, Economy, and State, which is available for free online via (Go to literature, click on author, click on Rothbard, and go from there.)

I also have my students read the first chapter of Carl Menger's 1871 classic, Principles of Economics, although the whole book is a great read. Those two will take some time, but the rewards are great.

Tel said...

Krugman: And there’s a broader lesson here. This is no time for a Grand Bargain, because the Republican Party, as now constituted, is just not an entity with which the president can make a serious deal. If we’re going to get a grip on our nation’s problems — of which the budget deficit is a minor part — the power of the G.O.P.’s extremists, and their willingness to hold the economy hostage if they don’t get their way, needs to be broken. And somehow I don’t think that’s going to happen in the next few days.

That basically spells it out that Obama does not have a winning hand in terms of getting what he wants -- Republicans always have a veto option to fall back on.

Krugman's strategy seems to be that Obama should go "all in" on such a hand, presumably because it might be a convincing bluff. Ummm, if Krugman can figure out that Obama doesn't have a winning hand here, most likely everyone else can too, and a bluff won't work. Just pointing that out.

You can only bluff in Poker if there are cards in your hand that no one else has seen yet.