Is Krugman an Economist or Just a Partisan Shill?

According to Paul Krugman, the failure of Republicans to pass the American Jobs Act is the reason there is at least a little bit of doubt about Obama's re-election victory this fall. You see, according to Krugman, the economy would be close to booming right now if only, if only, if only.

And how does Krugman know that this piece of legislation would have been the magic bullet? Because some bloggers said it would. Yes, a bunch of Keynesians claim that a law that did not passed was the Answer to the Great Secret, but now we never will know if this act -- THIS act -- would have set the world aright.

This is the kind of stuff that stuns me. I was taught by some very good economists not be be a cheerleader for politicians, and certainly not to be someone who repeats political talking points and pretends that they really are economic truths. At least Alan Blinder is paid to be a partisan shill, and spews his propaganda on Obama's payroll.

At the same time, Ben Bernanke is trying to rev up the inflation engines in hopes that he can give Obama at least a small boost before the election to make it seem as though the economy is better off than it really is. Gee, maybe it is a Princeton thing; academic economists as nothing but shills for politicians, paid and unpaid.

[Update]: In his latest column, Krugman repeats his tired canard that it was Goldstein's "obstructionism" that is responsible for the current downturn. Along the way, he gives some very curious economic analysis:

There were good reasons for these positive assessments. Although you’d never know it from political debate, worldwide experience since the financial crisis struck in 2008 has overwhelmingly confirmed the proposition that fiscal policy “works,” that temporary increases in spending boost employment in a depressed economy (and that spending cuts increase unemployment). The Jobs Act would have been just what the doctor ordered.

 Wow! We were almost there, almost to prosperity! Goldstein destroyed the recovery again! However, Krugman is not through "proving" that Goldstein was the evil force behind this depression. He writes:

The most important consequence of that stonewalling, I’d argue, has been the failure to extend much-needed aid to state and local governments. Lacking that aid, these governments have been forced to lay off hundreds of thousands of schoolteachers and other workers, and those layoffs are a major reason the job numbers have been disappointing. Since bottoming out a year after Mr. Obama took office, private-sector employment has risen by 4.6 million; but government employment, which normally rises more or less in line with population growth, has instead fallen by 571,000. 

 Now, I can see a politician writing this, but an economist really has some explaining to do in order to successfully claim that government jobs will lead a recovery. First, however, Krugman does more of his aggregate tricks when he tries to essentially claim that private sector employment pretty much has recovered.

Here is the problem: the kinds of jobs that disappeared versus the kinds of jobs that have grown in number in the past four years are not the same. It is clear that the private sector is not as robust as it was before the downturn, and the lack of tax revenues being generated is the main reason that employment is lagging in state and local government jobs.

Krugman, however, wants us to believe state and local government jobs are the source of economic growth. That literally is impossible. These are not wealth-creating jobs, for the most part; instead, they consume wealth. The lack of growth in those jobs is proof that the private sector still is not producing enough to fund levels of government to where they were four years ago.

Like most Keynesians, Krugman has the cart before the horse. He wants us to believe that government is a net wealth creator when it is not. Furthermore, he wants us to believe that government can inflate the economy into prosperity, which is an illusion, but a convenient illusion.

Do you want to protest at Ground Zero for our current economic ills? Then Occupy Princeton!!

After reading Paul Krugman's latest anti-Wall Street screed, I have decided that I agree with him on principle: We need to occupy the place that is more responsible not only for the financial meltdown, but for the world depression that has followed it.

That's right, I am calling for an immediate occupation of...Princeton University, and specifically, its economics department. There is no other place on earth that has given us more players and more enablers of the financial madness that has gripped this economy for many years.

First, the chief architect of the depression, Ben Bernanke, was the chair of Princeton's economics department, and it was on his watch that Krugman was hired at Princeton away from MIT, Krugman's doctoral alma mater. Bernanke then went on to a position on the Federal Reserve System's Board of Governors and help create the inflationary policies that followed in the wake of the Tech Bubble of the Bill Clinton years and then the Housing Bubble.

Bernanke always has been a champion of inflation, and one of his first speeches as a Fed governor, "Deflation: Making Sure it Doesn't Happy Here," set out the infamous "Bernanke Doctrine" which claims that inflation can be a cure-all for economic ills. (He and Krugman are of one mind on this subject, as both consider government-generated "money" to be a "free lunch" on which everyone can feast.)

Let us not forget where the "Bernanke Doctrine" (and its predecessor, the "Greenspan Doctrine") has led. If I can restate these doctrines, it would be the following message to Wall Street: "Don't worry about the financial bubbles you create because when you run over the cliff, Uncle Fed will be there to provide you with precious 'liquidity'.

Thus, in his attempt to keep a deep recession from happening, Ben Bernanke has created a depression, and according to him and his followers, the only thing that keeps us in this mess is that Goldstein, er, Ron Paul and others like him, is raising too much hell about the inflation. The only man alive who might have done more damage than Bernanke has been Greenspan, but the combination of the two inflationists has been the destruction of the economy.

Of course, Bernanke (and his alter ego Krugman) are utterly contemptuous of anyone who might think that spreading dollars around the world, bailing out this and that, might not have the desired effects of restoring the economies of the nations. Why would anyone even have the temerity to think that propping up unsustainable capital and directing investment away from those entities that actually are profitable might make things worse? After all, EVERYONE KNOWS that creating more money creates more "aggregate demand," and greater "aggregate demand" means more prosperity.

Second, one of Bernanke's main shills is Alan Blinder, another faculty member at Princeton and a longtime advocate of...inflation. I'd like to say that the current depression has been a case of the Blind (Bernanke) leading the Blinder, but from my perch, it looks as though the whole bunch has been blind from the start.

However, Blinder has managed to do damage not only in backing up Bernanke's inflationary urges, but also in advising the Obama administration on the disastrous "Cash for Clunkers" program. When an economics department is as destructive as Princeton's it is important to spread the destruction to all frontiers.

Third, there is Alan B. Krueger, the Princeton professor who claims that raising the minimum wage will result in...more employment. At his urging, the Obama administration prevailed upon Congress to jack up the minimum wage during a severe recession, with one of the worst results being the record unemployment among young black men. Yes, on one end we have Princeton giving us inflation, and on the other, Princeton making sure more people are out of work, a great one-two roundhouse against the economy.

And then there is Krugman. Yes, the Paul Krugman who advocates the destruction of capital through taxation and regulatory policies. The Paul Krugman who is demanding that the U.S. economy have the capital structure of a Third World economy, but with First World results.

With respect to Albert Einstein, I'd say that this was an economic definition of insanity: Following the disastrous policies of Third World governments, but expecting the results of an economy that welcomes real and profitable capital into its overall structure of production.

Princeton University Economics: there is no such thing as opportunity cost

Because I am a holder of a doctorate from a program that was not "elite" by any standards, perhaps I don't understand the power that "elite" economists have in their possession to do away with economic laws. While Paul Krugman is on vacation, his Princeton colleague, Alan Blinder, gives us the latest howlers.

Writing in the Wall Street Journal, Blinder wonders how anyone might think that lots and lots of federal spending would be "job killing." Impossible! Blinder huffs:

It is easy, but irrelevant, to understand how someone might object to any particular item in the federal budget—whether it is the war in Afghanistan, ethanol subsidies, Social Security benefits, or building bridges to nowhere. But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs.

The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?

One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But tax-financed spending is not what's at issue today. The current debate is about deficit spending: raising spending without raising taxes.

For example, the large fiscal stimulus enacted in 2009 was not "paid for." Yet it has been claimed that it created essentially no jobs. Really? With spending under the Recovery Act exceeding $600 billion (and tax cuts exceeding $200 billion), that would be quite a trick. How in the world could all that spending, accompanied by tax cuts, fail to raise employment? In fact, according to Congressional Budget Office estimates, the stimulus's effect on employment in 2010 was at least 1.3 million net new jobs, and perhaps as many as 3.3 million.

This is a most interesting economic worldview. While Blinder might be "technically" correct in that if government borrows a trillion dollars and spends it on whatever, then in the very short term, no doubt there would be new employment. Would it create new wealth? That is another matter, and would it be sustainable? probably not.

Yet, Blinder really doubles back on himself in that first paragraph. Let me repeat what he said:

But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs.

What would constitute "dumb public spending," given that he believes that government spending "creates jobs," even "dumb" spending. What is the criteria for determining that the spending is "dumb," and why would it matter, anyway?

No doubt, Blinder would employ an opportunity cost argument but then he contradicts that argument not only within his sentence, but also further down in the article. He states:

A second job-destroying mechanism operates through higher interest rates. When the government borrows to finance spending, that pushes interest rates up, which dissuades some businesses from investing. Thus falling private investment destroys jobs just as rising government spending is creating them.

There are times when this "crowding-out" argument is relevant. But not today. The Federal Reserve has been holding interest rates at ultra-low levels for several years, and will continue to do so. If interest rates don't rise, you don't get crowding out. (emphasis mine)

So, all that is needed to eliminate "crowding out" (which also is opportunity cost in action) is for the Fed to hold down interest rates by mere fiat? (Oh, I forgot. Ben Bernanke was the chair of the economics department at Princeton before going to the Fed, and he still is listed as being on the faculty there. If one is a Princeton economist, a mere declaration can eliminate that pesky thing called opportunity cost.)

Is all of this spending "job killing"? If one goes by Blinder's ultra-short term view of spending and "job creation," then it is not "killing" jobs. However, if one sees this spending along with other government efforts to prop up the economy as impeding the liquidation of malinvestments and impeding a real recovery, then by all means the government spending spree is killing jobs by the millions.