It’s official: the New York Times’ resident Nobel Prize Laureate/Loony is delusional. He wrote on his blog Monday about “how right he was”:
We’re coming up on the second anniversary of my piece “Myths of Austerity“, in which I tried to knock down the simply insane conventional wisdom then gelling among Very Serious People. Intellectually it was, I think I can say without false modesty, a huge win; I (and those of like mind) have been right about everything.
But I had no success in deflecting the terrible wrong turn in policy. Moreover, as far as I can tell none of the people responsible for that wrong turn has paid any price, not even in reputation; they’re still regarded as Very Serious, treated with great deference. And the political tendency behind that terrible economic analysis has at least a 50% chance of triumphing in America.
“Oh well” is right.
His first problem is that he says he has “been right about everything.” When one looks at the stimulus programs that have been enacted since this recession began, and the high unemployment that has persisted, the evidence is blatantly clear: Krugman is an idiot.
His second problem is his statement that “I had no success in deflecting the terrible wrong turn in policy.” Um, lest I am living on a different worldline than Krugman, the man’s main policy prescription has been stimulus, and we’ve had a lot of it:
No, seriously, that is what this man has become. He recently blogged a chart on his blog (inappropriately—or maybe entirely appropriately—named “Conscience of a Liberal,”) showing first quarter growth for five countries:
He then goes, “Wait, what? Japan as star performer? What’s that about? Actually, no mystery.”
Japan’s economy expanded faster than estimated in the first quarter, boosted by reconstruction spending that’s poised to fade just as a worsening in Europe’s crisis threatens to curtail export demand.
So he then argues that the tsunami reconstruction has led to great economic growth, while so-called “austerity” (which isn’t actually austerity at all, if Krugman had bothered to pay attention) has doomed Italy.
It makes perfect sense! Absolutely! Let’s hit Japan with another tsunami that will kill over 15,000 people, injure 27,000 citizens, and make 3,155 go missing! If only the 2011 tsunami had destroyed even more than that paltry 130,000 buildings—if only it had actually caused Fukushima to go critical and explode—it would have created so much potential for rebuilding! It would have shot the Japanese GDP right over the moon!
I have to disagree with Dave Weigel here. He wrote on Friday in Slate that the stimulus bill really didn’t fail, although everyone is saying it is:
Veterans of the stimulus wars talk about it that way—as a war. They lost. The implication of the loss is that Keynesian economics are, arguably, as discredited with voters as neoconservative theories were discredited when the invasion of Iraq failed to turn its neighbors into vibrant democracies, highways clogged with female drivers.
This week, we got a concrete example of what it meant to lose. The Weekly Standard published a back-of-the-cocktail-napkin analysis of the seventh quarterly report on the stimulus, stipulating that every job created by its spending has cost $278,000. Republicans, who’d previously said the stimulus created no jobs, immediately started repeating the $278,000 figure. They kept doing it even after the magazine followed up, suggesting that the cost-per-job could have been as low as $185,000. $278,000, $185,000. $0.00? It didn’t really matter, because the White House and liberal response was perfunctory. As the stimulus winds down, with most of the money spent, everyone knows that it failed.
Bret Stephens has written a nice opinion piece in the Wall Street Journal of December 23. He cites poet Rudyard Kipling and author George Melloan who wrote The Great Money Binge: Spending Our Way to Socialism.
Melloan’s work, according to Stephens, shows “in exacting detail, not only how we came to our current crisis—thank you, Barney Frank, Chris Dodd, Alan Greenspan and Tom DeLay—but where [their flawed logic] is destined to take us again.”
All four of these politicians—yes, Greenspan is one of them—seem to subscribe to Keynes’s theory of what some have called “demand-side economics.” This theory says that consumption is the answer to an economic bust cycle, and that it’s okay to create the credit to pay for it through central-bank-created funny-money.
Stephens, citing Melloan I presume, and parodying Kipling, counters Keynes’s theory using the supply-siders’ argument:
”’[C]onsumption must be paid for with production” … if you don’t work (i.e. produce) you die (i.e., can’t consume).”
Stephens and Melloan have understood the evils of Keynesian spending-for-prosperity, to be sure; but they have missed an essential point, which is this:
Consumption is purely a mechanism by which producers share among each other what they have already produced.
(See this post and the subsequent two posts for a more detailed example of this process.)
Written by Tad DeHaven, a budget analyst at the Cato Institute. It was originally posted on Wednesday, August 22nd, and is cross-posted with permission from Cato @ Liberty.
Speaking outside a helicopter museum in eastern Pennsylvania yesterday, Republican VP candidate Paul Ryan bemoaned the “irresponsible defense cuts” and subsequent job losses that would occur under the Budget Control Act’s sequestration spending cuts. That would be the same Budget Control Act that Paul Ryan voted for, and, at least initially, defended.
“What conservatives like me have been fighting for, for years, are statutory caps on spending, legal caps in law that says government agencies cannot spend over a set amount of money,” Ryan told FOX News’s Sean Hannity shortly after the agreement was reached last August. “And if they breach that amount across the board, sequester comes in to cut that spending, and you can’t turn that off without a super-majority vote. We got that in law.”
It’s not just Ryan’s backing away from the BCA’s spending cuts that’s irritating; it’s the fact that he’s basing his opposition to the cuts on the same flawed Keynesian rationale that the president used to justify his failed stimulus package. As Chris Edwards has noted, shifting resources from the government sector to the private sector is good for the economy:
And good lessons at that. No, seriously. Sweden—the country that is usually held up as an example on the left—actually shows that cutting spending is the way to go. From Investors’ Business Daily:
Sweden has a reputation as the prototypical cradle-to-grave socialist European nation, and the political left has long yearned for America to be more like the Scandinavian nation.
But it’s looking through a smudged window. With little notice, Sweden has changed.
The turnaround has been driven in no small part by the election of Fredrik Reinfeldt as prime minister in 2006. He took office in October of that year and by January of 2007, tax-cutting had begun. The Reinfeldt government also cut welfare spending — a form of austerity — and began to deregulate the economy.
That doesn’t sound like the Sweden that American Democrats hold up as the standard.
But as Finance Minister Anders Borg told the Spectator, the Reinfeldt government was simply continuing the last 20 years of reform.
Far from hurting Sweden’s economy, the changes have improved it. And they’ll likely help to protect it from the 0.3% economic decline now forecast for the euro zone in 2012.
That’s right—Sweden, of all places, is cutting spending and shrinking government, and has so far kept itself out of the economic downturn (or day I say disaster?) that has befallen Europe.
All economic discussion here lately really tends to boil down to the question of whether the stimulus programs by Presidents Bush and Obama worked. For most Americans, they’re willing to forgive a great many sins if they actually worked. I could sit down and take a look at what is what, but why bother? Lawrence Lindsey at The Weekly Standard already did it.
Here’s the part that really stuck with me:
Government policies to “stimulate” growth have not done so. Everyone except flacks for the White House knows that the 2009 stimulus package failed miserably to produce the promised results. But even if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.
We spent $266,000 – which has to be paid for via taxation – to create a single job. Unless that job is Warren Buffet’s equivalent in income, I think we all got screwed on the deal.
However, remember the horror stories we were told of what live would be like without the stimulus, and how awesome we would be doing if we passed the stimulus? Well, without the stimulus, we were told that unemployment could reach as high as 9%, but that if we passed it we would never see unemployment greater than 8%. Well, we passed it. The result?
Over at the Washington Examiner, David Freddoso points to numbers from the Bureau of Economic Analysis that show that despite the stimulus bill, which included some tax credits that led to an increase in disposible income, consumption has remained stagnant.
The numbers released this morning for the first quarter of 2011 indicate that no, it didn’t. Americans spent less of their income than in the previous quarter. A nearly 6 percent, the savings rate is way up from its 2005 nadir of 1.2 percent, and its 20-year average of 4.25 percent.
Not to say that increased savings is a bad thing — in fact, the average since World War II is above 7 percent. But it is still another indicator that the stimulus package has not worked as promised. For all the White House concerns about trickling out the money in small doses in order to “trick” people into spending more, it just hasn’t worked. People don’t spend money just because government starts shoveling it out the door. They also need to feel secure about their jobs and their futures — a feeling that the huge dose of government deficit spending has not created.
Here is the chart comparing the disposable income (blue) and consumption (red). Note the spikes in blue. Those spikes in personal income are giveaways of taxpayer money from Congress, such as the rebate programs passed under the Bush Administration. And you can see, that just like under Obama, they failed miserably. So much for Keynesianism.
Americans have this tendency to pick a President that will promise to give them a better life. They want prosperity, and any failure to deliver can kill a political career almost as fast as a dead girl or live boy. In all of this hoopla, something gets missed. One key factor that is constantly overlooked. It’s not the government’s job to give you a better life, it’s their job to make sure you have a chance to do that for yourself.
The truth is that government hasn’t been doing their job lately. Many regulations actually prevent entry into various fields, lobbied for by corporations looking to protect their profit share. Licensing requirement for jobs with such high risk towards human life like interior decorator and hair stylist put up ridiculous barriers for people to make a living. This isn’t how it should be.
Unfortunately, this nation is no longer capitalist, but corporatist. Corporations lobby for massive regulations that they know will choke out smaller competitors. Why choke out the little guys who pose no real threat? Because enough little guys can make up a sizable market share, something the big guys covet. By choking out these smaller companies, they grow without having to really compete with like sized companies.
For some people, the American Dream is their own business, but the various levels of government have put up so many obstacles that many have had to abandon their version of The Dream. Now, if so many politicians are concerned with fairness, tell me where the fairness is in that?
Of course, fairness isn’t something the government can or should provide. There will always be unfairness in the world. Efforts to create “fairness” automatically create “unfairness” for someone else.