Paul Krugman:Bad Faith Economics

[cal04]

http://www.nytimes.com/2009/01/26/opinion/26krugman.html?_r=1

As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.

Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already made headlines with one such shot: looking at an $825 billion plan to rebuild infrastructure, sustain essential services and more, he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to “spend hundreds of millions of dollars on contraceptives.”

But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible to those who don’t know their way around economic concepts and numbers. So as a public service, let me try to debunk some of the major antistimulus arguments that have already surfaced. Any time you hear someone reciting one of these arguments, write him or her off as a dishonest flack.

(snip)
These are only some of the fundamentally fraudulent antistimulus arguments out there. Basically, conservatives are throwing any objection they can think of against the Obama plan, hoping that something will stick.

But here’s the thing: Most Americans aren’t listening. The most encouraging thing I’ve heard lately is Mr. Obama’s reported response to Republican objections to a spending-oriented economic plan: “I won.” Indeed he did — and he should disregard the huffing and puffing of those who lost.

[glinda]

1. Less people = less strain on resources

[Captain Hilts]

5. 'Fewer' people.

Less fat, fewer calories.
Fewer cubes of sugar, less cream in your coffee.

There you go.

[whistle]

6. All 1026 billionaires put a strain on 66% of all the planet's resources

[glinda]

26. That too!

[Ernesto]

2. Give me a break!

A mental midget such as boner is going to tell us what is going on? Have another ciggy john... then, please, go away, far away.

[Greyhound]

3. Good arguments and plain demonstration of the lies and weasels that

are being used.
I hope Obama has Krugman on speed dial and uses it before deciding every economic policy that comes up.
:kick: & R

[whistle]

4. Bingo...and did Paul Krugman ever put Sam Donaldson in his place this morning

...when Sammy Don tried out one of those fallacious conservative talking-out-of-his-ass points on...that's right...having the Federal Reserve lower the interest rate. :crazy:

Hey Sam, the Fed under BushCo shot the interest rate jog three months ago. Nothing left to lower and Krugman pushed that idea back down your smirking throat. Donaldson should investigate the news once in awhile rather than just reading the teleprompter.

[gratuitous]

7. I hope the Democratic response is "We won"

And not, "Thank you sir, may I have another?"

It will be up to each of to make sure our Democratic representatives and senators stay on board with this. For those of you not blessed with Democratic elected officials, try telling your Republican jerk-offs that they can shove their penny-ante objections up their well-upholstered backsides. We've done Republican economic policies for the last eight years, and seen the complete meltdown of our financial system. It's time to swallow whatever pride they might have left, listen to the majority of people for a change, and start thinking about the country instead of their miserable political careers.

[Captain Hilts]

8. This column is really good.

FDR and ER: We think so!
FDR: Party on, Eleanor.
ER: Party on, Franklin.

[Ernesto]

9. Give me a break!

A mental midget such as boner is going to tell us what is going on? Have another ciggy john... then, please, go away, far away.
Don't forget your buddy Phil Gramm..... Now there's a real 'merican........ Thanks again repukes!

[Cash_thatswhatiwant]

10. this is wht it's about...they don't want to see government actiivism vinciated.

rush limbaugh has already admitted that the only reason he opposes the stimulus package is he's afraid if it works it could hurt republicans for a long time.

republicans don't care about america.

[notesdev]

11. Krugman is the one arguing in bad faith

His Keynesian economics have been proven to be a disastrous failure and rather than admit that he was wrong, he wants us to go all-in on a proven losing strategy. No thanks, Paul.

[muriel_volestrangler]

12. Keynesian economics hasn't happened in the USA since WW2

so I can't see how you can say it's 'proven to be a disastrous failure'. They're about to start trying it.

[notesdev]

13. Oh yes it has

What do you think the Federal Reserve management of interest rates is? This is pure Keynesianism, where some group of people who think they're smarter than everyone else 'manage' the economy (to disaster). Keynesian "stimulus" is nothing new, for the entire extent of my lifetime I have watched governments of both parties engage in this approach.

Every time you put a small group of people in charge of an economy, they will invariably steer it to their own interests, whether those people be government regulators or private bankers or trade agreement negotiators.

The current crisis is the RESULT of the Keynesian economic philosophy. After the Internet bubble popped, the high priest of Keynesianism at the time (Greenspan) decided the way to mitigate the consequences was to blow an even bigger credit bubble. Now, 7 years later, we reap the results - the housing bubble was the biggest credit bubble ever, and now we are in the biggest credit bust ever.

The bank bailout is more Keynesianism. Let's take a look at where that went. After doubling the money supply, how much of that money actually went into the economy? NONE of it. Every last dollar went onto bank balance sheets and stopped cold right there. What Keynesians have no answer for is what do you do when no one is willing to lend and no one who can borrow wants to borrow. That is the situation we are in right now and all this talk of 'liquidity' is pissing into the wind. Liquidity is not the problem, solvency is the problem.

And you don't get out of the problem of solvency by continuing to spend more money than you have. If spending was the answer, then Bush with his historically unprecedented spending should have produced an economy more prosperous than any that came before. Does this look like prosperity to you?

[1776Forever]

16. The Keynesian moment - Krugman's argument for it......

November 29, 2008, 12:03 pm
The Keynesian moment

http://krugman.blogs.nytimes.com/2008/11/29/the-keynesian-moment/

Greg - (referring to the following article)

N. GREGORY MANKIW
Published: November 28, 2008
http://www.nytimes.com/2008/11/30/business/economy/30view.html?_r=1&partner=permalink&exprod=permalink

has this exactly right:

IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

I think it’s worth saying a bit more about why, exactly, we’re in such a Keynesian moment.

If Keynes receded in our consciousness over the past few decades, it wasn’t mainly because of uninformed criticisms from the right; it was because central bankers seemed to have everything under control. Uncle Alan and his counterparts, by controlling the money supply, could do the job of stabilizing the economy, and Keynesian fiscal policy seemed irrelevant.

Now, Keynes understood the role of monetary policy quite well, and believed that it had been effective in the past. What he argued, however, was that there were situations in which monetary policy could do no more — and that the world economy he lived in was facing such a situation:

To-day and presumably for the future the schedule of the marginal efficiency of capital is, for a variety of reasons, much lower than it was in the nineteenth century. The acuteness and the peculiarity of our contemporary problem arises, therefore, out of the possibility that the average rate of interest which will allow a reasonable average level of employment is one so unacceptable to wealth-owners that it cannot be readily established merely by manipulating the quantity of money. So long as a tolerable level of employment could be attained on the average of one or two or three decades merely by assuring an adequate supply of money in terms of wage-units, even the nineteenth century could find a way. If this was our only problem now—if a sufficient degree of devaluation is all we need—we, to-day, would certainly find a way.

Archaic language, but he was describing a situation very much like the one we face now.

To be sure, Keynes failed to foresee the postwar rise of the “marginal efficiency of capital” -

Marginal Efficiency of Capital

(1936)

Developed by English economist John Maynard Keynes (1883-1946), marginal efficiency of capital describes the rate of discount which would make the present value of expected income from fixed capital assets equal to the present supply price of the asset.

As investment increases, the rate of returns decreases because early investment was directed at the most lucrative possibilities; subsequent investment is channeled into less promising areas and the returns diminish.

Source:
J M Keynes, The General Theory of Employment, Interest and Money (New York, 1936)

— the way that economic growth combined with inflation would create an environment in which interest rates were high enough in normal times that monetary policy was effective at fighting slumps. Hence the long era in which Keynes didn’t seem all that relevant. But his analysis remained as valid as ever, under the right conditions. Those conditions reappeared first in Japan during the 90s; now they’re everywhere.

And in the long run, it turns out, Keynes is anything but dead.

[HamdenRice]

17. You're wrong on both counts

1. Keynesian economics has generally worked well since World War II. The federal government has generally managed to keep recessions mild and short in the U.S., and we've not had a depression since the 30s until perhaps now. (I disagree with Muriel upthread that it hasn't been tried since WWII. In fact, it has been used consistently to manage the economy since WWII.)

2. Greenspan was not a Keynesian. He was a monetarist. You can't carry out Keynesian economics from the Fed. You do it from Congress and/or the White House through taxation and spending policy. The only possible Keynesian moment by Greenspan was his endorsement of the Bush tax cuts before Congress, but that was just him supporting the policy of another branch of government, not implementing it.

By coincidence, I had just posted a little blurb about what "Keynesian" economics actually is -- it's a term that's thrown around a lot, but few people seem to know what it actually is:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8139187&mesg_id=8141722

[On the Road]

27. It's Difficult to Understand What You are Proposing

partyly because of your terminology.

Keynesianism is generally thought of as fiscal policy as opposed to monetary policy -- government spending rather than lowering interest rates. The small amount of Keynesianism practiced since the Great Depression has usually been done under another rationale, such as extending unemployment benefits.

Monetary policy has been shown to be much more effective, but it's more difficult to do well -- like steering a blimp in shifting winds. In hindsight, monetary policy was too loose for much of the last ten years, and then tightened too much mid-decade.

You seem to be conflating the two and suggesting that neither one will work now.

[HamdenRice]

18. Keynesian economics has consistently guided US policy since WWII

Perhaps you mean this is the first time it's being used to confront a depression. Most of us seem not to really understand what Keynesian economics is. Here is a little summary I wrote earlier this morning:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8139187&mesg_id=8141722

Eisenhower's national highway funding, Kennedy's investment tax credit, Nixon's CETA (Comprehensive Education and Training Act) and Carter's expansion of CETA, Reagan's tax cuts, and Bush II's tax cuts were all orthodox applications of Keynesian theory. Ironically, Clinton was a monetarist, focusing on raising taxes and balancing the budget for the sake of the long bond market.

But it is simply wrong to say that Keynesian economics hasn't been tried since WWII.

[Shiver]

19. I thought Greenspan followed Friedman's ideas...

:shrug:

[HamdenRice]

20. Correct. He was a Friedman monetarist, not a Keynesian. nt

[Shiver]

21. And isn't the Friedman economic philosophy

One of massive deregulation and "trusting the markets"? Y'know, stuff that has essentially been the cause of the current economic problem and is basically in opposition to Keynes?

I mean, I'm no economist, but if Greenspand has basically been in charge, and Greenspan followed Friedman, and Friedman is in opposition to Keynes, and Keynesian economics helped with the Great Depression... anyone else coming to this line of thought?

[HamdenRice]

22. Yes, but it's a bit more complicated

Friedman did believe in massive deregulation. But the main idea behind monetarism is a bit more complicated. The core of Keynesian economics is to manage of the economy through the use of the formula:

AD = C + I + G + (X-M)

to achieve a high employment level equillibrium.

Friendman's monetarist theory was that the only way to manage the economy was through the money supply, ie through the Federal Reserve.

So, in a way, the main ideas of Keynes and Friedman are aimed at different parts of the government. Keynes is telling Congress and the president how to set taxes and government spending. Friedman is telling the Fed how to manage the money supply.

But as our system is set up, Congress and the president have almost no control over the money supply. And the Fed has almost no control over taxation and spending. So, as implemented, the theories kind of talk past each other.

But Greenspan definitely used Friedman's theory at the Fed, and he used it in a blatantly partisan way to prop up Repug administrations with low interest rates, which led to the asset bubble, which led to the current economic crisis.

[Shiver]

24. Gotcha, I think I understand now

I'd personally go with Keynes and drop Friedman into a dumpster...

[many a good man]

25. Keynes = fiscal, Friedman = monetary

Thanks for making this important point. The Right Wing trumpets Friedman's Monetarism and always puts down government spending. Facts are irrelevant to them.

The multiplier effect is at the core of Keynesian policy. Government spending of one dollar to create a new job will generate more than one dollar in economic activity because the owner of that job will now have money to spend on clothes, food, etc. Keynes intended deficit spending to be temporary, only used in times of recession, with spending returning to sustainable levels after the economy recovers. Unfortunately the second part usually doesn't happen.

[1776Forever]

14. Here's to Krugman - AKA Merlin....

A man we should be listening too!

[Hubert Flottz]

15. Faith based Economics

Is a Product of the GOP. It depends on trust...now we know they can't be trusted, so let's go back to the FDR era regulations that worked and that we can trust.

[MrsBrady]

23. with contraceptives

there will be less abortions

less people who need those pesky "essential services"...

is that sooooooo hard? :banghead: