by Jeff Swanson
Of course I don’t agree with Paul Krugman. I’m a Republican. I’m not supposed to. I’d like to think it’s not just blind partisanship but if I’m honest, it’s a little partisan. The difference; Krugman, in all his Nobel Laureate-ness, is all partisan.
This is the great flaw of Paul Krugman, he has forsaken scientific methods for liberal touchy-feeliness but wrapped in an officious affectation.
On a recent stop with Huffington Post Live, he stated, “It’s the Republican policies that are much more likely to make us end up like Greece,”
That is, if by Republican policies, you mean spending more money than you have, overtaxing your people and expecting less work from them, then you’d be right Paul.
Let me grant one thing to Krugman, Keynesian economics could work. I honestly don’t know that it wouldn’t. My gut tells me it wouldn’t work but the great flaw with Keynesian implementation is its reliance on politicians.
This is the Pollyanna flaw of Krugman’s suppositions.
Paul recently stated as follows, “Wednesday was iPhone 5 day, the day Apple unveiled its latest way for people to avoid actually speaking to or even looking at whoever they’re with…What I’m interested in, instead, are suggestions that the unveiling of the iPhone 5 might provide a significant boost to the U.S. economy, adding measurably to economic growth over the next quarter or two.
Do you find this plausible? If so, I have news for you: you are, whether you know it or not, a Keynesian — and you have implicitly accepted the case that the government should spend more, not less, in a depressed economy.”
Besides the rather sad ‘I’m a cool dad’ type of reference with the iPhone, the pop-cultureness masks the real flaw in the concept; Krugman states further, “Why not have the government step in and spend more, say on education and infrastructure, to help the economy through its rough patch? Don’t say that the government can’t add to total spending, or that government spending can’t create jobs. If you believe that the iPhone 5 can give the economy a lift, you’ve already conceded both that the total amount of spending in the economy isn’t a fixed number and that more spending is what we need.”
The spectacularly gaping flaw in this argument is this; the iPhone has a consumer demand.
Now let’s assume that such ideas were, in fact, true. That government spending creates movement of dollars and by extension, the money greases the wheels of private commerce.
Key flaw number one; in order to have government spending, you must extract money from the economy. The Nobel Laureate appears to think that government money is a gift from the fabled golden goose. He speaks as if stimulus is largesse from a benevolent ruling class.
Clichés are often a bad way to argue but quickest way between two points is a straight line. Why take away from the market, as the government does, only to give it back as a gift called stimulus? Pointedly, if you want spending to occur in the market, don’t take it away from those who spend.
Moreover, politicians are spending the money. The point may seem obvious but, do you trust them to do the right thing? Solyndra? GM/Unions? Not-So-Shovel Ready jobs?
Another key component of Keynesian theories; increase the money supply. We’ve heard about Quantitative Easing or QE (QE1, QE2 and a possible QE3). Buying bank assets to increase dollar circulation. The assumption is; the more money in the market, the more money there is to spend.
Sounds simple enough except for one flaw; referencing the iPhone scenario, Krugman assumes the government spending money is equal to the market spending money.
This is key flaw number two; government spending is indiscriminate.
To be clear, while lacking in theory, the sum total greatest flaw of a money supply increase is that there is still no demand for goods and services. The government appears to be compelling commerce by simply choosing where the money goes. This is not an efficient model.
If indiscriminate spending were key to recovery, it would follow that whom is doing the spending wouldn’t matter. However, as detailed by Jerry Bowyer of AEI, “…But the problem is that the velocity (money circulation) argument was wrong from the beginning. It put money in the center of the analysis, rather than the production and exchange of goods and services. Money is the means, not the ends of economics. Transactions are what count. For a time they were conducted by barter, then later facilitated by money, but money is ancillary. In classical logic terms, it is accidental to the transaction, not essential to it.”
To put it simply, money is a method of exchange. Having more money where there is still no demand is immaterial. It’s just more of something people aren’t using.
Yet Krugman’s assertion is the opposite, “The economy is suffering because there isn’t enough spending. Not because there aren’t enough resources out there. Not because of hard choices we’re refusing to make. But because there isn’t enough spending. It’s really that simple.”
To this, he doubles down, “A lot of people find emotionally unacceptable the idea that economic suffering on this scale could have a relatively trivial cause. But this has happened again and again through history. And it could be fixed fairly easily, by having government step in and spend.”
Mr. Krugman simply thinks that the problem can be solved by a divined governmental intervention. But this avoids the one immutable truth that many liberals wish to discard, our market, our representative democracy functions on individual actions and ideas.
No matter the amount of money you put in to the market, if no one is willing to spend it, then nothing really happens. The reason you go out and purchase an iPhone, to further Krugman’s puerility, is due to your sense that it’s safe to spend that money.
With 900 billion in stimulus (don’t forget the money Bush spent leaving office too) and two rounds of Quantitative Easings, yet 15% of the nation is still unemployed or under employed.
What’s Government intervention got us? A hot cup of Jack Squat. Yet the Nobel Laureate thought we didn’t have enough spending.
Paul Krugman, like so many academics, believes that the Central Government can do better than individuals. Still, we get billions in pet projects. Not the corner hardware store investing in a new expansion. The government can’t think that small. But that’s where business is conducted. On the small, individual level.
I’d suggested early on that Mr. Krugman dealt in liberal touchy-feely dogma. That he had forsaken reason for talking points. He had forsaken science. Yet, I may not have been exactly correct.
Paul Krugman’s fail is that he forgets that an economy is made of people and not board game pieces.