The Straw Krugman

Posted on February 3, 2013 by yellojkt

Dr. Cowbell (to steal just one of his nicknames) is both flattered and amused by how he has become the favorite boogeyman of the right:

Funny: Angry Bear finds some of the usual suspects explaining How to Debate Paul Krugman, and the answer appears to be this: invent a straw man who bears no resemblance at all to the economist/columnist of the same name, and ridicule that imaginary person.

I have to say, never in my wildest dreams did I imagine that I could play the role of History’s Greatest Monster to so many people. Thank you for the honor!

Aside from the silliness of the exercise, this little exchange is another illustration of a point I’ve noticed before: the way hard-right commentators assume that the other side must be their mirror image. They insist that no government intervention is ever justified; so liberals must support any and all government interventions. They want smaller government, as a principle; liberals must want bigger government, never mind what for. They believe that deficits and printing money are always evil; liberals must be for deficits and money-printing under all circumstances.

I’m sympathetic to this argument because I’ve seen it in action. It seems that expressing an opinion that the legitimate of role of government is slightly more than what Friedrich Hayek (or Ron Paul) would allow makes one an advocate of Politburo-style central planning.

The column Krugman links too has a deeper link to this item where Krugman’s Articles of Faith are enumerated. I’ve conveniently bolded the portions which do seem like legitimate strawman statements.

1) Recessions, depressions and crises are the result of the unhampered market. We actually do not have to investigate if markets were really free when recessions occurred or what really were the specific causes of whatever threw the economy off track. When there is a recession, depression or crisis, there must have been too much of an uncontrolled market.

2) The Great Depression was caused by uncontrolled markets.

3) Recessions, depressions and crises are practically the result of one problem: a lack of aggregate demand. People, for whatever reason (and who cares about the reason; let’s not get hung up on those details) don’t spend enough. If everybody were to spend more, people would sell more. Problem solved. It is the role of government to get people spending again. This is done by printing money and causing inflation so that people spend the money rather than save it. Or by the government running up deficits and spending it on behalf of the stupid savers.

4) The Great Depression was solved by the government spending lots of money and the central bank printing lots of money.

5) This explains ALL economic problems.

6) If there are recessions, depressions and crises, they can all be solved by printing money and by deficit spending.

7) If after many rounds of money printing and deficit spending, there is still a recession, then only one conclusion is permissible: There was obviously not enough money printing and deficit spending. We need more of it.

8) If after another round of money printing and deficit spending we still have a recession, then….well, do you not get it? We obviously have NOT PRINTED ENOUGH MONEY and we are NOT ACCUMULATING ENOUGH DEBT! And, by the way, remember 7) above.

Krugman is practicing Keynesianism as a religion. The 8 commandments above are not to be questioned. Whoever questions them is not worthy of debate.

Now, this attack is not completely unfair since Krugman is easily the most visible and vocal advocate of classical Keynesian stimulus. But also in the article is a video of noted libertarian Hans-Hermann Hoppe, a stereotypical Austrian Economist in both accent and philosophy, who says this is the way to engage Krugman:

Ask some questions almost like a child. Explain to me how increases in paper pieces can possibly make a society richer. If that were the case, explain to me why is there still poverty in the world? Isn’t every central bank in the world capable of printing as much paper as they want?

Now here is a debating style I have come to be familiar with recently. Just pepper someone with a litany of seemingly simple questions which belie the fundamental assumptions and premises beneath them.

If we were to pick a Most Ridiculed Pundit on ATiM, Krugman would probably be in the top three. And I am no fan of his tendency to insult the basic education of his opponents, particularly ones with credentials approaching his own. But to engage in my own logical fallacy of Arguing From Authority, they don’t give out Nobel Prizes for collecting box tops. Krugman is both fun to read and fun to ridicule but he rarely makes the arguments people claim he has made. Or when he has, he is far more likely to be right than the people just tearing him down on an ad hominem basis.

Filed under: Economy, Keynes | 32 Comments »

It’s Demand & Income Inequality (Wed. Open Thread)

Posted on October 5, 2011 by lmsinca

One of my favorite conservatives, Bruce Bartlett, confirms what I’ve been saying for the last year. We’ve seen the economy worsen, from the small business perspective, and slow to a crawl. We talk to between 30 and 40 business owners a day, and don’t forget 78% of small businesses have less than 20 employees, and they all tell us they don’t really give a diddly squat about regulations or taxes right now. They care about the lack of customers. I understand my evidence is anecdotal, and there’s not necessarily a reason to believe me, but now the Bureau of Labor Statistics has verification. I also get it that Republicans and some large businesses care about regulations, especially the energy and health care industries, but could we stop pretending it’s true for small businesses or all large businesses?

On Aug. 29, the House majority leader, Eric Cantor of Virginia, sent a memorandum to members of the House Republican Conference, telling them to make the repeal of job-destroying regulations the key point in the Republican jobs agenda.
“By pursuing a steady repeal of job-destroying regulations, we can help lift the cloud of uncertainty hanging over small and large employers alike, empowering them to hire more workers,” Mr. Cantor said.
Evidence supporting Mr. Cantor’s contention that deregulation would increase unemployment is very weak. For some years, the Bureau of Labor Statistics has had a program that tracks mass layoffs. In 2007, the program was expanded, and businesses were asked their reasons for laying off workers. Among the reasons offered was “government regulations/intervention.” There is only partial data for 2007, but we have data since then through the second quarter of this year.
The table below presents the bureau’s data. As one can see, the number of layoffs nationwide caused by government regulation is minuscule and shows no evidence of getting worse during the Obama administration. Lack of demand for business products and services is vastly more important.

(lmsinca)

I also came across this interesting study yesterday. We’ve looked at so many statistics on income inequality, but I’m not sure anyone really understands why it’s important. I think this study gets to part of it at least. I also believe the “Occupy Wall Street” protests reflect the helplessness people, especially young people, feel in being able to combat it. Oh I know, they’re just a bunch of kids and unemployed people who don’t understand the global economy, but they know what’s happened to them over the last three years and it feels wrong. They’re calling themselves the 99% and that’s for both being unemployed and without benefits and also in the bottom 99%.

For example, the bailouts and stimulus pulled the US economy out of recession but haven’t been enough to fuel a steady recovery. Berg’s research suggests that sky-high income inequality in the United States could be partly to blame. So how important is equality? According to the study, making an economy’s income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent.

Berg and Ostry aren’t the first economists to suggest that income inequality can torpedo the economy. Marriner Eccles, the Depression-era chairman of the Federal Reserve (and an architect of the New Deal), blamed the Great Crash on the nation’s wealth gap. “A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth,” Eccles recalled in his memoirs. “In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped.”

Many economists believe a similar process has unfolded over the past decade. Median wages grew too little over the past 30 years to drive the kind of spending necessary to sustain the consumer economy. Instead, increasingly exotic forms of credit filled the gap, as the wealthy offered the middle class alluring credit card deals and variable-interest subprime loans. This allowed rich investors to keep making money and everyone else to feel like they were keeping up—until the whole system imploded.
There is a link to the study here which is in the current issue of Finance & Development, the quarterly magazine of the International Monetary Fund.

(lmsinca)

And last, but not least, it’s the trade deficit stupid. This piece in The Nation is an important one I think. Essentially, we need to get the wealthy investors to quit investing in financial instruments and steer them into long term “making stuff for export and consumption” stuff. There are ways to do that but they probably won’t like it too much because it’s much easier to do what they’re doing now.

But what’s behind it all is the fact that the United States cannot pay its way in the world. And while a smaller country would have expired long ago, we keep stumbling along, getting sicker, losing industrial weight, because the rest of the world has an interest in continuing to hold us upright. 

For Keynes that would be the challenge—not just to bring down but to eliminate it: the whole thing. The failure to do so has real implications for other parts of Keynes’s theory. The answer to our crisis is not to “hire and rewire,” or to have a lot of public works. Let me add, by the way: I’m a labor lawyer; I want the government to spend. I love public works. I’d love a new O’Hare Airport. I’d love a repaving of Lake Shore Drive. And certainly Keynes loved public works. He saw people starving; he had a heart. We have to do something. We can’t wait for the trade deficit to come down. But that’s not the answer—it’s urgent, to be sure, but it’s just a first step. The answer is to get rich people to put their money into real “investments” and not “loans.” It’s to induce the rich in this country to invest “by employing labor on the construction of durable assets.” Call them widgets; call them iPads. Call them anything we can wrap, ship and sell to somebody abroad.“Oh, but he wouldn’t put that ahead of the stimulus.” 

No—but he’d put them together.



Filed under: free trade, income inequality, Keynes, lack of demand, regulations, small business | Tagged: | 10 Comments »