Paul Krugman, Nobel Prize winner, Princeton economics professor, and New York Times luminary has a theme for writing columns lately in the NYT, and I would hope that most people with a reasonable IQ can ascertain it by now: make Obama's fiscal stimulus package larger. Yes, that's it. And today he re-iterated his reiterations by adding this "meat" on the thematic bone: drop the tax cuts, increase benefits for the unemployed, and ramp up the Keynesian "infastructure" projects. More, more, more. Otherwise, he warns, we might not get the benefit from the fiscal stimulus (just like FDR, he assures us, who didn't go far enough with the New Deal).
To my lights, Paul Krugman has the flavor of a guy who wants to see his academic work tested in the field of battle. He's an ideologue. And what Krugman wants, ideologically, is to see a really, really big Keynsian project make all the difference. He wants to be exonerated for being (more and more it seems) entrenched in his academic position, a position which it's fair to say is decidedly unlike the recent pragmatism shown by President-elect Obama. Krugman wants to see pure theory played out in practice. And the Credit Crisis is his BIG CHANCE. Well, he might after all be right. But I have to confess that I've been systematically unconvinced by his slew of same-sounding columns in the Times. It might behoove Mr. Krugman, even with that Nobel Prize, to dig a little deeper to help us understand why, exactly, spending trillions right now is exactly what we need to do. Convince us. I mean, don't assert it, give us reasons. Why, for instance, should we jettison Mr. Obama's proposal to cut taxes on small businesses and instead pump massive amounts of tax payer money into selected government projects? Why, for instance, should we crank out tax payer dollars for causes like "enhanced unemployment benefits" with the aim of getting the economy moving again? How does this happen?
To be sure, Mr. Krugman's assertions thus far all sound grand, from a "social justice" point of view. No argument here. But -- talking about stimulating the actual economy -- I'm a little less clear how the types of spending packages promulgated by Krugman translate into getting the Business Engine started again in America. Confusing, perhaps, since stimulating the economy is precisely what he claims to be discussing. Maybe Mr. Krugman's next column will reveal all. (On second thought, don't count on it. But do count on another column making exactly the same point.)
At any rate I won't stop reading Mr. Krugman, no way. It's a great deal: editorial after editorial with the same message, and hardly a detailed argument in any of them (suggests a little argumentum ad verecundiam perhaps), along with a full-stop endorsement of any and all government spending projects. Well, he makes me a True Believer, in a sceptical non-believing sort of way. The Nobel Prize must be worth something.
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4 comments:
It's not really that hard to understand, though, is it? It seems like fairly straightforward Keynesian economics to me. The economy is shrinking and people are very fearful about the economic future. This means that people don't want to invest in businesses and don't want to buy things right now. Ergo, companies don't bother to hire new people, don't buy new equipment, etc. Instead of taking chances on new production lines, service offerings, they try to hunker down and cut costs. As people spend less, businesses spend less, lay off more, and the cycle continues. The way to break that cycle is to pump a source of revenue into the cycle. Companies chase that revenue, invest in new equipment, people get hired, they start buying new TVs, etc.
That's also why tax cuts are just not very helpful. Only morons would spend the money she get from a tax cut if she thinks there's a decent chance she'll lose her job in the near future. And a company afraid of making payroll next month won't use tax cuts to hire new people. Tax cuts do little to stimulate the economy in an environment in which everyone is scared shitless.
And I don't think we really have to attribute those kinds of motivations to Krugman. Isn't there a simpler explanation? He think he's right and wants the economy fixed?
Krugman does say that the tax cuts won't work for essentially the reason you gave. But I can't find much of an argument, specifically for stimulus, for ideas like expanded unemployment benefits. This sounds like social welfare, which is a laudable goal for a just society, but is a little tenuous, in my view, in the context of fiscal stimulation. The real meat of Krugman's proposal seems to be:
a) fiscal stimuli in general don't work unless they're very large (he cites the New Deal as an example of not doing enough).
b) "shovel ready" projects should be augmented by mid to long term ones to get us out of the woods in the next 2-3 years (we're screwed before this time anyway)
I'm not an economist, but I am a philosopher, and what I'm keying on is the lack of specific reasons why a) and b) are true. Since we're about to commit HUGE amounts of tax payer money to a stimulus, I think Krugman should do more by way of arguing for the more-is-better idea, not, as I see it, asserting it.
Is that fair?
I assume that expanded employment benefits probably stimulate fairly effectively because we can be reasonably certain that all of it will be spent. Of course, I agree that Krugman doesn't get to say, "spend more because I think it will help and hey, I'm Paul Krugman". They don't sound like unreasonable hypotheses to me, but you're right, you don't mortgage your children's future on things that only manage to meet the "don't seem like unreasonable hypotheses" sniff test.
To clarify, I didn't really mean "mortgage your children's future", as I'm not quite sure what it means to do that but I meant "commit them to a lot of debt"
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