Krugman Loves Him Some Reagan

From “Reagan Was A Keynesian,” Paul Krugman, NYT:

“They [the GOP] love, in particular, to contrast President Obama’s record with that of Ronald Reagan, who, by this point in his presidency, was indeed presiding over a strong economic recovery. … So let’s look at that comparison, shall we?

“For the truth is that on at least one dimension, government spending, there was a large difference between the two presidencies, with total government spending adjusted for inflation and population growth rising much faster under one than under the other.  I find it especially instructive to look at spending levels three years into each man’s administration…compared with four years earlier, which in each case more or less corresponds to the start of an economic crisis.  Under one president, real per capita government spending at that point was 14.4 percent higher than four years previously; under the other, less than half as much, just 6.4 percent.

“O.K., by now many readers have probably figured out the trick here:  Reagan, not Obama, was the big spender.

“Why was government spending much stronger under Reagan than in the current slump?  ‘Weaponized Keynesianism’  —  Reagan’s big military buildup — played some role.  But the big difference was real per capita spending at the state and local level, which continued to rise under Reagan, but has fallen significantly this time around.”

Reagan More Keynesian Than Obama

“Appearing Sunday on ABC’s ‘This Week,’ the New York Times columnist and Princeton professor [Paul Krugman] argued that Reagan was able to reduce unemployment after taking office in part because he grew government jobs — unlike Obama, who has significantly cut them.

“’If you actually look at the actual track record of government spending, government employment, Reagan is the Keynesian and Obama — mostly because of political constraints, although a little bit of lack of conviction on the part of his own people — has been the anti-Keynesian,’ Krugman said. ‘He’s been the one who’s been doing what Republicans say is the right answer.’

“Just over three years into Reagan’s first term, government jobs grew by 3.1 percent; at the same time during Obama’s tenure, they’ve been cut by 2.7 percent. Hundreds of thousands of public sector jobs have been shed in recent years.”

From “Krugman:  Reagan Was More Keynesian Than Obama,” Sahil Kapur, Talking Points Memo

We Are All Keynesians Again

Mitt now acknowledges that we can’t cut spending immediately without killing our fragile recovery.  In an interview with Mark Halperin from Time, Mitt said:

“Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.  … I don’t want to have us go into a recession in order to balance the budget.”  Sounding a little like Paul Krugman there, Mittens!

I had wondered how Mitt, given his business background, could not understand basic economics.  The truth is that he does understand.  Until now, he’s just been shy about admitting that knowledge because he’s been pandering to those who want huge cuts and want them immediately, not understanding the drastic economic contraction that would cause.

Look at what David Cameron’s austerity has done to Britain, sending her back into recession.

A False Choice

In his NYT column today, “The Structural Revolution,” David Brooks sets up a false choice between those whom he calls “cyclicalists” (he means you, Paul Krugman) and those whom he calls “structuralists” (hi, Paul Ryan, hi Mitt):

“The main argument you hear from these cyclicalists is that the economy is operating well below capacity.  To get it moving at full speed, the government should borrow and spend more.

“The diverse people in this camp — and I’m one of them — believe the core problems are structural, not cyclical.

“There are several overlapping structural problems.  First, there are those surrounding globalization and technological change. … Then there are the structural issues surrounding the decline in human capital.  The United States, once the world’s educational leader, is falling back in the pack.

“Then there is political sclerosis.  Over the decades, companies and other entities have implanted  a growing number of special-interest deals into the tax and regulatory codes, making it harder for politically unconnected, new competitors, making the economy less dynamic.

“Unlike the cyclicalists, we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows.”

Brooks’ false choice is highlighted in that last sentence.  I consider myself both a cyclicalist and a structuralist.  We need to focus on this cyclical downturn in the short term and on our undoubted structural problems in the short, medium, and long term.  I don’t see government spending as a force to make our economy grow under normal circumstances.  I see it as a temporary spur to counter the lack of demand in the private sector from the Great Recession.  Once we get the private sector kick-started, government should pull back.  This is classic Keynesian economics, which Republicans used to accept and believe in.

We can address some of our structural problems at the same time as we do our cyclical ones.  They are not mutually exclusive.  Brooks bemoans our decline in education.  So let’s hire back or replace some of the hundreds of thousands of teachers who have been fired in the last few years.  Some of those teachers weren’t very good?  Fine, there are plenty of unemployed people to choose from.  Same with his complaint about special deals in the tax code.  Let’s close the loopholes.  That raises more revenue that can be used to stimulate the economy and makes the playing  field more even.  Scrubbing regulatory codes of provisions that favor one company over another is irrelevant to government stimulus spending.  You can do both simultaneously.

Brooks says the problem is that “different people are having entirely different debates.”  The real problem, the sad and shameful problem, is that we’re having an election.  Some people, whose initials are GOP, don’t want the economy to get better.

 

 

The Danger and Damage of Extreme Income Inequality

From “Plutocracy, Paralysis, Perplexity,” Paul Krugman, NYT:

“If something like the financial crisis of 2008 had occurred in, say, 1971 — the year Richard Nixon declared that ‘I am now a Keynsian in economic policy’ — Washington would probably have responded fairly effectively.  There would have been a broad bipartisan consensus in favor of strong action, and there would also have been wide agreement about what kind of action was needed.

“But that was then.  Today, Washington is marked by a combination of bitter partisanship and intellectual confusion — and both are, I would argue, largely the result of extreme income equality.

“For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal.  Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.

“Disputes in economics used to be bounded by a shared understanding of the evidence, creating a broad range of agreement about economic policy. … Now, however, the Republican Party is dominated by doctrines formerly on the political fringe.

“And why is the GOP so devoted to these doctrines regardless of facts and evidence?  It surely has a lot to do with the fact that billionaires have always loved the doctrines in question, which offer a rationale for policies that serve their interests. … And now the same people effectively own a whole political party.

“Many pundits assert that the U. S. economy has big structural problems that will prevent any quick recovery.  All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.

“No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority.  And the key to economic recovery lies in finding a way to get past that minority’s malign influence.”  Emphasis added.

I think it’s obvious that if Mitt wins, this problem won’t get better.

 

 

Hey, GOP, Darwin and Keynes Were Both Right

I guess it’s too much to ask from folks who can’t accept Darwin, but why can’t the GOP recognize that Keynes was right?  They look at Europe and draw exactly the wrong conclusions.

From “Europe’s Ills Reach the Heart of the Presidential Race,” Richard W. Stevenson, NYT:

“But whichever side of the ocean you are on, few topics are more ideologically divisive than fiscal policy, so it is no surprise that left and right are drawing very different conclusions from what is happening.

“From one perspective, the European experience provides yet more evidence that trying to cut budget deficits too aggressively can backfire in a big way when economies in most nations remain fragile.

“Britain’s austerity experiment in particular has been judged by economists to have been ill-timed and poorly constructed at best.  It is a reminder, in the consensus view, that the basic tenets of Keynesian economics — primarily, that government spending plays a key role in maintaining demand when the private sector is struggling in a financial crisis — remain as valid as ever.

“In the United States, the British experience is being held up by Democrats and mainstream economists as an object lesson in the risks inherent in aggressive short-term budget cutting amid signs that the recovery could be losing traction again.

“However flawed the stimulus plan that Mr. Obama pushed through Congress in 2009, fiscal policy has helped the United States generate stronger growth rates coming out of the recession than Britain or the euro zone countries as a whole.”  Emphasis added.

 

A Little Weekend Humor from Gail Collins

From Gail Collins’ “Who Doesn’t Love A List?” in the NYT:

“The primaries have been great for the economy.  Dimwitted billionaires are dumping money they don’t need into the campaigns of people who can’t win, providing much-needed jobs for ad-writers, poll-takers and yard-sign manufacturers.

“Do you remember, at the depth of the recession, when Keynesians kept saying that we could jump-start the recovery by just paying a whole bunch of people to dig holes and fill them back in?  This is exactly the same thing!  Keep going, Republicans!”

Except that digging holes and filling them in is harmless and doesn’t cause trouble as the GOP candidates are doing.  Check out Santorum’s “Welcome to Obamaville” on YouTube.  Whoever made this sick piece of garbage should be sentenced to digging holes and filling them in for all eternity.  It predicts nothing less than the apocalypse if Obama is reelected and flashes alternating shots of him and Ahmadinejad on the screen, cause, you know, they’re so alike, a couple of Muslim guys who hate America.

 

Pericles 1, Keynes 1, Greece 0

Those who don’t learn from the past are condemned to have high unemployment.

From Paul Krugman, “In Athens, Austerity’s Ugliness,” NYT:

“Europe declared war on Keynes, and Keynes is winning.

“Yet instead of structural reforms or improved tax collection, what has changed in Greece, so far, has mostly been slashed budgets.  And, as in the rest of Europe, austerity in the middle of recession has made matters worse — just as John Maynard Keynes predicted.

“One of the earliest recorded economic crises in the Western world came in Athens in the 5th century B.C.  Fortunately, Athens was then led by the great Pericles, an early Keynesian who did not respond by slashing budgets.

“Instead he ordered a public works initiative and built the Parthenon.”

 

Mr. President, Please Listen to Paul Krugman

Paul Krugman has an excellent column, “Keynes Was Right,” up at the NYT about the wrong-headed “austerity” approach both we and the Europeans have been taking in response to the economic meltdown.  Some excerpts:

“‘The boom, not the slump, is the right time for austerity at the Treasury.’  So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United State economy — which had been steadily recovering up to that point — into a severe recession.

“Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs….

“In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom.  … [T]he failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs.  But those of us who did the math realized…that the [stimulus]was much too small given the depth of the slump.

“So the real test of  Keynesian economics hasn’t come from the half-hearted efforts of the U. S. federal government…which were largely offset by cuts at the state and local levels.  It has instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps….

“In March 2011, the Republican staff of Congress’s Join Economic Committee released a report … [that] ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence and that this might well lead to faster, not slower, growth.

“The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and in the process, made the real problem — a depressed economy and mass unemployment — worse.”

Krugman gets to the wrongheadness of GOP economic policy, both in Congress and among the presidential contenders.  They keep saying people aren’t spending and businesses aren’t hiring because of a lack of “confidence,” but the truth is that people spend when they have money in their pockets and aren’t worried about losing their homes or jobs, and businesses hire when they see actual demand for their goods and services.  The economic collapse forced families to cut back their spending.  Having local, state, and federal governments cut back at the same time is just a disaster.   Only government can make up for the lost demand in the private sector.  Laying off teachers and police and firefighters is exactly the wrong way to go, as is trying to deny people food stamps and unemployment insurance.

The Republican report Krugman cites talks about “expansionary austerity.”  Now there’s an oxymoron for you, and anyone who believes in it is truly a moron.

A Speech is Fine, But a Paycheck Is Better

President Obama’s speech was better than I expected, in the size and scope of his proposals, and in the passion of his delivery.  But to me, it should be twice as big in dollars (I’m one of the few conservative Republicans who thinks the stimulus was too small, as well as poorly devised.  This group easily fits in my kitchen.).  So his jobs plan isn’t big enough for the current lack of demand in the private sector.

Of course there’s no way his plan is going to be enacted as he presented it.  So a too-small plan will get shrunk further, maybe by another half.  If your baby needs an eight-ounce bottle, a two-ounce bottle isn’t going to get him growing.

Much of his plan is based on politics, not economics.  He chose policies that won’t give us the most bang for our buck, but are designed to appeal to Republicans.  He should be careful what he wishes for.  The Republicans will probably approve an anemic plan — just enough so they can say they weren’t obstructionists, not enough to help him get re-elected because the economy is improving.

Richard Nixon said, “We are all Keynesians now.”  Now I’m one of the few Republican Keynesians left.