Krugman is nothing but a political hack. If you haven't yet signed up to the blog linked at article's end you should to take advantage of HB's generosity.
The Greatest Possible Calamity
June 28th, 2010 | Author: Pater Tenebrarum
Simon Johnson …
of Baseline Scenario appears to be a big fan of Paul Krugman. So big in fact that he keeps promoting the idea that the nutty professor should be elevated from his Keynesian sniping post at the NYT to some sort of public office. The first proposal along these lines was Johnson's idea of forwarding him as the best choice for Fed chairman in the event of Bernanke's renomination failing (at the time of the Bernanke renomination hearings, considerable doubts regarding his chances of survival suddenly emerged).
Given that both Bernanke and Krugman hail from Princeton, a university where statism and central economic planning seem to be absolutely de rigeur, it probably wouldn't have made much of a difference – under both men, inflation would be and is most definitely assured.
Still, the idea of Krugman being installed in anything like a position of power grates on principle. We simply can not think of a worse idea off the cuff. The man is economically illiterate – a fact that is not mitigated by his receipt of a Nobel prize for economics (as we have mentioned previously, this prize has become a strong contra-indicator. You can usually be fairly certain that its recipients are intellectuals in the service of statist ideas).
Now that Peter Orszag has resigned as the White House budget director – possibly as a consequence of the government failing to produce a budget resolution ahead of the mid term election, which most likely is a tactical move aimed at enhancing the Democratic party's wilting chances at the ballot box – Simon Johnson immediately springs into the breach and proposes Krugman as the 'best possible replacement'. We would rather describe this possibility as the 'worst possible calamity' for the US economy.
Says Johnson:
“The president should nominate Paul Krugman to replace Peter Orszag as director of the Office of Management and Budget (OMB). (Orszag resignation details are here.) We have previously reviewed Krugman’s outstanding qualifications for this (or any other top level) job (link to details). The main reason Krugman himself has been reluctant in the past relates to a potentially difficult Senate confirmation hearing – for example, if Krugman had been put forward to replace Ben Bernanke. But for the OMB position, the dynamic of a hearing would be terrific for the president’s specific agenda and broader messages. Krugman, of course, is the leading advocate for continued (or increased) fiscal stimulus.
This is exactly President Obama’s message to the G20 this weekend. Plus, when Republicans push back against Krugman on this issue, he will let them have it full blast on fiscal policy during the Bush administration. Krugman has, again and again, been an outspoken critic of the Bush era fiscal policy. He has precise chapter and verse on where the Bush team went off the deep fiscal edge.”
Yeah well, sure enough, Krugman was suddenly and inexplicably against fiscal deficits when Bush produced them, but he is now suddenly for the much bigger deficits produced by Obama. Go figure. We think this merely exposes him as the political hack that he really is.
Why Johnson deems this flip-flopping as praiseworthy escapes us. Not that we ever thought Bush's irresponsible fiscal record was worthy of support, but for the sake of consistency we would have expected the Keynesian believer in deficit spending and loose monetary policies Krugman not to worry too much about the identity of the spendthrifts.
After all, Bush 'battled a recession' too when the Nasdaq bubble collapsed shortly after he was elected. Sure enough, 'Krugman is the leading advocate for fiscal stimulus' – the same stimulus that has utterly failed to produce anything of value in Japan for two decades and counting, and more recently in the US, where the biggest stimulus spending bonanza in all of history has resulted in the most anemic economic recovery of the entire post WW2 period.
We have previously addressed why the idea of economic stimulus makes no sense whatsoever from a theoretical point of view, but as it turns out, there are also empirical studies proving that it is utterly counterproductive.
As Bloomberg recently reported:
Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases according to Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent. “There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview. He made a presentation to European finance chiefs on the topic during their April meeting in Madrid. Such a strategy in the past has also “resulted in significant bond and equity-market outperformance,” according to an April 14 Goldman Sachs report.”
(emphasis ours)
Among those 'still not getting it' Krugman is certainly the most prominent, which makes the possibility of his nomination to a position of political power where he can implement his dangerous ideas a frightful prospect indeed.
As Bloomberg continues, delving into details:
“The key is an emphasis on cutting spending rather than raising taxes, said Goldman Sachs economists Broadbent and Daly in London. Lower spending means consumers and companies don’t fear higher taxes, so demand accelerates. A smaller public sector also helps reduce borrowing costs and makes economies more competitive as fewer government workers lighten labor expenses. In a study of 44 large fiscal adjustments in 24 advanced economies since 1975, Broadbent and Daly discovered that reducing expenditures by 1 percentage point a year boosted average annual growth by 0.6 percentage point. Raising the ratio of taxes to GDP by the same margin cut growth by an average 0.9 percentage point. The equity markets of the countries that sliced spending beat those of other advanced nations by 64 percent during a three-year period, and their bond yields fell by more than if budget adjustments had been driven by tax hikes, according to the report.”
(emphasis ours)
In addition, there is always that glaring example of the biggest ever failure of the Keynesian deficit spending and loose monetary policy combo with us that goes by the name of Japan. However, no-one can possibly accuse Johnson or Krugman and their many fellow travelers to be impressed by such a mundane thing as facts.
Johnson remarks:
“Krugman can set the public record straight on this [the fiscal record of the Bush administration] - it would be great television and very good economics.”
Maybe it would be 'good television', but anything Krugman is liable to spout is absolutely assured to be extremely bad economics. For the life of us we can not understand this focus on what the previous administration did, when the current one is doing exactly the same thing, only about four times more of it. What exactly is it that makes deficit spending under Bush 'bad' and under Obama 'good'? What has any of this to do with 'good economics'? From the standpoint of economic theory the identity of the spenders is completely irrelevant. Either deficit spending is good or it isn't. If you say it's good – as Krugman does – then you must be able to show why this is so. Krugman has in the past offered an equation to prove this contention. However, the economy can not be described by equations. This is, to put it bluntly, hair-raising nonsense (notwithstanding the fact that this nonsense is evidently taught in economics courses at universities).
As we remarked last year in 'Krugman's interventionist crusade':
“His (Krugman's] argument in favor of increased fiscal spending in Europe is summed up as follows: dY/dD = (1-m)/[1 - (1-t)(1-m)c - t(1-m)]
Read the linked article for an explanation of the formula. This is what Hayek referred to as the 'Pretence of Knowledge'. Modern day economists seem to think that if it can't be put into a formula, then it can't be science. Economics is however a social science, not a natural one. It is about human beings, and the interactions of millions, nay billions, of human beings can not be pressed into neat little formulas.”
Contrary to Johnson, we would argue that appointing Krugman to public office, especially one where he gets to have a say in either fiscal or monetary policy matters, would be a catastrophe of the highest order. It would be the intellectual and economic policy equivalent of being hit by a tsunami or a really bad earthquake. Long term economic malaise would be assured.
Addendum: as a side note to this, preliminary reports seem to suggest that deficit hawks have won a round at the most recent G 20 pow-wow.
acting-man.com |
