With respect to most prominent economists, I accord them a certain form of professional courtesy, namely that even when I disagree with them, I regard their opinions as held in good faith, even when I disagree with them, and even when there seem to be some pretty obvious reasons why they can't be right. Perhaps in some cases they are arguing in bad faith and I'm unduly generous, but I'd rather do that than accuse the innocent.
There is only one exception to that rule: Paul Krugman. I'd hesitate to say the name if it weren't for this NY Times column ("Bad Faith Economics") in which he basically calls half the profession liars.
As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.
It's true that it would be quite confusing if government activism were suddenly vindicated in the way Krugman is thinking of, contrary to both reason and past experience. The New Deal didn't work. Combined with Hoover's interventionism, it turned what could have been a V-shaped recession into an L-shaped recession, making the whole decade of the 1930s a lost decade. It's true that the economy grew-- a dead cat bounce-- during FDR's first term, but it never regained 1929 levels or came near full employment, and came crashing back down in 1937-8. Only the war, which forced us to return to some kind of economic rationality just to make bombers and tanks, got us out of it, and by the end of it FDR was dead. It's not for the sake of our ideology or class interests or whatever that most economists, especially conservative ones, don't want a rerun of the 1930s. It's because they were disastrous times for humanity.
Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already made headlines with one such shot: looking at an $825 billion plan to rebuild infrastructure, sustain essential services and more, he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to “spend hundreds of millions of dollars on contraceptives.”
And why is the government spending so much on Medicaid family planning? Condoms are cheap. Better to give poor people the money and let them buy condoms themselves-- or something else. Particularly since milions of respectable voters have moral objections to contraceptives. Boehner is right.
But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible to those who don’t know their way around economic concepts and numbers. So as a public service, let me try to debunk some of the major antistimulus arguments that have already surfaced. Any time you hear someone reciting one of these arguments, write him or her off as a dishonest flack.
First, there’s the bogus talking point that the Obama plan will cost $275,000 per job created. Why is it bogus? Because it involves taking the cost of a plan that will extend over several years, creating millions of jobs each year, and dividing it by the jobs created in just one of those years.
It’s as if an opponent of the school lunch program were to take an estimate of the cost of that program over the next five years, then divide it by the number of lunches provided in just one of those years, and assert that the program was hugely wasteful, because it cost $13 per lunch. (The actual cost of a free school lunch, by the way, is $2.57.)
The true cost per job of the Obama plan will probably be closer to $100,000 than $275,000 — and the net cost will be as little as $60,000 once you take into account the fact that a stronger economy means higher tax receipts.
OK, I'll skip this one because I'm not up on the accounting-- JustOneMinute has what seems to me a devastating takedown though. I'd want to ask: Is the government going to be creating net jobs, or attracting employees out of the private sector, crowding out private employment? I don't believe that anyone really has any idea.
Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.
Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.
The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending...
This is ludicrous. Obviously we're going to finance critical functions like air traffic control in any case. Stimulus spending, by its nature, is going to be on discretionary things. And there is a reason to presume that, not in every case but as a rule, a dollar of tax cuts/private spending is better than a dollar of public spending. Krugman adds:
Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.
This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.
Earth to Krugman. This is a reasonable Keynesian argument. But a lot of economists just don't believe in Keynesianism. There has been a counter-attack against Keynesianism for the past thirty years or so. Have you heard of "the rational expectations revolution?" If you're skeptical about, but do not completely dismiss, Keynesianism, to advocate a tax-cuts-only stimulus is an application of the "first, do no harm" principle. Government spending, especially discretionary spending undertaken fast, is often/usually wasteful. Even if you do stimulate aggregate demand you're destroying some aggregate supply in the process, and if you don't stimulate aggregate demand-- for example, because people see the budget deficit and get even more scared about the future-- then you're still in a recession and have dug yourself a deeper hole. If you cut taxes, at least whatever the money is spent on passes the test that somebody thought it was worth it to them, for their own money. This "argument against public spending in general" is not only not nonsensical, it is absolutely central to welfare economics and the theory of constrained maximization, to the extent that the discipline of economics is inconceivable without it. But don't worry, Krugman understands it perfectly well. It's just not in his interest to admit that right now.
Finally, ignore anyone who tries to make something of the fact that the new administration’s chief economic adviser has in the past favored monetary policy over fiscal policy as a response to recessions.
It’s true that the normal response to recessions is interest-rate cuts from the Fed, not government spending. And that might be the best option right now, if it were available. But it isn’t, because we’re in a situation not seen since the 1930s: the interest rates the Fed controls are already effectively at zero.
That’s why we’re talking about large-scale fiscal stimulus: it’s what’s left in the policy arsenal now that the Fed has shot its bolt. Anyone who cites old arguments against fiscal stimulus without mentioning that either doesn’t know much about the subject — and therefore has no business weighing in on the debate — or is being deliberately obtuse.
Not at all. The Fed can always print money. Krugman understands this because that's what he was telling the Japanese to do in the 1990s, when they were in a long slump which Keynesian-style fiscal stimulus only exacerbated. It can print money and buy assets, as it's been doing, or we could just print money and send it out to regular citizens. Krugman has made a strange argument that you can fall into a liquidity trap where newly-printed money just gets saved. I didn't read the model carefully enough to say whether it's right, or whether its assumptions are plausible, though it would have the odd implication that in the equation of exchange, MV=PY, V would have to be a function of M such that V=1/M-- exactly! In any case, many economists can believe in quite good faith, either (a) that Krugman's liquidity-trap model is wrong and liquidity traps cannot occur, or (b) that we're not in one now. It doesn't seem that even the Japanese in the 1990s were in one, because when they did try "quantitative easing" of the money supply, it worked. The claim that "the Fed has shot its bolt," i.e., that monetary policy can do no more and we're in a liquidity trap, is at best a plausible hypothesis. To claim that this is THE verdict of economic theory and that to deny it is bad faith, is itself bad faith. Krugman is being, so to speak, "deliberately obtuse."
These are only some of the fundamentally fraudulent antistimulus arguments out there. Basically, conservatives are throwing any objection they can think of against the Obama plan, hoping that something will stick.
But here’s the thing: Most Americans aren’t listening. [No polls are cited in support of this claim.] The most encouraging thing I’ve heard lately is Mr. Obama’s reported response to Republican objections to a spending-oriented economic plan: “I won.” Indeed he did — and he should disregard the huffing and puffing of those who lost.
If Obama does take Krugman's advice and rams through a big stimulus bill over the opposition of Republican "losers" and against the professional judgment of much of the economics profession, his behavior will be a notable contrast to that of George W. Bush in 2005. Bush ran and won on Social Security reform twice. Unlike Obama, Bush won by laying out a well-thought-out platform at the Republican National Convention, which swung enough voters to create a generally stable pro-Bush majority (though a poor performance in the first debate caused his support to dip briefly). Voters gave him a solid mandate for this platform by re-electing him with increased margins throughout the country and electing 55 Republican senators and an increased majority in the House. Bush, accordingly, set out to reform Social Security. He wanted to do so, however, in a bipartisan fashion with Democratic support, and invited the Democrats to discuss options. The Democrats refused to do so, choosing instead a bitter scorched-earth policy. So Social Security reform did not pass. That was unfortunate for the country, but one must still Bush with a certain political good sportsmanship.
Obama did not run as a big-spending liberal. "I will cut taxes - cut taxes - on 95 percent of working people," is surely the best-remembered line in his campaign, and his ads in the last month of the campaign thundered over and over again, "We just can't afford John McCain," as if John McCain were going to be the bigger spender of the two candidates. Against this, McCain claimed over and over again that Obama was going to raise taxes, but the claim ultimately fell flat. I think people decided, not necessarily that Obama was too honest to break his promises - he's a politician, after all - but that he'd committed himself so heavily to be a tax-cutter that he'd pay too high a political price for backing away from that. And of course, he also claimed to be a "uniter," which suggests trying to find consensus with the opposition. To give credit where it's due, the stimulus is said to be about half tax cuts, so Obama doesn't seem to be breaking promises yet.
UPDATE: Krugman writes in a blog post:
I think, is that we’re living in a Dark Age of macroeconomics. Remember, what defined the Dark Ages wasn’t the fact that they were primitive — the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed... I’m tempted to go on and say something about being overrun by barbarians in the grip of an obscurantist faith, but I guess I won’t. Oh wait, I guess I just did.
History lesson: the barbarians were not "in the grip of an obscurantist faith." If Christianity is the "obscurantist faith" in question, it was the Romans who were in its grip. And that obscurantist faith preserved Greco-Roman learning through the Dark Ages and got us out of them.
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