Krugman's Keynesian Devotion Dooms Us to Future Downturns

I try to read all of Princeton economist and New York Times’ contributor Paul Krugman’s columns. Call it a nerdy form of masochism. By the end of each article I’m often left ripping at my hair and gouging at my eyes, screaming madly, “how did this guy win a Nobel?!?” Then I’m reminded that Yasser Arafat and Al Gore are also Nobel laureates and that maybe I shouldn’t make such a big deal out of the award.

Regardless of my disdain for his ideology I simply cannot stop reading. His seemingly religious belief that spending for the sake of spending is the solution to any economic crisis is admirable in its consistency.

Then again, it’s also fun to watch him run in rhetorical circles when he’s wrong. Remember this gem?

“[Fannie Mae and Freddie Mac] didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issues to borrowers who made substantial down payments and carefully documented their income.”

Oops, got that one wrong. Must’ve missed the $4.3 trillion in subprime mortgages.

Well in his latest column he gets it wrong again. But in all his economic vanity he can’t admit it. Quite the contrary, he predicts the future for us, the conservative fools, who seek to deter the government from spending us into bankruptcy. In true doom and gloom fashion he argues “[F]uture historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression.”

Fortunately, we, the conservative fools, have good company. The G-20 Summit, composed of leaders from the world’s largest economies, have decided that trimming deficits is the best way to achieve long term stability in the world economy. German Chancellor Angela Merkel has been one of the most vocal advocates of putting government spending on a sustainable path. In a response to President Obama’s call for more stimulus, her government said,

“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis. That’s why they have to be reduced.”

Nobody? Is that a challenge? Apparently Paul Krugman took it as one. In his latest column Krguman explains why the silly know-nothings at the G-20 summit, with their commitment to fiscal sanity rather than spiraling deficits, will inevitably lead to the “Third Depression.” He writes:

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

Gasp! Inadequate spending. Only in the wonderland that exists inside Krugman’s head could trillions of dollars in new government debt be considered “inadequate spending.” If the United States escaped the Great Depression by building tanks for World War II, Krugman wants us to escape this recession by building presses to print all the money we’ll need for his “stimulus.”

The problem is that Paul Krugman thinks myopically. We must spend, spend, spend and do it now, now, now. Forget the fact that we have no plan to solve these deficits in the long term, beyond inflating our currency to the point where deficits won’t matter. The rest of us have a more nuanced understanding. We actually possess the ability to assess the long-term. Moreover, the ability to think in future terms necessarily colors the way we act in the present.

As Shawn Tully of Forbes explains,

“[I]f investors are convinced that Washington has a plan to restore fiscal balance, they’ll be content with lower returns on their stocks, bonds and buildings for a simple reason: those returns will prove more stable and predictable. That comfort level, in turn, lowers risk premiums and raises the prices of equities, corporate bonds, houses, and office towers.

Right now, many investors and managers are simply terrified by the absence of a roadmap to avoid ruinous debt. “We need to know that Washington can make tough choices, that our leaders are willing to do things that are unpopular,” says Paul Willen, an economics professor at MIT. “More than anything, people need to feel that this is not out of control.”

Frankly we’re scared, not just of today’s economic downturn, but because of a future made cloudy by insurmountable government deficits. In the face of a frightening future, Americans are saving rather than spending, companies are shunning risk and entrepreneurialism, and foreign lenders may soon ask for higher interest rates to hedge against inflation.

Keynes once said, “in the end we are all dead.” Krugman seems to base his entire economic philosophy on this one sentence. There is little other explanation for why he puts so much emphasis on spending now regardless of whether we can pay for it later. Our generation deserves better than that. Solving today’s crisis should not come with the caveat that we have doomed ourselves to another one.

by Brandon Greife, Political Director of the College Republican National Committee


Breaking Uncle Sam’s Spending Addiction

Uncle Sam is addicted to spending. We’re use to seeing him pointing and saying “I want YOU!” He’s still pointing but now he’s saying “I want your CASH.” He needs a fix. It is little wonder that he is addicted. Washington has developed a culture of spending in which elected officials are worried about getting elected today regardless of the fiscal consequences of tomorrow. Well now it is time to send him to rehab. There have been many attempts at doing so, but detoxing is never fun and Uncle Sam apparently lacks the will to see it through.

Earlier this week, Republicans unveiled their new “YouCut” program, saying it will give voters the chance to tell Capitol Hill what budget-cuts they think are necessary. The program is meant to harness the internet’s power of social media to allow citizens more access to the decisions of their government. In an out of touch Washington it is meant to empower citizens. Each week Republican members of Congress will submit a few proposals to cut some fat out of the federal government. These choices will then be presented to Americans who will be given the chance to vote on which cut they would like to see implemented. Republicans will then use the procedural tools available to the minority party to force a vote on the spending cut. House Whip Eric Cantor, who is putting on this spending “intervention” hopes the method will help.

Democrats, who don’t want to lose their best junkie, have been quick to criticize the program. Alec Gerlach of the Democratic National Committee criticized the program because it “would cut less than one-tenth of 1% of the budget.” Liberal blogger Mark Coatney was quick to pile on saying “Cantor’s ambition seems a little small. Even if you enacted EVERY ONE of these proposals, the savings would be around $6 billion over 5 years.”

These critiques fail to understand the program and reinforce the nickel and diming of the American people. First, each makes a point to highlight how small the cuts are. The average of the first round of proposed cuts is around $800 million dollars. Though only a tiny percentage of the federal government’s budget I don’t think any American is willing to call that pocket change. Lets put it this way – the average household pays around $10,000 in federal taxes each year. If you enacted just one of the YouCut savings – 80,000 households worth of income tax could be saved or put to better use. Still “underwhelmed?” And of course this is only week one of a continuing program. Americans will have the opportunity to vote on cuts each week so the aggregate effect of the cuts will continue to grow.

My main problem with the Democrats argument is that it reveals a flippant attitude toward addressing the culture of spending in Washington. Politicians have become so used to fighting for $1 trillion additions to the federal budget that they ignore the “small” $500 million programs that are purely a waste of resources. This refusal to think small has dampened our ability to dream big.

Small stuff adds up. If we start addressing the thousands of small ticket items that are clogging up our budget and wasting taxpayer resources then we may be able to get back on a path towards fiscal sustainability. A million here, a billion there, and before you know it we’re making a real difference.

Moreover, the program is really about changing the culture of spending into a culture of saving. Rep. Paul Ryan, a Janesville Republican who serves on a new presidential fiscal commission examining major ways to cut the federal deficit, acknowledged that the YouCut program alone won’t balance the budget.

“But it’s a start,” he said. “We’ve got to get the culture in this country focused on containing the cost of government, containing spending. You can’t tackle the big things unless you change the culture.”

Their main argument in favor of YouCut is that it will get the average citizen to think more about reducing spending, and allowing them to let Uncle Sam know that that is what they are thinking about. One definition for culture is “an integrated pattern of human behavior.” In order to integrate a new pattern of spending, preferably of less spending, we have to change the culture, even if it means starting small.

Uncle Sam needs to go to rehab. He’s become addicted to spending and it has left him weak. His enablers in Washington want him to stay hooked. Addiction to spending leads to a lifetime of big government which is exactly what Democrats want. But we must fight to change the culture. To do that we must stop consistently ignoring the thousands of small cuts that need to be made to our budget. With our futures on the line who better to decide than us?

by Brandon Greife and Adam Welsh

A Modest Proposal to Reduce the Deficit


As is known the liberty choking deficits will continue to rise during the Obama administration and well after as the Social Security and Medicare schemes enter their terminal stages.  Added to the after effects of the Great Depression and the Great Society are of course the new wild eyed spending of the Great One himself.  Deficits and government debt will soon eclipse the ability of the economy itself to pay for them.


What to do?  


My advice is simple--first, what has caused the rise in spending?  Is it a matter of helpless citizens who require government intervention for the sweet pap of sustenance?  Unlikely, altough at this point there are many debilitated by their long association with that noxious entity known as the welfare state.  


No, the real cause in the increase in government spending will always be not the weak, not the poor, not the ill, not the poorly educated, no, but rather those who seek power, money, prestige and security for themselves through the otherwise legitimate purposes of government.  


Granted, it's not acceptible at this point in history, with bald face, to expect the populace to tend to your aristocratic drive for all the good things this world has to offer at minimal expense to oneself.  Needless to say, those drives have not been exteminated from the human soul, no, but they have become modulated and recast--a compensatory masquerade--as charitable concern for others.  That is, when one seeks well remunerated employment in the pursuit of aleviating the suffering of others, then one can exercise the baser drives always found in those attracted to governance--but this time with a clean, modern, enlightened conscience.  Superiority even.  What a perfect circle!  My life is to improve the lot of my inferiors, which act makes me superior, which fact guarantees that my secure job will never be done.  Therefore taxes must be levied in perpetuity!


Sad but true.  There are available to us but two ways to short circuit this vicious circle.  One, we could all demand to join this Great Effort and thereby speed it's collapse by depriving it of any honest human beings to exploit for its upkeep.  This is the scenario currently playing out in Greece, et al. in Europa where a majority work for the "public interest."  Or we could take the opposite tack--not the wholesale jumping into a sinking ship--and thereby insure that some civil society, some operation of a free economy is vestigially present before the coming dissolution of the Great Government, since that freely operating society is in fact what we truly rely on for human existence (I refer to free contract, association and speech).  


No, to rid ourselves of the burden of a government which has become the thing not agreed to (the ultimate perversion of the only valid role of govenment, namely, to protect one from the what has not been agreed upon)  then we must rid ourselves of the individuals mentioned above, that is, government workers  


Hence, to free ourselve of the deficit I suggest we as a nation sell all government workers to China as slaves in exchange for the outstanding US debt held by that nation.  Not only do we free ourselves of the source of increased government spending, not only do we enjoy a windfall to eliminate a good portion of the outstanding debt, but we also adress decisively the trade imbalance with that fast growing economy.


Which government employees do we sell?  It's simple, all who do not require a gun to do their jobs and therefore do not risk their lives to earn their pay will be culled for the slave galleys to China.  This is a very sensible distinction on all grounds.


Now, many will pause at such an act--do we really want to take a step backwards in history towards the abomination of slavery?  This is well thought.  Do we?  Is not the idea of servitude towards another human being completely loathsome to us all?  The lack of consent or written agreement?  The prospect of one generation born to shackles paying an obligation made long before they were born?  


All these things are repellent.  Utterly and definably repellant.  Repulsive.  Hideous.  Sickening to one's very soul.  Such is slavery.  And yet each and every one of these things will soon be upon us; as each free individual is cowed to the superior power and demands of an unaccountable government; as each is made to pay and lose his labour to another's interest, one generation after another born without freedom of movement or self-determiniation.  Shackled by the arrangements of the past.


Slavery is upon us, the only question is who will serve? 


Well, if there will be slavery who is better suited to it?  Those who would chose fewer guarantees, who choose to take care of themselves without complaint, who are willing to risk all to make their freedom worthwhile?  Or those, the "public servants," who have opted for comfort over challenge?  It is obvious who the slavish in our society already are.  It is merely a matter of bringing the horse to the cart and sending it down the road.  


We owe trillions to China.  China has no objection to slavery, let them be paid in flesh.  We can rid ourselves of a noxious government in an appropriate way, pay off our debt, remove the impetus for future spending and provide China with cheap labour so that they can continue to send us affordable products.  Every benefit can be realized with the simple sale of government employees.  


Let your conscience rest easy, gentle reader, this government has been for sale for a long time, here we are merely broadening the product line .





Politicians are not serious about the deficit

President Obama "will order members to identify a combined $100 million in budget cuts over the next 90 days...".  Granted, as Greg Mankiw says, this is the government equivalent of a cup of coffee, but it does signal that the Obama administration recognizes the public outrage over spending. [UPDATE: I think Heritage gives this budget cut entirely too much credit; in fairness, they probably just don't have a smaller dot]

Is this the first sign that the Tea Party protests are having an impact?  Maybe.  But politicians cannot be allowed to get credit for fiscal responsibility by making trivial noises about spending cuts.  This is a very easy thing to measure.

So, how can we measure how serious Obama is about long term fiscal responsibility and deficit reduction?  Watch how Obama funds programs that are not successful, or that do not have clear metrics for success/failure.  Recall a point that Obama made in his inaugural address.

The question we ask today is not whether our government is too big or too small, but whether it works ... Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

Here's my prediction: programs that Democratic groups are inclined to like will almost never end.  They will be given additional funding.  For those programs, the answer will almost never be "no".

If Democrats cannot make serious sacrifices (actual, significant cuts) in the spending their coalition groups want, then you can be pretty certain that politicians are unwilling to share in the sacrifices they say we all need to make. This is a very measurable thing.  They need to be held accountable, both by the media and by voters.

The same thing goes for Republicans, too.  We can't dig our way out of this fiscal hole by "cutting waste".   We certainly can't afford any significant tax cuts at this point.  Proposals that are not politically viable are not "serious"; they are grandstanding for the base.  If Republicans want to be taken seriously, they need to start talking much more seriously about the trade-offs and innovative approaches necessary to address the long term deficit and tax system.  For starters, that probably involves means-testing entitlements.

The Stimulus scam: In the long run our economy will be, not dead, but worse

Just caught this latest CBO critique of the "stimulus" bill. Problem is, after a decade passes, the U.S. economy is actually smaller than if we passed no bill at all.

Of course, if your sole concern is trying to maximise domestic employment in the first week of November 2012 at all costs, screwing up the economy for your successor probably isn't that big a deal.

Bet won't cite THIS in their astroturf letters.

FYI; The title here is a paraphrase of a famous Keynes quote


Republicans for Fiscal Irresponsibility?

Gordon is right, nobody seems to have any idea how to deal with the looming debt cliff towards which we're running.  You can't keep saying "cut taxes" unless you have some reasonable way to bring spending into line with tax revenues.  These deficits are going to be the major issue in forthcoming elections. - Jon Henke

I shore love me some tax cuts, but...

While I hold the highest of respect for former Reagan speech writer Peggy Noonan, she seems to be missing a vital point, right now.  She's written, IMO, some of the best political speeches of my lifetime.  At times, she's also been willing to criticize the GOP for fiscal irresponsibility. In her most recent Wall Street Journal article, she made some valid points about the Obama stimulus package du jour.  However, it's telling that the following terms are missing from her article: deficit, balanced budget, and debt.

Also at the Wall Street Journal, Rush Limbaugh proposes his stimulus plan, which allows Obama to spend $486 billion as he sees fit and for Limbaugh to be able to direct $414 billion toward tax cuts as he sees fit.  To be sure, Limbaugh's suggestion is a bit tongue-in-cheek, but it is also lacking the same words as Noonan's article: deficit, balanced budget, and debt.

At issue is whether we should spend a lot of money which we don't have on "infrastructure" and a bit on tax cuts, or less money we don't have on "infrastructure" and more on tax cuts.  There is no serious suggestion from either major party to deal with the deficit, decrease government spending, balance the budget, or decrease our debt.  

The National Debt Problem

Crossposted at Right Minds

Everyone knows America faces difficult problems. The war on terror is continues to be an issue, as the Taliban stages a resurgence in Afghanistan. America still has an insupportably high crime rate, and out incarceration rate is one the highest in the world. Drugs and poverty still rule in inner cities. The economic outlook remains rocky, energy prices are high. The national debt is 9.6 trillion dollars.
There aren’t easy answers to any of those problems, but (to paraphrase Reagan), there are simple ones. A tough foreign policy will win the war on terror, and tough policing and sentencing should lower the crime rate. Nuclear power and increased drilling would reduce energy prices, and libertarian economic policies would result in a more robust economy.
Only one of those problems has no simple solution. Most Americans worry, at least a little bit, about the national debt. All conservatives do. But they don’t worry nearly enough. The national debt is very nearly completely out of control. If something is not done, and soon, it will be impossible for America to ever pay off its debt. Not simply very difficult, but literally impossible.
Right now, the national debt is approximately $9,612,925,926,818.94, although given that it increases by 1.86 billion per day, it has probably risen a few hundred thousand dollars while you read this. Paying interest on the national debt is one of the largest federal expenditures, at over four hundred billion dollars per year.
The entire federal budget in 2008 (which was the highest ever) was 3.1 trillion dollars, which is less than a third of the national debt. Even if the federal budget doubled, and the extra money used to pay off the national debt, it would still take three whole years to pay off the debt. (And this scenario, of course, could never happen). If the budget was increased by one trillion dollars every year, (which is also nigh impossible), it would still take a decade to pay off.
So even with incredibly drastic debt reduction measures, the national debt would be nearly impossible to pay. But Washington (both Democrats and Republicans) isn’t even considering less extreme measures to cut the national debt. The federal budget and debt has skyrocketed in the past quarter century—the national debt is ten times larger than it was in 1980. During George W. Bush’s term, the debt has doubled. The national debt is a crushing problem—and one that our leaders are simply making worse.
Even if there was some easy way to pay off the federal debt, the United States faces an estimated $57.3 trillion dollars in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs. Fifty-seven trillion. And that is in addition to regular government expenditures, such as the military, welfare, and interest on the national debt. America’s fiscal situation is frightening, and there is no easy answer.
Sadly, neither presidential candidate will do much to solve the national debt problem. Barack Obama, of course, is basically a quasi-socialist, tax-and-spend liberal. Under his watch, the national debt would continue to skyrocket. (Although, on the other hand, Bill Clinton lowered the national debt, which neither Reagan nor either of the Bushes could do).
John McCain would be better—but really, not by much. He would probably keep the national debt in control (at least if he keeps his promise to control spending), but he wouldn’t do much to pay it off, or address the crushing weight of future federal liabilities. McCain would be on this issue than Bush, definitely better than Obama—but not nearly good enough.
I don’t know what the solution for this problem is (I imagine that a solution would involve cutting spending and benefits, and raising taxes), but it will be a difficult one, and one that will have to be made soon. The national debt is perhaps the most important issue facing America today, and conservatives should demand that Republicans address it.


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