Friday, March 08, 2013

Why Paul Krugman (and Dick Cheney) is Wrong

Dick Cheney and Paul Krugman have declared from opposite sides of the ideological divide that deficits don’t matter, but they simply have it wrong. Reasonable liberals and conservatives can disagree on what role the federal government should play yet still believe that government should resume paying its way.

It has become part of Keynesian lore in recent years that public debt is essentially free, that we needn’t worry about its buildup and that we should devote all of our attention to short-term concerns since, as John Maynard Keynes wrote, “in the long run, we are all dead.” But that crude interpretation of Keynesian economics is deeply misguided; Keynes himself disagreed with it.
Read the rest here.


123 said...

That's actually an unfair representation of what Krugman has been arguing. He made the case when debating Joe Scarborough that cutting government spending now would have a negative impact on the economy, that even bad spending was stimulative at this point in the economic cycle, but that isn't the same as him saying all spending is good spending. In fact, he's said exactly the opposite at various times, especially noting that across the board tax cuts and tax cuts for the wealthy are not or barely stimulative at all while unemployment benefits are highly stimulative to the local economy. The CBO agrees. He has also argued, as did Keynes, that you don't keep goosing the economy with spending once you are in full growth mode because it can create inflation. "Keynes" too often is used as if it equates to something like "spend as much as you want as long as you want and nothing bad will happen, Mr. Government". That is not the case. But, in a depression/recession when demand drops, the paradox of thrift means such personal and corporate cuts are self-reinforcing and make the crisis deeper. it is then that the 'spender of last resort' uses its credit card (debt) to prop up demand until private, non-government demand returns. Then, in the boom following the bust the people as a whole pay off the credit card that got them over the crisis. Republicans/conservatives drove up our credit card bill in the boom and refused to pay off the debt previously accumulated leaving us in terrible shape when we needed the credit card to get us through a crisis that was caused primarily by refusing to regulate financial institutions and providing excessive liquidity in the midst of a boom resulting in a bubble - and then they had the gall to complain that deficits skyrocketed under Obama when automatic stabilizers (unemployment, etc.) kicked in and revenue fell due to the crash.

123 said...
This comment has been removed by the author.
123 said...

And Krugman argued before 2008 and all along the way since 2008 that long-term deficits are a problem and must be dealt with. His only point has been that you don't get the austerity bug in the midst or right after a recession. “The boom, not the slump, is the right time for austerity.”

Scarborough and Sachs are too smart to be latching on to one stray comment of Krugman's as if it is the core of his entire economics. Not sure if it's personal, partisan, simply wanting to win the PR war, or simply due to dogmatic blindness.

Anonymous said...

Yes, quit quoting and referring to psudo-economists who actually have no idea of what's really going on.