1 Boring Old Man

Bad Faith Economics
By PAUL KRUGMAN
January 25, 2009

^{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.}

^{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.”}

^{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… 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.}

^{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… The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending. 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…}

^{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…}

^{But here’s the thing: Most Americans aren’t listening. 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}.

Well, Krugman finally came around. We don’t hold it against him. It’s not that he was wrong, it’s just that he was wrong. In a series of op-ed pieces, Paul Krugman became a critic of Obama’s Stimulus Plan, and Obama himself.

What he wasn’t wrong about is the state of our economy. He’s an academic macro-economist who has spent his career looking at economic indicators, and he can see more than the rest of us how much trouble we’re in right now. And it’s a heap of trouble. While the rest of America wonders when it’s going to turn around, he’s one of those people who is probably wondering if it’s going to turn around. And so, from that perspective, he was justifiably upset that he wasn’t seeing the kind of Keynesian New Deal intervention he wanted to see.

What he was wrong about was the state of the union [government]. Obama’s buffer is very thin. Reagan "solved" our Recession in 1980 by running up the National Debt to levels approximating those of World War II. The Bushes continued to run it up, all the while cutting the tax revenues – not based on any fiscal data, but based on getting themselves elected. So we’re already as strapped with debt as a country as are many of our citizens. Reagan, the Bushes, and Alan Greenspan jury-rigged the economy from the Federal Reserve by adjusting interest rates – lowering them to keep credit flowing. But now the interest rates are zero.  It’s not just money, the balance of trade has been equally ignored as we’ve "outsourced" labor to a dangerous point. And finally, our major industry, Financial Institutions, has thoroughly gummed up the works by raiding our economy into the tank. So with soaring national debt, interest rates at zero, rampant consumerism, diminished productivity, we have few choices. Did I mention two wars? On top of all of that, we have an irresponsible Republican Party that is opposing the Stimulus Plan that may be too small by Krugman’s standards, but is essential to keep us afloat. And we haven’t suffered enough yet as a country to know what bad shape we’re really in.

What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply.

But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed.