People Who Know What They’re Talking About Versus Neo-Hooverism
Here’s a good article, somewhat strangely, in The Washington Times about economists making the case for short-term deficit spending in order to prevent a very deep and extremely painful recession. Even Maya MacGuineas of the Committee for a Responsible Federal Budget — one of the biggest deficit hawks out there, someone whose jobs is, quite literally, to harangue people about the need for balanced budgets — is on board, saying “These economic times are so foreign to what we’re used to that nobody really knows whether we need a stimulus plan or not but we should probably err on the side of caution and have one.” And then of course there’s Nobel Prize winning economist Paul Krugman’s latest column:
In other words, there’s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost. [...] If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.
He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.
But, hey, why should we listen to these guys with their PhDs and Nobel Prizes when we could instead listen to the collective wisdom of Ruth Marcus and America’s television news anchors? News anchors get prizes, too, after all.
49 Responses to “People Who Know What They’re Talking About Versus Neo-Hooverism”
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October 17th, 2008 at 12:02 pm
News anchors get prizes, too, after all.
Prize for what? Being insanely stupid and jealous of each other(See Philadelphia for example # 1)?
October 17th, 2008 at 12:05 pm
Ideally, national debt would be low enough that the US could afford more deficit spending. But at what point does that debt get so high that it overwhelms any stimulus that increased spending creates?
Canada in the 90s faced crushing interest payments and Moodies was threatening to downgrade its credit rating. Politicians and the public got religion on balanced budgets and they’ve been in the black ever since. How far away is the US from a similar scenario?
October 17th, 2008 at 12:06 pm
Matt, to be fair to Ruth, she tried to clarify in her WashPost.com chat this week:
Ruth Marcus: I’m sure I should have been clearer on this in the column, but I was not arguing for mid-recession belt-tightening. We’re all Keynesians now and I am open to stimulative action in the short term. What I am hoping for is that the moment could be used as a way to forge a more responsible, more productivity-enhancing budget in the longer term, that could fund investments in important things like health care, and free the next president from some of his more unaffordable promises.
_______________________
October 17th, 2008 at 12:11 pm
We’re all Keynesians now
Who know Ruth Marcus had this kind of ironic wit.
October 17th, 2008 at 12:16 pm
In the MSM zeal for debate zingers, they seem to miss some really idiotic statements. While MSM counts the $3 million ‘pork’ projector as a policy zinger, voters mainly see a guy complaining about a $3 million spending after having voted for $700 billion (btw, can we revise that to around $2 trillion) and are kind of repulsed.
October 17th, 2008 at 12:19 pm
When will MY realize that the U.S. of 2008 is not the U.S. of 1933. Infrastrucutre spending due to environmental and contracing regulations will take years to get started or are all of the left-of-center greens willing to suspend NEPA. Also, since most constructin is performed by illegal immigrants, new government contraction programs will probably do more Mexico’s economy and the economy of the U.S.
Also, since few consumer goods are manufactured in the U.S., creating make work jobs will just increase the demand for Chinese made consumer goods sold at Wal-Mart.
More economic stimulus after the complete failure of the last stimulus package is just doubling down on a failed idea. Maybe the Obama Adminitration can create real change instead of looking back 70 years for solutions.
October 17th, 2008 at 12:20 pm
So now I’m a Georgian, Keynsian prisoner.
October 17th, 2008 at 12:21 pm
What we should be doing is cutting back on the expenditures that are nothing but b.s.
* End the Iraq/Afghanistan fiasco. Send S. Korea, Germany, etc. bills for the cost of keeping U.S. troops there. If they won’t pay, bring the troops home. If their defense isn’t worth their money, it isn’t worth ours. Cut baseline military spending in half.
* Stop the pork & earmark nonsense – Harry, Nancy???
* Negotiate drug prices for Medicare, Medicaid, CHAMPUS, etc.
There are plenty of ways to cut the budget without inflicting harm, and some of them (like the Rx prices) would actually help. But it requires rational leaders – Obama???
October 17th, 2008 at 12:27 pm
Sigh.
I think we will have to play to our strengths and start a Unlimited Conventional War (or maybe a Limited Nuclear War) to seize the assets of the Eurasian Continent.
Plus, if we nuke our creditors, do we still have to pay our debts?
October 17th, 2008 at 12:31 pm
superdestroyer, what exactly are you advocating?
October 17th, 2008 at 12:36 pm
I’m curious, Matt – since you suddenly seem to be such a big fan of pronouncements from Nobel Prize winners – are you going to as fastidiously extoll the wisdom of Phelps, Friedman and Hayek? Or is someone only wise if they have a Nobel Prize and they already agree with you 95% of the time?
Funny coincidence, that.
October 17th, 2008 at 12:39 pm
Even the Wall Street guru (or the most prominent bond Investor on the planet, if you prefer), Bill Gross has written several times over the pas couple months that the next POTUS will have to deficit spend – heavily. See Deear President Obama (July 2008)
October 17th, 2008 at 12:40 pm
We have had, with the short exception if the 2nd Clinton term, 25 consecutive years of low-taxes & deficit-based gov’t spending.
Now I gotta ask all you progressives which part of the Reagan & Bush II economies you find so attractive…
the upward distribution or the really lousy stimulus?
October 17th, 2008 at 12:45 pm
We’re between a rock and a hard place. We either borrow for about a $1 trillion additional program of public works over the next four years, and have our credit rating temporarily downgraded, or we do nothing, we go into the tank anyway, and our sovereign credit rating gets permanently downgraded.
October 17th, 2008 at 12:49 pm
Your points are well taken, Matt, but I would have loved to see Obama respond to neo-Hooverism questions at the debates by saying he would start by stopping spending $10 billion a month on the occupation of Iraq. Killing Bush’s pointless manned mission to Mars would be a good one too.
October 17th, 2008 at 12:56 pm
bob mcmanus, what’s with the straw man? Seriously, dude, who’s been arguing for more upward distribution? Besides McCain, of course.
What Obama’s been proposing is just outright redistribution downward — more tax on the rich, less tax on the poor.
October 17th, 2008 at 1:02 pm
14:DBX
Dammit, those are not the only two choices. They are the only choices the Friedman-corrupted economists, which are about all of them, want to give you.
Keynes:Gov’t spending is stimulative.
There is an option, which is very well discussed in the literature, beyond:a) doing nothing; b) cutting spending, c) deficit spending/tax cuts.
Massive spending financed with large tax increases. Since debt-financed spending is about selling bonds to the rich it is always regressive and not very stimulative.
Tax hikes are the only progressive option, equality enhancing and very stimulative.
October 17th, 2008 at 1:04 pm
Obama’s plan is a net tax cut.
“Seriously, dude, who’s been arguing for more upward distribution?”
Apparently everybody, since y’all want to borrow from the rich…deficit spending…rather than tax them.
October 17th, 2008 at 1:07 pm
superdestroyer, what exactly are you advocating?
Nothing. That is the point.
October 17th, 2008 at 1:13 pm
re: Bob McManus. Yup, I always think of Krugman as a “Friedman-corrupted” economist.
October 17th, 2008 at 1:33 pm
OK, bob; you want to raise the top tax rates even more than Obama would. Gotcha.
October 17th, 2008 at 1:48 pm
Matt, the most frustrating phenomenon for me to deal with has been the disinterest in fiscal frugalty durign times of economic growth. When the Bush Adminstration and their apologists would compalain in 2006 and 2007 that he didn’t get any credit for what they thought was a great economy, the response of intellegent people everywhere should have been overwhelming: “If we are in a recovery, where is the surplus?”
A growing economy should mean increased tax revenues and less need for government services. The government should be delaying non-time-critical infrastructure projects so that they arent competing with private industry for labor and materials at premium rates.
Then when times get tough, you bid out the projects. People have jobs. The budget goes back into deficit, but that’s OK because you have been fiscally responsible.
This is a pretty simple concept. Can anybody tell me why we don’t judge government on their ability to handle both the recession and the recovery sides of this equation well?
October 17th, 2008 at 1:56 pm
21: I don’t think you’ll get any disagreement from Bob. I’m not sure what axe he has to grind in this situation. (But knowing Bob, it’s hardly a surprise that he has one) We could have a debate in progressive circles about whether the Obama tax increases on the rich go far enough, but it’s just intellectual wankery since the political reality seems to be that we will not be able to jack them up right away. We need to get the public used to the idea, I think.
October 17th, 2008 at 2:01 pm
20:Jasper, I didn’t mention Krugman by name, I said “almost all economists”
21:My main point should be clear enough by now, but I will repeat it:deficit spending is regressive and not very stimulative, and should not be the first choice for progressives.
October 17th, 2008 at 2:02 pm
Re mpowell’s comment “We could have a debate in progressive circles about whether the Obama tax increases on the rich go far enough, but it’s just intellectual wankery since the political reality seems to be that we will not be able to jack them up right away.”
————–
The “intellectual wankery” is pretending that Obama and the Democratic leadership want to raise taxes on their wealthy donors — given that they had a perfect opportunity to demand a Surtax as part of the Bailout Bill and they refused to even discuss the possibility.
Neither party can compete in $1 Billion elections without whoring for the Superrich and screwing the remaining 97 percent of the population.
Thats’ the REAL “political reality”.
October 17th, 2008 at 2:06 pm
Re Bob McManus’s comment “deficit spending is regressive ”
————-
Especially when you steal $3 Trillion out of workers’ Social Security/Medicare Trust Fund accounts — and all the while assuring the Democratic workers that their Social Security is safe.
October 17th, 2008 at 2:22 pm
What did I get wrong at 21, bob? Aren’t you advocating tax policies like Obama’s only with an even bigger hike at the top end?
October 17th, 2008 at 2:37 pm
As for actually putting such increases into practice, I’m with mpowell. It’s not sellable today.
October 17th, 2008 at 3:19 pm
AlanC9,
I am not advocating anything. I am just pointing out that Matthew’s idea of a New Deal style government make work programs involving infrastrucutre will not have the effects that Matthew is claiming.
Major government construction projects require Environmental Impact Statements. Boulder Dam would take two to three times as long to build these days due to NEPA requirements.
Also, if government make work programs are actually started, many of the workers will be illegal immigrants. Government sponsored contraction program would increase the demand for illegal aliens that has decreased since the collapse of the Housing market. During the Depression the U.S. was restritive on immigration. Maintaining open borders and no controls on immigration will dampen any positive impacts of government make work jobs.
And last, even if the government starts hiring people and paying them, most of the economic impact would go to buying Chinese made consumer goods at Wal-Mart.
I doubt if Matthew really wants to start a government program that will take years to create new jobs and that will most of the jobs filled with illegal aliens.
October 17th, 2008 at 3:50 pm
True, but there were some PhDs behind the multi-decades long move to less regulation of the financial markets, and you see where that got us. I happen to think Krugman is right, but it should be said that in the field of economics there’s hardly enough science and far too much ideology.
October 17th, 2008 at 3:54 pm
AlanC9, I wouldn’t worry about Bob too much. He likes to bitch a lot and be contrarian, but I’m pretty sure that there isn’t any real misunderstanding here.
October 17th, 2008 at 4:36 pm
I sure that most states have lots of projects, small ones, medium sized ones, large ones even, that are all engineered and have completed EIS information, ready to go but that are on hold for lack of funds. I’m sure the Federal government has a few too. .. even if they didn’t EIS studies don’t fall down out of the sky, someone somewhere has to write them up. To write them up people have to go out in the field and examine things as they are. Probably have to hire a few surveyors too. An archeologist or two now and then. You might not get people with shovels out there anytime soon but someone somewhere would be getting work. Since we haven’t prefected teletransportation yet getting them out in the field would require a few vehicles. Probably going to need a few PCs here and there too so they can record information to be passed onto the people who write those nice shiny EIS reports. Would give some work to lawyers too, since not all of the EISes would go unchallenged….
We’ve been going through equipment in Iraq and Afghanistan. Lots of it needs to be replaced. We could accelerate the programs to replace it. Lots of things we could do that don’t need people standing around with an EIS in one hand and a backhoe operator waiting for directions at the other.
October 17th, 2008 at 4:44 pm
I recall Robert Reich’s book in the mid ‘90 after he left Sec of Labor job bemoaning the fact he had lost the battle with Robert Rubin regarding what to do with money coming into the treasury as a result of the ‘93 tax increases. He wanted to spend it on jobs like rebuilding the infrastructure while Rubin wanted to spend it to reduce the defict to “show the markets that Clinton was serious about lowering the deficit.” Well, the econ did well and we pleased “the markets” or “wall street.”
Even though Krugman disagreed with Reich in the ’80s which he said did not help him obtain a job in the Clinton administration, I think today both of them would agree that now is a time to deficit spend (remember that term from the ‘60 and ‘70) on infrastructure.
October 17th, 2008 at 7:04 pm
Re Adirondacker’s comment “even if they didn’t EIS studies don’t fall down out of the sky, someone somewhere has to write them up. To write them up people have to go out in the field and examine things as they are. Probably have to hire a few surveyors too. An archeologist or two now and then. You might not get people with shovels out there anytime soon but someone somewhere would be getting work. ”
—————-
If we’re going to have a public works program, I would prefer one that actually builds us a bridge — instead of one which merely pays people to give us the appearance of building a bridge.
Again, the economists are full of shit. There’s a big difference between productive work and pissing money away.
Yet for some reason our economists have constructed a system which rewards a few con artists (Wall Street executives, lawyers, economists) and which sucks the blood out of any productive member of society (doctors, engineers, manufacturing workers,etc.)
Let people try eating virtual food and spending a winter in a virtual house.
There’s also a big difference between investment that yields value vice pissing money away.
Mao Tse Tung had it right — send these fuckers to hard labor at a reeducation camp in the countryside. Stalin had it even righter.
October 17th, 2008 at 9:29 pm
They are the only choices the Friedman-corrupted economists, which are about all of them, want to give you.
Mot economists are either Friedman-corrupted or Keynes-corrupted. Friedman believed that government could get you something for nothing through taxing and spending, Friedman believed it could through inflation.
Only the Austrians still shout out “there’s no such thing as a free lunch!”
What we need a good Austrian-style liquidation – which by the way IS NOT what happened under Hoover. Hoover went the Friedman route of trying to stimulate the economy by massive interest rate cuts. The banks liquidated anyway, but in the meantime the economy was damaged significantly.
Mao Tse Tung had it right — send these fuckers to hard labor at a reeducation camp in the countryside. Stalin had it even righter.
Shouldn’t this be considered in the same vein as saying “Hitler had it right?”
No, Carl Menger, Eugene Bohm-Bauwerk, and Ludwig von Mises had it right. Hitler, Stalin, Mao, Keynes, and Friedman had it WRONG.
October 18th, 2008 at 10:46 am
But, hey, why should we listen to these guys with their PhDs and Nobel Prizes when we could instead listen to the collective wisdom of Ruth Marcus and America’s television news anchors?
Why should we listen to people who win fake Nobel prized created and sponsored by Central banks and then be surprised when their solutions always seem to support the existence of central banks?
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