Nobel Prize ≠ Intelligence
In today’s New York Times, the new Nobel laureate Paul Krugman proves that he either should give his medal back, or that the Nobel committee is populated by a bunch of liberals. He claims that the answer to our current economic problems is deficit spending—as if more federal spending is going to change the un-competitive nature of America’s economy. The federal government has neither the resources nor the expertise to do such a thing, and it annoys me that so many people think it does.
On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.
And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.
About the only thing I can agree with is some infrastructure spending—our nation lags behind in that respect and it is one of the few things I think the government is good for. We might as well do it at this time since it could indeed help some folks who can’t find other work, and provide a small stimulus to the economy while we invest in our future.
But infrastructure spending should not be seen as a way to ‘fix’ the economy—it won’t. The New Deal did not end the Great Depression, WWII and massive deficit spending did. But we should not continue to borrow from future generations to prop up a limping economy. The government can inject borrowed money into a failing economy, but it cannot create a sustainable one.
We are experiencing a massive market correction and reallocation of capital. We must let the market do its thing, and we do not need the government coming in to distort values. We are in for tough times no matter what we do, but we will be much better off in the long run if we keep the government out of the market. You would think the winner of the Nobel prize in Economics would understand that.
October 17th, 2008 at 3:42 pm
I saw an interesting TED talk where the speaker was talking about the difficulties of having too many choices. He had a lot of intelligent things to say and then decided that socialism would really help everyone out a lot. It’s amazing what really intelligent people will overlook when they’re talking about their ideologies.
October 18th, 2008 at 1:27 pm
“The New Deal did not end the Great Depression, WWII and massive deficit spending did”
Are you really prepared to argue that this means that Military Keynesianism is acceptable while other forms of Keynesianism are not? In terms of that specific example, I also think you’re attributing too much of the US’ success in the postwar years to government activity and not enough to the fact that every other major country was so heavily bombed that there was little infrastructure present and it was thus not efficient to set up businesses except in the US.
Also, too much deficit spending is dangerous because it can cause problems for currency stability.
I would argue that the purchase of tanks in destroyers generally represents an opportunity cost - specifically, you are going to create just as many jobs by constructing infrastructure and investing in civilian technology, but those also have the spin-off benefits of attracting businesses and thus indirectly creating even more jobs.
October 18th, 2008 at 2:28 pm
Real quick comment: In a war economy jobs are guaranteed by blowing shit up to a larger extent then an economy directed by the state for non-war purposes.
I would also to add that I very much doubt Michael is advocating for wides scale adoption of what you termed ‘military Keynesian’ as means to getting out of a depression. He was only making the observation of what pulled us out of the great depression of the last century.
I would argue that it was Keynesian policy adopted in part by FDR that sustain the depression for as long as it did.
October 18th, 2008 at 6:26 pm
This guy must have been GW’s financial advisor… That might explain Bush’s deficit!!
October 19th, 2008 at 1:15 pm
I’m not sure I understand your comment. How is building a tank a more secure job than building a bridge?
Just to clarify: I don’t think tremendous deficit spending is a good thing for the economy under any circumstance.
October 19th, 2008 at 2:07 pm
In the context of WW2, American built tanks get blown up while Bridge built in America do not. Since tanks are always being blown up tank builders always have order to fill. Bridge builder do not.
October 19th, 2008 at 8:50 pm
So you could get the best of both worlds by being heavily bombed? Then your tanks AND your bridges get blown up and need rebuilding.
October 19th, 2008 at 10:24 pm
There are plenty of bridges in need of repair. Sometimes we wait to long - see the tragedy in Minnesota…
October 20th, 2008 at 1:39 pm
Dan, my argument is that Keynesian style meddling by our government (military or otherwise) is no cure for an economic downturn, but rather an unsustainable remedy, an expensive crutch.