There’s a savory juxtaposition on the Op-Ed page of today’s Times. In the top-left position we have yet another column from former Enron adviser Paul Krugman, calling for further government stimulus of the economy (he’s been tag-teaming with Bob Herbert on this theme for months now).
It begins:
Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?
Very hard, if the current state of political debate is any indication.
Right; got it. Spend money when you haven’t got it; keep it out of circulation when you do. If your theory hasn’t worked after almost a trillion dollars of stimulus, that’s no reason to doubt the theory. Just keep at it. Another few hundred billion, and voilÁ !
There are support groups for people who apply this sort of reasoning at Foxwoods, but then, they don’t have Nobel Prizes.
Just below is a column from Ross Douthat, titled The Agony of the Liberals. In it he talks about two vices that have recently led liberals to the brink of panic. The first is “the worship of presidential power: the belief that any problem, any crisis, can be swiftly solved by a strong government, and particularly a strong executive.”
Mr. Douthat continues (my emphasis):
The second vice is an overweening faith in theory. It’s now conventional wisdom among Obama’s liberal critics that the White House has been insufficiently ambitious about deficit spending. The economy is stuck in neutral, they argue, because Obama didn’t push last year’s recovery act up over a trillion dollars, and hasn’t pressed hard enough for a second major stimulus.
Technically, they could be right ”” but only in the same way that it’s possible that the Iraq War would have been a ringing success if only we’d invaded with a million extra soldiers. The theory is unfalsifiable because the policy course is imaginary. Maybe in some parallel universe there’s a Congress that would be willing to borrow and spend trillions in stimulus dollars, despite record deficits, if that’s what liberal economists said the situation required. But not in this one.
Yet the liberal drumbeat continues. As Tyler Cowen wrote last week: “advocates of fiscal stimulus make it sound as simple as solving an undergraduate homework problem and … sometimes genuinely do not realize how much the rest of the world, including politicians, views them as simply being very convinced by their own theory.’ Nor do they acknowledge how much risk those same politicians have already taken on (with the first stimulus, the health care bill, and much else besides) in the name of theoretical propositions, while reaping little for their efforts save an ever-grimmer fiscal picture.
I don’t know whether the presentation of these two columns on the same page was a deliberate setup by some mischievous junior editor, but I’m sure I’m not the only one out there who appreciated it.
26 Comments
Except for the fact that Krugman is right.
The stimulus programs have been surprisingly successful. As you may recall, when Obama took office, many of our largest financial institutions — Lehman, AIG, Fannie Mae, Freddie Mac — had just collapsed or were about to collapse. Banks wouldn’t lend and credit was frozen. We were losing 600,000 jobs a month. The Dow was at 6500 shortly after the Inauguration.
Fast forward to today. Banks are thriving — even Citibank, the weakest among them, is profitable. Credit is tight but flowing. The economy is creating jobs. The Dow is above 10,000.
This is not to suggest that we are in an economic boom, as the recovery is occurring in fits and starts. However, given the fact that Obama inherited what is inarguably the worst economic crisis in eighty years, the gap between then and now is extraordinary.
Now why do you suppose that the economy has stabilized? And what do you suppose would have happened had Obama continued the policies of the past, which is what the opposition insisted on?
Given the trajectory we were on, the unemployment rate would easily be in the teens without the shock provided by massive stimulus. It is also possible that absent massive government intervention, the economy would have gone into a death spiral from which it could not recover. Things were that bad. Krugman argued last year that the stimulus was insufficient, given the enormity of the problem. He may well be right.
One of the many things the right is unable or unwilling to comprehend is that if we had a 15% unemployment rate now — hardly an outlandish outcome if the government sat on its hands — then we would not only have a much larger budget deficit due to reduced tax receipts and increased benefit costs, but you would have millions of people who are now working being unproductive.
Needless to say, in the event that Obama followed their recommendations and lowered government spending (I kid you not — this is what they proposed), then they would be pillorying Obama for such a high unemployment rate. The fact is that the opposition, many of whom were stewards of the economy when it fell off the cliff, will criticize Obama regardless of what he does or what the outcome is. I care not a fig what they have to say.
The carping from the right is best repudiated by looking at the TARP plan, which predates the stimulus plan (as it originated during the Bush administration but passed because of Democratic support). TARP has become a rallying cry among the know-nothing Tea Party types as being emblematic of an out-of-control government. However, the facts are otherwise. The banking system is far stronger than it was, most of the money has been repaid, and the government (i.e., the taxpayers) may end up with a profit. Prevent apocalypse, get paid back, maybe make a few bucks. Sounds like a pretty good deal to me.
Nobody is thrilled about huge budget deficits. (Given the fact that many of those who are howling about the current deficits were complicit in passing Bush’s record deficits, their hyperventilation is nothing but air.) However, given the enormity of the economic collapse which Obama was forced to deal with, it was the least bad solution. People can throw stones all they want at it, but the fact is that they lack a better alternative.
Well, Peter, there is obviously broad disagreement about whether the stimulus has really done much, and even Krugman, by the very fact that even after nearly a trillion dollars of stimulus he is calling for more, makes a de facto admission that it hasn’t done the job yet. A group of 100 prominent economists, for example, just submitted a letter saying it had failed. The letter points out:
As this post at Heritage.org observes, the problem is that job creation is simply not happening in the private sector:
So we could have a long argument about this. (This link from the quoted passage above is of particular interest as regards Krugman’s position.)
But really, you miss the point of my post, which is how tartly amusing it was to put these two columns on the same page.
It’s nice your point was humor rather than economics, as even your response to Peter shows nothing more than theory, emotion, and reality moving past each other with little contact. I’d just point out my own take is that the U.S. economy had lopsidedly learned to adapt to high unemployment coming out of the dot.com bust, so maybe this employment metric is not the best way of getting at the Truth now. Feeling that pain has certainly been ratcheted up, though, and unemployment gets you to that pain a step or two faster than the relative health of “financial institutions.”
I’m not quite sure what “your response to Peter shows nothing more than theory, emotion, and reality moving past each other with little contact” means. I suppose it means that our little exchange is not much more than a pair of contradictory assertions — which is true, and which is why I said “we could have a long argument about this”.
It seems you are agreeing, though, that stubbornly high unemployment means more in terms of the sort of “recovery” most people care about than where the Dow happens to be.
I think the Dow is relevant insofar as it is investors’ best guess about the present and future health of the economy. While investors can certainly be wrong, they are betting with their own (and clients’) money, so it can fairly be said to represent consensus opinion.
Well, leaving aside all the other things the Dow might represent, it’s a safe bet that all those people languishing in joblessness aren’t represented in that “consensus opinion”.
I wrote subtly wrong. I meant both your post and your response to Peter showed concepts slip-siding past each other. I do agree with your last point, but it may mean less “in theory,” and introduces yet another metric. Even economic theory seems to be changing to allow a greater role for emotion, but I don’t think we’re tweaking the economy with much regard to such theories; possibly playing politics with them, though — and who knows? maybe that’s valid.
Right: maybe that’s valid, and maybe it isn’t. That’s a whole lot of changing and disputed economic theory, on the basis of which we are spending trillions.
And I think you are wrong to say: “I don’t think we’re tweaking the economy with much regard to such theories”. I think that’s exactly what we are doing, and what Paul Krugman et al. are asking for more of.
Look, it’s fine to have various economic theories, and for academics to bicker about them and try to test them in various ways. But these are enormous, history-changing, bet-the-farm sums we are wagering here, and if PK and company (how neatly those initials work out in the current context!) are wrong, we are going to be ruined.
I still don’t know what you are saying about “slip-sliding” concepts. I’ll assume you meant it in a complimentary way
Liberals don’t worship presidential power, or believe that any problem can be solved by a strong executive. What absolute hogwash. Really, how can people get away with propagating misinformation, which any observation of the Huffington Post or Pacifica Radio would quickly disabuse them of?
Haven’t you been listening to the last 12 years (at least) of liberal griping about the rise of the executive branch, here?
Suspicion of the Executive is a general stance across left and right in this country. Each side does have its softer inclinations, however. For example, the Right is happy enough with Executive Power when it comes to national security and domestic policing. The Left is happy enough when it comes down to protecting the rights and freedoms of populations suffering discrimination, or protecting the environment.
Beyond that, my general observation is that both Left and Right don’t mind presidential power as long as it does what they want it to do.
Are you cyncial, Malcolm?
Unrelated of course, but you will notice that the Sunday Times in UK is retracting and apologizing for its story misrepresenting the views of climate scientists. You can read it here: http://www.realclimate.org/docs/Leake_and_North_original_S_Times_article_31_Jan_2010.pdf
Minsinformation campaigns do not always win.
Sorry that was a link to the original article. Here is the retraction: http://www.realclimate.org/docs/ST_Correction_img007%5B1%5D.jpg
Well, first of all, HS, it isn’t me claiming that liberals “worship presidential power”, it’s Ross Douthat. I agree with you that liberals certainly didn’t seem thrilled with executive power under the previous administration.
I think Mr. Douthat should have limited his remark to saying that liberals believe that “any problem, any crisis, can be solved by a strong government”, and should have left the executive out of it, because everyone’s fondness for executive power varies according to whose side the current president is on.
Obviously we might quibble about even that assertion about liberals, but certainly it is generally correct to say that this is one of the principal, defining differences between liberals and conservatives: liberals are more inclined toward collective, governmental solutions to problems, and to a broader role for government generally, than conservatives.
When the executive is a conservative, therefore, liberals will focus on implementing their agenda through the legislation and the courts, and will seek to diminish the power of the presidency. When the president is a major-league liberal like Barack Obama, liberals will want him to be fully engaged, and fully empowered. That’s the case now, of course, and so Douthat is pointing out that they are crestfallen to see how badly things have been going.
Am I cynical, you ask? Why, yes I am.
You may recall that Krugman has always called for a larger stimulus than the one we got. So, whatever significance you would like to draw from him calling for more *now*, should take the consistency of his position into account. He has never, to my knowledge, considered the stimulus package we got anywhere close to being sufficient for the job.
If your doctor says that you need to take 100mg of medicine 3 times daily for 8 weeks, but you only take 50mg once daily for 3 weeks, and you’re still sick, who is to blame? And if your doctor tells you you need more medicine and you call him a fool, by all means, go to another doctor. I’m sure you can find one who will tell you exactly what you want to hear.
Please. We’ve already stimulated ourselves to the tune of almost a trillion dollars. A trillion dollars.
Too paltry? So if Dr. Paul Krugman prescribes ten trillion dollars worth of “stimulus”, we should just go ahead and take it? Why not a billion jillion zillion? I’ve never heard him express the notion that there could be too much stimulus.
No, we have lost all sense of proportion here, and I’d like another doctor, I think. It certainly isn’t as if we have any convincing reason to believe this one’s prescription will do us any good, and a lot of his colleagues, meanwhile, think it will kill us. If nothing else, this one’s bills are too high, and I don’t think they’re going to be covered by our insurance.
I think Paul Krugman is speaking from a standard macroeconomic place, not from an avant garde, madness-of-crowds p.o.v.; and howsurprising is quite right about Krugman’s consistency on this; in fact, the medicine analogy works fine in the face of your simply dropping “$1 trillion” as if it were an 800-pound gorilla. You really need to show $1 trillion is in fact too much, or that the underlying macroeconomic theory is wrong. The crux of what I, at least, am saying is of course that standard economic theory rests on rational human response, and lately we have been receiving and learning that economic theories based on irrational human response may be more precise, sort of the way quantum theory is; but so far standard theory is the basic template/background theory. My other point is that you, Malcolm, seem to be marshaling together a hodge-podge of what we might call “theories,” as I’ve called everything else by that name.
Who said Krugman was speaking “from an avant garde, madness-of-crowds p.o.v.”? It wasn’t me.
You don’t have to look far to find expert, “standard” economists who disagree with Krugman, and can tell you why. It certainly isn’t as if economics is anything even remotely resembling a “hard” science.
Indeed, you are quite right that economic models are changing these days; in fact the whole “science” seems to be undergoing one of its periodic paradigm shifts. And that is all the more reason to be wary. I mean, how much are we supposed to be willing to wager that Krugman & Co.’s models and predictions are right? We aren’t betting marbles here, you know, and we’ve already sunk a trillion dollars. You can jape about gorillas all you like, but a trillion dollars is a staggeringly enormous sum of money. What if, as many economists argue, Krugman is wrong, and we are bankrupting ourselves on the basis of a mistaken theory? If there is so much controversy, even among experts, about whether the stimulus is working or not (and so many indicators that it isn’t), and about the soundness of the underlying idea, doesn’t it at least seem prudent, in the most basic, common-sense sort of way, to be wary of spending more and more and more?
1) These are “bet the farm sums” only because the alternatives may very well have led to an economic nuclear winter. Sometimes shock and awe are called for, because nothing else will do. I believe that the winter of 2009 was one of those times. In the fullness of Time, the Truth will be revealed to us all. From today’s vantage point, I think the aggressive and decisive action which was taken by the Bush and Obama administrations, as well as the Fed, was risky but effective. To quote Saint James: the future’s uncertain, and the end is always near. Never more so than the 2009 winter.
2) The statement that “liberals are more inclined toward collective, governmental solutions to problems, and to a broader role for government generally, than conservatives” is true only to the extent that it applies to economic matters. Conservatives are much more inclined to use government power in pursuit of foreign policy goals or social agenda. It is not the liberals who clamor for more state power to invade other countries or to regulate abortion, same sex marriage, euthanasia, and a whole host of other issues.
3) I wish Obama were a “major league liberal.” The consensus on the left is that he is a centrist who is continuing many of Bush’s disagreeable policies regarding executive privilege and has settled for stimulus and health care legislation which is too modest in scope.
Well, Peter, I could quibble, as you’d imagine, with pretty much all three of those points (maybe I’d agree with you about conservatives being more inclined to use government power in the pursuit of foreign policy goals, but even that is a point of contention within conservative ranks, and is mostly characteristic of neoconservatives, as opposed to folks like Pat Buchanan), but this thread has probably dragged on long enough — especially considering its original point, which was simply that it was amusing to see those two columns on the same page.
I’m not sure just what effect the infamous “stimulus” has had on our economy. There are plenty of theories in the game, and they tell different tales. For all I know, the net effect of current economic “policies” is nil, and basic supply and demand are settling into a new (for now) state of uneasy tension. Heaven knows that before the recent contraction, the trend they followed was unsustainable.
You could try a tax cut, which has the same effect. First, I’m not sure whether you can cut taxes that much. Second, it involves more intermediate steps. Third, those intermediate steps depend on rational human behavior, so I suppose if nothing else there will be a dilution in effect (I might spend my money on a vacation overseas). Fourth, this indirect approach takes longer (in theory:)) Conservatives dislike Krugman’s approach because it smacks of big government. I guess they like tax cuts because they enhance my individual liberty to spend my money overseas.
Oh, and I also wonder if Bob is right, actually. Note my earlier comment: we already made it from the dot.com bust to this credit-based one with high unemployment (though lower than now). Economic equilibrium may be a myth of standard hypothetical modeling.
Well, if the effect of economic policies is nil, maybe we could spend a little less money on them next time around.
That wasn’t the part of Bob to which I was referring. Peter already explained that the effects have not been nil and I believe Krugman agrees — so there you have it. Maybe a little more, maybe a little less; just right is just for theories. That’s what we learned today.
Not so fast. Just how “not nil” the effects have been is a subject of robust dipute. And “not nil” is dearly bought, at a trillion dollars.
Sorry Malcolm if I did not make clear my understanding that it was not you who had said that liberals are in love with the executive. Although I will admit that I had thought your quoting of the passage as evidence that you concurred with that assertion. Other than that I think we are pretty much in agreement that we love our institutions when they agree with our views and decry them (e.g. activist courts, tyrant Presidents, corrupt legislators, etc.) when we don’t. Non-objectivity is rife in all such discussions, and both conservative and liberal factions are often more nuanced, fractured, and contentious, than either side gives credit for, or for which a visit to certain venues might suggest.
Many positions taken by either side are insensible, and it is my sense that many of the specific positions taken over the years is more historical accident than outcome of logical analysis of basic principles. Indeed, for example, one can see avenues for for conservative defense of the rights of choice and a liberal defense of the right to life, in another possible world.
A pox on all our houses. Still, I do not think that half the criticism than the left and right has heaped on this President is deserved.
A gracious response, HS, and I find little to disagree with. I should have dissected that quote, because the bit about the “strong executive” was silly, and by not pointing that out up front I can see why you might have thought I endorsed it.
Yes, President Obama has received his share of unjust criticism, as do all presidents. (Of course, if half the criticism of Mr. Obama is undeserved, that still leaves plenty that isn’t…)
I’ll try to stick, as always, to legitimate gripes.