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Sunday, July 4, 2010

Economically, what works?

My middle brother, Lance, figuring that three newspapers in the house on Sunday (Sun, Globe, NYT), plus all those blogs, is not enough.  So, he sends me a link to a Dr Paul Krugman column in The San Jose Mercury News.

Mr Krugman, appearing to talk about officials and experts in the US, condemns them for their concern about long term federal debt.  But he cites a European official and then goes off to talk about Ireland.

As sort of a memory exercise, does anyone remember when President George W Bush (and especially his Secretary of Defense, Donald Rumsfeld) used to ignore Old Europe and everyone would get all upset about it?  Try hard.  You've got it!  So what is Mr Krugman recommending the current Administration do?  Ignore the advice and actions of Old Europe.  Plus ca change, plus c'est la meme chose (the more things change the more they stay the same). 

We are talking theology here.  On the one hand you have those who say that FDR's big failure during the Great Depression was lack of sufficient deficit spending.  On the other hand, you have those who say that deficit spending does not work.

Frankly, it is like walking into the Astro Final and having there be one question only.  "How big an asteroid is needed to destroy the earth.  Give three examples."

What we know is that the Great Depression ended for the United States during World War II and that by 1944 we were experiencing manpower shortages.  The war actually started in the mid-1930s but we were not engaged much until about 1939, when we became an arms merchant.  We joined the war December of 1941.  Unemployment as a percent of the civilian labor force was as follows:


It would seem that even with war production going strong and the draft and women being recruited into the work force, 1942, our first year of the war, we still have a nominal "full employment" but not the numbers a layman might expect.  And competition was tight for workers, thus the beginnings of employee health benefits on a big scale.

There is this view, by Robert Higgs:
ABSTRACT: Relying on standard measures of macroeconomic performance, historians and economists believe that “war prosperity” prevailed in the United States during World War II. This belief is ill-founded, because it does not recognize that the United States had a command economy during the war. From 1942 to 1946 some macroeconomic performance measures are statistically inaccurate; others are conceptually inappropriate. A better grounded interpretation is that during the war the economy was a huge arsenal in which the well-being of consumers deteriorated. After the war genuine prosperity returned for the first time since 1929.
I am saying it is not all that clear that we know what happened or what should have happened.

Regards  —  Cliff

  Or, as Kad Barma would say, there isn't a dime's worth of difference between Democrats and Republicans.


ncrossland said...

Historian David Kennedy reports great issue with the posit that the Great Depression was caused by or a linear result of the Crash of 29. Samuelson and other economists are referenced to support his view.

I personally think that Keynesian economics would simply shrivel up and blow away in the wind if were not for Paul Krugman who is its staunchest advocate today.

There are also many arguments that hold that FDR's New Deal policies and spending patterns were no different in their design or effect than those Herbert Hoover attemted. Certainly, the Farm Price Stabilization program was as socialist as they get, but aside from being a methodology for spending great sums of money, it had no impact whatsoever on the ills of agricultural economics of the time. Historians will argue vociferously among themselves that timing was kind to FDR and tragic for HH. Certainly, HH was by far the greater intellect and depending on who you side with...the greater humanitarian.

The fear I feel about Krugman is that he was wrong on Enron and has thus far been wrong on almost every other monetary/business issue in the past decade. He does have lots of alphabetic suffixes to his name, and the bully pulpit of a Princeton chair in economics..and he uses all of it to steadily drum his liberal socioeconomic theology into the brains of Americans.

Kad is absolutely correct in his assessment of the Reps and the Dems....and I fear....should include those of "alternative" party persuasions as well.

Government is the prize of politics.

lance said...

I would have thought with all the access the right side of the nation has to media that Krugman would have come up without prompting, but it is hard to tell what will find its way into this blog. It was offered in the sense of making sure all ideas were scrutinized.

It would seem to me that the major point was that what we should be scrutinizing was the concept of austerity at this point in time and the tangential issue of the Republicans taking political strategy, for political purposes, that was causing such pain.

While it is only the SJ Mercury News, and not to be deemed worthy to the readers of the bastion that is the Globe, here is today's editorial:

(Cliff still has failed to teach me how to embed the link. Maybe he will fix my comment for me.)

lance said...

So I guess if I refined the question it would be: do I trust the markets to function in the long term interests of the global economy and to collapse because they are concerned about a looming debt crisis or do I trust them to act in the short term concerned about the economy having its recovery cut short by lack of stimulus. Okay I thought about that one and have a conclusion.

The rest of it is politics, be it Democrat, Republican or Tea Party member.

Craig H said...

My point of view is that good investment in good, wealth-producing assets yields good returns--whether you are an entrepreneur, or a government policy wonk with a deficit to create. The problem I see in the Keynesian-with-blinders approach, aka "any deficit is a good deficit", is there is no regard for, or value placed on, the creation of wealth-producing assets and infrastructure. THIS CANNOT BE THE BEST WAY!!!

Taking T. Boone Pickens' plan as one positive example, I'd agree that deficit spending to create such energy self-sufficiency cannot help but be a winner. We get stimulus, and we get free energy for the rest of the foreseeable future, vastly reducing production costs and improving America's global competitiveness. Win/win.

Taking any old pork barrel project, like paying people to shovel dirt on the highwayside, I'd say, though it may have some marginal benefit to the economy when those workers spend their paychecks at the grocery store, the problem is that those groceries STILL need to be paid for eventually, i.e. when the deficit debt needs to be paid back, and that, with interest, makes for some damn expensive groceries, that do nothing for the future of this country, even if they were very useful to the otherwise-starving worker and his or her family at the time.

So, as interested citizens, we ought to be insisting that our government invest wisely, whether at a deficit or not. The fact that we currently have both D's and the R's before them arguing that we merely need to write checks is terrifying to me. We still have to pay all this back, and we will have nothing to show for it!!!

The New Englander said...

Strongly in agreement with both Neal and Mr. Barma on this.

If the government is going to spend money in ways that affect the STRUCTURE of the economy (as several New Deal programs, like the Tennessee Valley Authority, did...or as the alternative energy strategy that Kad outlined would do) then it seems like an easy sell and a win-win.

But just hiring someone to watch paint dry, or to boil water, or whatever the example you like, doesn't change or fix anything in a long-term sense.

Plus, the REALLY tough part is how you take that away. It's like, even if those type of jobs were able to provide a stimulus or could "prime the pump" of the economy, the one constant with government spending/entitlement creation is that it's really easy to "ratchet up" but really hard to "ratchet down." Once the economic cycle switches back, who wants to be the evil Governor or other executive who takes a job away? No one, regardless of the utility of the position.