June 28th, 2010

Krugman: hey, big spender

Tim Cavanaugh writes that Paul Krugman has become a laughingstock both here and abroad for his devotion to Keynesian spending in the face of overwhelming deficits and the burgeoning threat of bankruptcy in many countries of the western world. The reason, as Cavanaugh puts it, is that [emphasis mine], “As Margaret Thatcher predicted would happen, we have all run out of other people’s money.”

That’s what both the formerly ultra-liberal states of Massachusetts and New Jersey have recently learned, resulting in the elections of Scott Brown and Chris Christie. But Krugman’s having none of it, writing that we face a third depression if we don’t follow his advice:

…[G]overnments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

But I don’t think Krugman should be called a laughingstock, exactly; he does have somewhat of a point, although he overstates it and understates the flip side of the issue. There’s no question that either deflation or inflation are possibilities, depending on how the current crisis is handled. There’s also no question that we (and economists such as Krugman, as well as his opponents) simply don’t know what will happen. But Krugman is ignoring the fact that this “depression” is different from others in the incredible size and scope of the government spending and deficits that have already piled up, and the crisis of confidence around the world that has resulted.

Confidence is a huge part of economic growth and prosperity, although it’s not everything. But people must feel that governments are not tottering on the brink of bankruptcy if they are going to get that old prosperity spark going again. Nearly everyone knows that this crisis was preceded, and in part caused, by too much and too easy credit, especially in the housing market, and then risky trading of that credit in order to make gobs more money. Many also know that banks were too highly leveraged. And nearly everyone knows that governments around the world are in debt up to their ears right now, with no end in sight. Throwing good money after bad (or more bad money after bad?), and increasing Europe’s and America’s debt, (or printing more money) is not going to reassure anyone—except, perhaps, Paul Krugman.

I’m with Robert Samuelson on this one:

We may be reaching the limits of economics. As Keynes noted, political leaders are hostage to the ideas of economists — living and dead — and economists increasingly disagree about what to do. Granted, the initial response to the crisis (sharp cuts in interest rates, bank bailouts, stimulus spending) probably averted a depression. But the crisis has also battered the logic of all major economic theories: Keynesianism, monetarism and “rational expectations.” The resulting intellectual chaos provides context for today’s policy disputes at home and abroad…

[T]he benefits of higher deficits can be lost in many ways: through higher interest rates if greater debt frightens investors; through declines in private spending if consumers and businesses lose confidence in governments’ ability to control budgets; and through a banking crisis if bank capital — which consists heavily of government bonds — declines in value. There’s a tug of war between the stimulus of bigger deficits and the fears inspired by bigger deficits.

39 Responses to “Krugman: hey, big spender”

  1. hong Says:

    Obama is already talking about increased taxes. His ‘calling their bluff’ bluster was code for more taxes on the middle class. Let Krugman and the Left try and spin this latest expired promise.

  2. gpc31 Says:

    Krugman is a textbook case of an intellect deformed by temperament, in this case insufferable pride and hatred.

    He desperately wants to be the second coming of Keynes. The sad reality is that he is no longer an economist and has never been a policy maker. (Also, I doubt that he’s ever made a fortune in speculation ala Keynes, but he did take lots of money from Enron.) He is literally just phoning it in these days, writing his column from a second home in St. Croix, according to a profile in The New Yorker. Just another guy surfing the web and posting his rants. A nebbish in person, a lion online.

    Would it be cruel and unusual punishment to put Summers, Sachs, and Krugman in a scorpion bottle and let their egos fight it out to the death?

  3. Baklava Says:



    Yes he’s insane!

    The definition of insane is someone who thinks that if you keep doing what you are doing you’ll get different results….. or wait. That’s a Democrat!

  4. SteveH Says:

    Why isn’t common sense one of the economic theories? Which would state: Without producing goods and services that translate to wealth, you can’t get wealthier. You will in fact, because of having to borrow money that represents wealth that hasn’t been earned yet, become poorer.

    How is it economist can go a gazillion years to school and not get that? Do they also think the sharpest man in their neighborhood is the one under employed and buried in debt?

  5. vanderleun Says:

    “There’s no question that either deflation or inflation are possibilities, depending on how the current crisis is handled. ”

    Isn’t that a bit like saying, “It could rain or precipitate?”

  6. stumbley Says:

    If we had some ham, we could have ham and eggs, if we had some eggs.

  7. jon baker Says:

    I posted this late last night on another thread and many may not have seen it, but I think it bears repeating:

    From Thomas Jefferson: “We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds…[we will] have no time to think, no means of calling our miss-managers to account but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers… And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for[ another]… till the bulk of society is reduced to be mere automatons of misery… And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.”

    From the quote site, link below, that NEO linked to yesterday in a comment. They have a comment section and I had to leave a comment about a quote they attributed to “Jesus of Nazareth” about debt that I beleive was completely out of context-it had nothing to do with debt.


  8. Scott Says:

    What politicians, and advisors to them like Krugman, pass off as Keynesianism today would make Keynes puke if he were to come back and see what they are doing in his name.

    Today, we simply say deficit spending is Keynesianism. But that’s not at all what Keynes advocated. He bascially had three rules.

    1) We must have a baseline balanced government budget. If the government can achieve a balanced budget or a small surplus during the economy’s expansionary phase, then Keynes would recommend certain kinds of deficit spending as a counter cyclical stimulus to bring the economy out of recession. So, under his theory, not only were deficits temporary, but so too was the national government debt (since Keynes assumes we return to a baseline balanced budget). We now have $13 trillion of “permanent” government debt and structural deficits. We have structural deficits because of two unending wars as well as an entitlement system like social security and Medicare that cannot finance themselves as currently structured. Aging demographics mean a larger and larger proportion of the population are retired and counting on the produtive members of society to pay them a stipend because they avoided the grim reaper for 67 years (I don’t blame the retirees for expecting it. They paid into the programs during their working years. The govenment stole the money and spent it on other stuff). Even so, the entitlement programs must be restructured but the politicians are unwilling to do so. So we live with structural deficits until the bond market creates the mother of all crisis that will threaten the survival of the republic. That we’re running structural deficits is strike 1 against the current Keynesians.

    2) The government’s share of GDP was about 10% when Keynes formulated his theories. So when the economy went into recession, he believed if the government temporarily became a larger share of GDP with counter-cyclical deficit spending, then the “multiplier effect” had a more powerful impact on economic activity and it helped pull the economy out of recession faster. Today, government is close to 25% of GDP (and growing). So to get the same “oomph” from deficit spending, the size of the spending would have to be much larger than when governemt was only 10% of GDP. That government is already such a large percentage of GDP making the multiplier so small is strike 2 against modern Keynesians.

    3) Keynes wanted the deficit spending to go to capital intensive projects that would benefit economic activity for many periods into the future. Roads, railroads, bridges, power plants, canals, possibly schools, etc. would all qualify. Instead, what we’re doing is borrowing to finance transfer payments, mostly to state and local governemnt employees, which are consumed immediately and contribute nothing to future economic periods. Borrowing to finance current consumption is not what Keynes envisioned. And engaging in deficit spending to make the creditors whole of failed car companies, failed insurance companies, failed Fannie Mae and Freddie Mac, failed banks, student loan takeovers, and failed homeowners certainly don’t qualify. This is strke 3 against the modern Keyensians.

    Krugman is a Nobel prize winning charlatan, IMO.

  9. neo-neocon Says:

    gpc31: Here’s my summary of that New Yorker piece on Krugman.

  10. Occam's Beard Says:

    Every time the Administration talks about the “recovery” and all the green shoots I can’t help thinking of townsmen going through the streets yelling that the Mongols had left.

  11. Artfldgr Says:

    Keynesian = “Socially Progressive”

    As a man of the centre described as undoubtedly having the greatest impact of any 20th century economist, Keynes attracted considerable criticism from both sides of the political spectrum. In the 1920s, Keynes was seen as anti establishment and was mainly attacked from the right.

    In the “red 1930s” many young economists favoured Marxist views even in Cambridge, and while Keynes was engaging principally with the right to try and persuade them of the merits of more progressive policy, the most vociferous criticism against him came from the left who saw him as a supporter of capitalism.

    From the 1950s and onwards most of the attacks against Keynes have again been from the right. en.wikipedia.org/wiki/John_Maynard_Keynes

    Social progressivism is the view that the basic concepts of social mores, human nature, and morality are not fixed throughout history and should be revised [by whom?] as new scientific knowledge becomes available.

    The term is most commonly associated with an international political movement on basis of this view.

    Particularly in developed countries, social progressives are secularists, and believe that science and secular philosophy have discredited most traditional beliefs to the point where they no longer hold any inherent value [so you can forget any past information they don’t like as they can always blame the ideas on being soaked in the miasma of religion].

    Thus, all current interpersonal social constructs, such as marriage, the family, monogamy and gender roles and gender identity, must be legally challenged whenever such a change is deemed to be for the greater good of society or is desired by those who wish to engage a social arrangement not currently sanctioned by law [like pederasts? and pedophiles? bestiality? Necrophiliacs?].

    They are generally averse to inequality in all of its forms, and seek to institute egalitarian norms. They are opposed by social conservatives on grounds of positive vs negative liberties.

    that last one is a nice way of saying they are totalitarians who believe your rights come from the state and that the state should not be limited in its actions. As the constitution is a document of negative liberties (making politicians clerks, not gods), they oppose it in favor of, well the kind of political structure that affords government the largest roles.

    and back to the keynes wiki page

    In 1931 Friedrich von Hayek extensively critiqued Keynes’s 1930 Treatise on Money, only to have Keynes assert that the Treatise no longer reflected his thinking. [make em work to prove you wrong when you know your wrong, and after they waste their time on something unreal (and not on something else), you deflect the whole thing]

    However, after reading Hayek’s The Road to Serfdom , Keynes wrote to Hayek saying: “In my opinion it is a grand book … Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.”

    Yet he concluded the same letter with the recommendation:

    What we need therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them. Your greatest danger is the probable practical failure of the application of your philosophy in the United States.

    [he is right since we all know marx, and dont know hayek who refuted him, but we dont realize it since the title of his work wasnt “i refute marx”. en.wikipedia.org/wiki/Friedrich_Hayek ]

    On the pressing issue of the time, whether deficit spending could lift a country from depression, Keynes replied to Hayek’s criticism in the following way:

    I should… conclude rather differently. I should say that what we want is not no planning, or even less planning, indeed I should say we almost certainly want more. [more planning and playing, more command of the economy. where have i heard that before?] But the planning should take place in a community in which as many people as possible [a collective?], both leaders and followers wholly share your own moral position [a socialist collective two class system?].

    Moderate planning will be safe enough if those carrying it out are rightly oriented in their own minds and hearts to the moral issue [didnt Friedman ask where would you find such angels?]. This is in fact already true of some of them. But the curse is that there is also an important section who could be said to want planning not in order to enjoy its fruits but because morally they hold ideas exactly the opposite of yours, and wish to serve not God but the devil.

    Hayek explained the first section of the letter by saying it was written:

    Because Keynes believed that he was fundamentally still a classical English liberal and wasn’t quite aware of how far he had moved away from it. His basic ideas were still those of individual freedom. He did not think systematically enough to see the conflicts.

    Hayek felt that application of Keynes’s policies would give too much power to the state and would lead to socialism. [I should point out that back then, there was no false distinction between socialism, communism]

    Professor Herbert Frankel later expanded on this perceived danger of Keynes’s thinking, drawing on support from the work of Georg Simmel.

    Attacks on Keynes for lending support to socialism and excessive state control have remained popular from Libertarians and Austrian School Economists.

    so when someone above said no one knows, they are wrong. there ARE people that know, and so forth… but its WE that dont know, we dont know that Keynes, being a socialist, and a progressive, was not really into the whole invisible hand thing.

    you have to understand that these people DO believe in the invisible hand. they just think that you can force the hand to do what you want. and since the hand is the people, and they pretend to be the ‘brain’, they want us to make the hand do what they want, and not what the hand wants.

    Hayek is an amazing interesting person, and his writing is very accessible.

    The road to serfdom shook the world, and was read all over the way a great movie is seen all over. it was discussed, it was taught in schools.

    but its social progressives who have been ruling the changes to society to improve it and so have A) been experimenting on the people without their permission and B) have been responsible for most of the major social ills that they use and blame on others. Each time we rediscover the progressives they go into hiding if they don’t have enough power to ignore us.

    they have used groups like feminists to push their socially progressive remolding of society (and the ills we have are seen by them as temporary pains and broken eggs not ills).

    right now, today, they tried to claim that Plato was a feminist;
    Plato led a dramatic and fascinating life. Born four centuries before Christ, when Sparta defeated plague-ravaged Athens, he wrote 30 books and founded the world’s first university, called the Academy. He was a feminist, allowing women to study at the Academy, the first great defender of romantic love (as opposed to marriages arranged for political or financial reasons) and defended homosexuality in his books.

    I never knew that dead white guy they dont teach us about any more was such a “social progressive” did you? or that feminism went so far back… and was synonymous with what they imply above…

    ya got to love how he then sells plato as a progressive hero:
    Dr Kennedy explains: “Plato’s importance cannot be overstated. He shifted humanity from a warrior society to a wisdom society. Today our heroes are Einstein and Shakespeare – and not knights in shining armour – because of him.”

    he shifted humanity from warrior to wisdom?

    i think social progressives like him more for creating a three part class system in which thinkers like him rule the world and shape society, while brutal warrior class makes sure the masses, the working class do what they are told to do by the so called brains of society. (which happens to be the good Dr.)

    read keynes page and then realize that keynes never wanted to make a maximally functioning economy… he wanted to facilitate state control of said economy, regardless of what he said to Hayek.

  12. Tom Says:

    Good, and needed, clarification, Scott.

    As individuals making personal economic decisions, forecasting the future these days, as we must, is surely very anxiety-generating. We are clearly deflating. Fiat money will perhaps fix that, but it hasn’t yet. The Fed is oversteering and that will continue, so we may eventually be in for more than a little inflation. To say nothing of our truly monstrous unfunded liabilities.

    Meanwhile, we are all scared, largely of our own government. And this is likely global fear. How else to explain the cratering of T-bond yields while gold keeps climbing? The common thread there is safety. Those yields, BTW, are another deflationary signal: 10 year Treasuries yielding just 3%???

    Some of us will be right. But woe to those who are wrong.

  13. Nolanimrod Says:

    Actually we’re getting both inflation and deflation at the same time.

    They’re printing money like mad and the value is dropping. Gold was $1200 last I looked whereas it was around $380 in 2006. That’s inflation.

    But prices haven’t really gone up even though the money is worth less. So real prices have declined. That’s deflation.


    Krugman got his Nobel for the same thing Carter and Obama got theirs: Annoying George W. Bush. Nothing to do with economics. Officially something to do with economies of mass production. Or maybe it was interchangeable parts. Or the wheel. Really for annoying Bush.

  14. Occam's Beard Says:

    many young economists favoured Marxist views even in Cambridge

    Even in Cambridge?

    Such a dry sense of humor.

  15. Occam's Beard Says:

    Krugman got his Nobel for the same thing Carter and Obama got theirs: Annoying George W. Bush.

    More accurately, for trying to annoy George W. Bush. I think one of the drivers for BDS was the apparent impossiblity of getting a rise out of Bush, which spurred his detractors to ever greater efforts.

    Bush didn’t even have the good breeding to take public offense to the vituperation heaped upon him. Some people have no consideration.

  16. holmes Says:

    They have just overestimated the multiplier effect of stimulus spending, plus the unintended consequences of borrowing too much:


    It also lends nicely to their worldview that the government spending money is the better way to go, doling out benefits to preferred groups, than private individuals (who are just greedy).

  17. pablo panadero Says:

    You can bend the laws of economics, but all you are doing is winding up the spring so that when it does swing back, it causes far more collateral damage than if you did not try to bend it. All the bank bailouts, GM bailout and “stimulus” did was waste borrowed money to kick the pain a little further down the road. All while not fixing the problems that got us in the mess.

    Deflation will not happen, because then the government will simply default on its loans. The government wants to pay back its debt in cheaper money, not more expensive money. This will mean that we will need to have 3-5 years of Carter-esque inflation (15%) to reduce the real debt load by 50% and also make 90% of the country in the highest tax bracket.

  18. SteveH Says:

    If there were a profession called “breathonomics”, we’d have 100 competing theories on how people should breathe, and societies would end up dying from being choked to death or holding their own breath.

  19. KBK Says:

    While I don’t pay Krugman any mind, there are others, e.g Evans-Pritchard.

    Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed..The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

    Some say that the Fed’s QE policies have failed. I profoundly disagree. The US property market – and therefore the banks – would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.

    The case for fresh [quantitative easing] is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.

    Bernanke warned in that speech eight years ago that “sustained deflation can be highly destructive to a modern economy” because it leads to slow death from a rising real burden of debt.

    At the time, the broad money supply war growing at 6pc and the Dallas Fed’s `trimmed mean’ index of core inflation was 2.2pc.

    We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the ‘trimmed mean’ index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.

    There is no doubt that the Fed has the tools to stop this. “Sufficient injections of money will ultimately always reverse a deflation,” said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

  20. KBK Says:

    In other words, you can count on “planned” economies to do the right thing at the wrong time….

  21. Lorenzo from Oz Says:

    On what is to be done, read Scott Sumner’s TheMoneyIllusion blog. Prof. Sumner is a monetary economist writing a book on the Great Depression. It is fairly horrifying, how much 1930s patterns are being repeated.

    And, no, fiscal stimulus is not the answer. Monetary stimulus is. That President Unengaged Obama has taken so long to fill the two vacancies on the Fed Board is, in the circumstances, either appalling fecklessness or appalling Machiavellianism (maximise the economic crisis so as to maximise the regulatory and policy changes that can be justified).

    Two useful pieces on battles in the Fed are here and here.

  22. Curtis Says:

    “Instead, what we’re doing is borrowing to finance transfer payments, mostly to state and local governemnt employees, which are consumed immediately and contribute nothing to future economic periods.” –Scott



  23. rickl Says:

    Karl Denninger at the Market Ticker has been saying for a couple of years that we are heading for deflation, and indeed, it is already happening in the housing market.

    He says that the bad debt must be flushed out of the system in order to return to real economic health; and that individuals, business, and banks who are insolvent must be allowed to fail and go bankrupt. All of the efforts to increase government spending to pump up the economy are doomed to failure, and the longer it goes on the worse the collapse will be.

  24. jon baker Says:

    pablo panadero (Or shall I call you Paul Baker?) said :
    “You can bend the laws of economics, but all you are doing is winding up the spring so that when it does swing back, it causes far more collateral damage than if you did not try to bend it. All the bank bailouts, GM bailout and “stimulus” did was waste borrowed money to kick the pain a little further down the road. All while not fixing the problems that got us in the mess. ”

    Well said.

  25. J.J. formerly Jimmy J. Says:

    Does anyone subscribe to the idea of increasing economic activity through business friendly tax and regulatory policies by the Feds? The stimulus was mostly a waste because the money, except for a small amount spent on building/repairing infrastructure, went to states and democrat special interest groups that don’t create new business or wealth. In other words it is just redistributing money.

    One way to put a bottom under the housing market would be to enact favorable depreciation and tax rules for investors who buy the foreclosures to use as rentals. That would unleash money that is now sitting on the sidelines.

    Instead of the Feds spending money that creates nothing, they should drop taxes on businesses to 10%, and drop their anti-business rhetoric and actions. If that were done, some jobs will be created, some people may be willing to take invest again. Money might begin to have some velocity.

    Of course someone might make some money if those two steps were taken and, as we know, that is not good in Obama’s view.

    The only way the government will ever be able to pay back the debt they have created is to allow the private sector to create wealth and jobs. Obama and company as well as libs like Krugman have no intention of letting that happen. We know what this means. Without electing some fiscal conservatives to the House and Senate in November, we are screwed!

  26. Occam's Beard Says:

    One way to put a bottom under the housing market would be to enact favorable depreciation and tax rules for investors who buy the foreclosures to use as rentals.

    J.J., I have a better idea: do nothing whatever. Zip. Nada. Nichevo. Nichts. Let markets clear.
    Otherwise, we’re trying to generate updrafts to keep Wile E. Coyote airborne after he’s run off a cliff. Government intervention to “help” people is exactly what caused the real estate bubble in the first place.

    The government in matters economic should follow the essence of the Hippocratic Oath: first do no harm. In the government’s case, that simplifies to: do nothing.

    Some people will get hammered. Some will benefit. So it goes.

  27. J.J. formerly Jimmy J. Says:

    O.C. said, “I have a better idea: do nothing whatever. Zip. Nada. Nichevo. Nichts. Let markets clear.”

    The markets can’t clear because there are no clear signals from the government that they won’t interfere with the profit motive. Until it is clear to the $1.7 trillion sitting on the sidelines earning miniscule returns, nothing will happen. There is plenty of money in the system, but no velocity. That means there is no confidence. That means investors will not take risks. Nothing good can happen when the governmment considers the profit motive to be evil.

    There are plenty of potential buyers and mortgage rates are low, very low. But no one wants to take a risk when the atmosphere is so anti-capitalist. It is still a matter of confidence. And, and, if they reinstitute mark to market pricing for MBSs and CDOs there will be another crisis in the financial sector as the shorts pile in and drive the stock prices toward zero. Just my observation.

  28. sergey Says:

    It should not be a surprize for anybody that economic theory of any kind works poorly at a time of crisis. All that economists can do is to understand negative feedbacks which stabilize economy in normal regime. There are many of them, each one having its strong and weak points; but when real crisis arrives it means all of them failed, and nobody knows a text-book recipe for stabilizing it. The foundation of any economic theory, the principle of rationality of economic behavior of ordinary people, is undermined: in stress, people often behave like suicidal lemmings.

  29. Stones Cry Out - If they keep silent… » Things Heard: e125v2 Says:

    […] Krugman, here and here. This entry is filed under Links, Mark O.. You can follow any responses to this entry […]

  30. IgotBupkis Says:

    > But I don’t think Krugman should be called a laughingstock, exactly;

    I concur wholeheartedly!

    A moron, a fool, an idiot, an imbecile, a clot headed jackass, a brain dead twit, a dunderheaded nincompoop, an incompetent buffoon, an addlepated poltroon… All those, yeah, sure.

    But no, not a laughingstock.

    I mean, one has to actually be worthy of being taken vaguely seriously to become a laughingstock.

  31. Artfldgr Says:

    Please stop making the laughingstocks of the world feel bad. We should start a socialist organizations and mobilize for the rights of laughingstocks…

  32. Artfldgr Says:

    i wonder if krugman is like this journalist.
    and imagine what such multiplied by hundreds all over the place can do.

    a longtime U.S.-based columnist for the Spanish-language “El Diario” newspaper, were advised of their rights and ordered held due to flight risk, with their next hearing scheduled for July 1….

    One of the suspects is Vicky Pelaez, a columnist for “El Diario” for more than 20 years covering politics, immigration and other issues, her lawyer confirmed. Pelaez is married to Juan Lazaro, another of the suspects arrested Monday, and the couple resided in Yonkers, a New York suburb.


  33. Occam's Beard Says:

    The markets can’t clear because there are no clear signals from the government that they won’t interfere with the profit motive.

    Exactly. Government intervention in the markets in the past has led to the expectation of such intervention in the future, so those with capital hunker down to see what will happen next. The sooner we kick the government intervention habit, and make it clear that we’ve done so, the sooner markets will clear.

    This November will be critical. Otherwise, it’ll have to be 2012.

  34. Old Dad Says:

    Here’s what I would try. Cut taxes across the board–put a little jingle in everyone’s pocket. There’s tons of pent up demand, but people need some reassurance–and jobs.

    Uncertainty is killing job creation. Business owners sense a hostile administration. Credit has dried up despite there being tons of cash on bank balance sheets. Obamacare is very scary. Temporarily relax bank reserve requirements and repeal Obamacare. Stop with all the antibusiness rhetoric and threats of draconian regulation. Let the banks put some much needed liquidity into the business sector. Consumers will slowly begin to spend and employers will follow with jobs. When the system stabilizes–2 or 3 years out, propose modest incremental changes to the banking regs. Start cutting spending as tax revenues increase. Raise SSI retirement age and remove SSI tax cap.

    Mix, simmer, grow–watch carefully.

  35. Stark Says:

    The many thoughtful comments above give me hope that there is a way forward based on conservative common sense. It is a complete marvel that clueless Krugman can make a dime selling his worthless sheep dip philosophy that has no basis in economics or reason.

  36. Occam's Beard Says:

    Uncertainty is killing job creation.


    Uncertainty is going to be our constant companion until we turn Obama out of office. His public image is now too well-entrenched to be changed quickly or easily. (Hammering GM’s lenders did that with one stroke of the pen.) Even if Obama tacks to the center (which he seems constitutionally incapable of doing), any sensible person will suspect that that’s just a tactical retreat, and he will hammer business and the productive at the first opportunity.

    I’m with your entire program except removing the SSI tax cap, which I oppose because the next Dem administration will merely put an IOU into the cookie jar and pee up the additional revenue on union baksheesh, Frisbee golf courses, and other necessities, thereby putting us back into our present fix. While I haven’t thought this through, I would prefer a cap on SSI payouts, and/or indexing SSI payments not to CPI, but to SSI revenues for that year. Make SSI recipients have some skin in the game. Everyone else’s fortunes depend on the health of the economy – theirs should too. Voted for “Hope! Change!” policies that clobber the economy? Then better get the Alpo recipe book, gramps, because you’re going to take the hit with everybody else.

  37. Occam's Beard Says:

    Uncertainty is indeed the problem. Law exists largely to rein in uncertainty; who would start a major capital project in, e.g., Somalia? In the Mad Max scenario, no one there wants any wealth tied up in anything that can’t be moved, and quickly. The English common law deference to precedent, as I understand it, is intended precisely to mitigate uncertainty. Everyone, including most importantly businessmen, want to know that others will abide by their contractual obligations and be subject to impartial adjudication of any disputes if they don’t. When it’s not clear that that’s the case, as when the President abrogates lending agreements entered into in good faith, no one takes risks, the velocity of money plummets, and you have …pretty much the situation we have now.

    That’s why the uncertainty – and therefore the stagnation – will probably continue indefinitely: Obama’s still got that pen.

  38. J.J. formerly Jimmy J. Says:

    You got it right Occam’s.

    Rule of law, private property rights enforced by courts, and a government that is not crowding out the private sector. All requirements for free markets because they provide some measure of certainty to investors and entrepreneurs. We don’t have that right now and, as you noted, will not have it as long as Obama and company are in control.

  39. Baklava Says:

    Megan McArdle brings it home… nails it… smacks that bottom…. doesn’t beat around the bush…. gets it right (as usual)…


About Me

Previously a lifelong Democrat, born in New York and living in New England, surrounded by liberals on all sides, I've found myself slowly but surely leaving the fold and becoming that dread thing: a neocon.

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