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November 28, 2012

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Latest Posts from Economist's View

Paul Krugman: Hawks and Hypocrites

Posted: 12 Nov 2012 12:24 AM PST

Using deficit fears to shred the social safety net:

Hawks and Hypocrites, by Paul Krugman, Commentary, NY Times: Back in 2010, self-styled deficit hawks ... took over much of our political discourse. At a time of mass unemployment and record-low borrowing costs, a time when economic theory said we needed more, not less, deficit spending, the scolds convinced most of our political class that deficits rather than jobs should be our top economic priority. And now that the election is over, they're trying to pick up where they left off.
They should be told to go away. ...
Recent events have ... demonstrated clearly what was already apparent to careful observers: the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net. And letting that happen wouldn't just be bad policy; it would be a betrayal of the Americans who just re-elected a health-reformer president and voted in some of the most progressive senators ever.
About the hypocrisy of the hawks: as I said, it has been evident for years. Consider the early-2011 award for "fiscal responsibility" that three of the leading deficit-scold organizations gave to none other than Paul Ryan. ...Mr. Ryan's alleged plans to reduce the deficit were obvious flimflam... But in the eyes of the deficit scolds, his plan to dismantle Medicare and his savage cuts to Medicaid apparently qualified him as a fiscal icon. ...
And then there's the matter of the "fiscal cliff."
Contrary to the way it's often portrayed, the looming prospect of spending cuts and tax increases isn't a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.'s attempt to take the economy hostage. ...
I don't know how seriously to take the buzz about appointing Erskine Bowles to replace Timothy Geithner. But ... let's recall his record. Mr. Bowles ... has indulged in scare tactics, warning of an imminent fiscal crisis that keeps not coming. Meanwhile, the report he co-wrote was supposed to be focused on deficit reduction — yet, true to form, it called for lower rather than higher tax rates, and as a "guiding principle" no less. Appointing him, or anyone like him, would be both a bad idea and a slap in the face to the people who returned President Obama to office.
Look, we should be having a serious discussion about America's fiscal future. But a serious discussion is exactly what we haven't been having these past couple years — because the discourse was hijacked by the wrong people, with the wrong agenda. Let's show them the door.

Links for 11-12-2012

Posted: 12 Nov 2012 12:06 AM PST

Hasn't Paul Krugman Heard about the Magic of Tax Cuts and Supply-Side Economics? No, and for Good Reason...

Posted: 11 Nov 2012 11:54 AM PST

Paul Krugman:

Squirming Hawks, by Paul Krugman: The fiscal cliff poses an interesting problem for self-styled deficit hawks. They've been going on and on about how the deficit is a terrible thing; now they're confronted with the possibility of a large reduction in the deficit, and have to find a way to say that this is a bad thing.

And so what you see, in reports like this one from the Committee for a Responsible Federal Budget — is a lot of squirming..., making a mostly incoherent case: it's too abrupt (why?), it's the wrong kind of deficit reduction (???), and then this:

a better approach would be to focus spending cuts on low-priority spending and on changes which can help to encourage growth and generate new revenue through comprehensive tax reform which broadens the base – ideally by enough to also lower tax rates.

Low-priority spending? I think that means spending on poor people and the middle class. And isn't it amazing how people who claim to be horrified, horrified about deficits can't stop talking about cutting tax rates?...

I guess Paul Krugman hasn't heard about the magic of tax cuts and supply-side economics. Well, Cato-at-Liberty has, and it's ticked at the CBO because "it assumes higher tax rates generate more money" when making budget projections. That's right, despite all the evidence against the claim that tax cuts actually increased revenue -- it's a myth that won't die because people who know better, or ought to, still promote it -- we should discredit the CBO for making the claim that higher tax rates would help with the budget problem.

And that's not all. The CBO should be further discredited because it says the stimulus package helped to ease the recession:

The CBO repeatedly claimed that Obama's faux stimulus would boost growth. Heck, CBO even claimed Obama's spending binge was successful after the fact, even though it was followed by record levels of unemployment.

I'll pass over the "record levels of unemployment' claim (but note that unemployment peaked at 10.0% in October 2009, but was 10.8% at the end of 1982, at best this is playing games with the word "levels" and ignoring population growth -- and if duration is the argument, as Reinhart and Rogoff recently noted, conditional on the type of recession this recovery is actually a bit better than most). On the main claim about fiscal policy, there's plenty of emerging evidence supporting the contention that fiscal policy helped to ease the recession (and remember how much of the stimulus package was tax cuts -- it's amusing to listen to conservatives tell us how useless the tax cuts they fought for as part of the stimulus package turned out to be, especially when in the next breath they argue for more tax cuts). The CBO is dealing in actual evidence, the claims made by Cato-at-Liberty are backed by nothing more than the Republican noise machine that is so good at misleading followers.

Republicans just can't help themselves from attacking anyone and anything that is inconvenient to their goals, and actual evidence has little to do with it. Apparently, they learned nothing from the election. This is part of a larger effort to discredit the CBO because it doesn't agree with Republican views on the magic of tax cuts, and for other results the non-partisan agency has come up with that Republicans don't want to hear (so they basically cover their ears and ignore them).

The effort is successfully discrediting someone, but it's not the CBO.

What is Practical Is Not Always the Same as What is Best

Posted: 11 Nov 2012 09:53 AM PST

I can't figure out what the point of this column from Robert Shiller is. Is it nothing more than an attempt to promote Gene Sperling and his (seven year old) book? I guess the point is that Sperling is a practical guy (unlike the academics he names earlier in the column ), and we practical people that in Washington and the administration:

Sperling is fundamentally different from the typical academic economist, who tends to concentrate on advancing economic theory and statistics.
I believe he's a lawyer, not an economist, so one hopes he'd be different. Anyway:
He concentrates on legislation – that is, practical things that might be accomplished to lift the economy. ...
At one point in his book, Sperling jokes that maybe the US needs a third political party, called the "Humility Party." Its members would admit that there are no miraculous solutions to America's economic problems, and they would focus on the "practical options" that are actually available to make things a little better.
Americans do not need a new political party: with Obama's reelection, voters have endorsed precisely that credo of pragmatic idealism.

There are plenty of people who support Sperling, and he has been a defender of programs like Social Security so I suppose I should be more "practical" and support him as well. But I've always been wary. Somehow this embrace of practical choices sounds like it's heading toward typical centrist, Very Serious People type change. Compromise to get things done, and don't pay too much attention to the core principles that ought to be defended.

After all, the reason he was brought in, or one of them anyway, was to support one of Obama's biggest mistakes during his first term, the shift to deficit reduction when job creation should have been the first priority:

With Republicans holding more power in Congress, Mr. Obama wanted someone to help him engage them on issues like deficit reduction

Yes, that seemed practical. But the academic economists that Shiller is so down on, you know, the types who "concentrate on advancing economic theory and statistics" -- the people who use the theory and numbers stuff that failed so badly in the election (not)  -- were warning against debt reduction. But the practical types from the Clinton administration were having none of this "the economy needs more help, not budget cuts" kind of talk. Flying by the seat of their practicality and their political instincts, they knew better. What a big mistake that turned out to be. Practical is fine, and it's good to get things done, but it needs to be the right things, not just what is possible.

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