Krugman: Fiscalizing Failure

[Kurt_and_Hunter]

Paul Krugman
February 2, 2010, 8:48 am
Fiscalizing Failure

If you read much of what’s being said these days by respectable people, you’d believe that deficits are always and everywhere the main source of economic problems. But, you know, that’s not really true.

A couple of samples from today’s Times — not terrible examples, but illustrative of the prevailing conventional wisdom. David Sanger asserts that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country’s influence around the world eroded.

Is that really true? I thought Japan’s influence has waned because of its economic stagnation, its failure to maintain its status as an economic superpower; I have never heard anyone cite the debt as a central cause. Bear in mind that so far, at least, Japan has had no problems financing its deficits.

BTW, it’s also not true, as the article asserts, that “Chinese leadership” is lending much of the money to finance the U.S. government’s spending. I keep trying to tell people this: the surge in government borrowing has been more than offset by a plunge in private borrowing, and we’re less dependent on foreign financing than we have been for a long time.

Meanwhile, the Times has an editorial on the troubles of the euro, which is perfectly fine as far as it goes. But by focusing on Greece, it might lead readers to believe that the euro’s woes are essentially fiscal — that the problem is spendthrift governments that never lived within their means.

Not so. The biggest trouble spot isn’t Greece, it’s Spain — which was running budget surpluses just a few years ago. True, Spain is running big deficits now — but that’s because of its economic collapse. And underlying that collapse is the real problem with the euro: one-size-fits-all monetary policy, which offers no relief to countries that suffer adverse shocks.

There are two things that are frustrating about the fiscalization of our discourse. First, it’s taking place even though many, probably most good economists have been arguing strenuously for a more sophisticated view. Second, many of the people insisting that deficits are the big issue probably don’t even realize that they’re taking a questionable position — it’s just part of what everyone thinks they know.

Against conventional wisdom, the gods themselves…

http://krugman.blogs.nytimes.com/2010/02/02/fiscalizing-failure/

OP Editorialization: A subdued but very important Krugman entry.

For a few centuries scientific and technocratic modes have held sway... but often without the actual science. It is not just that people (up to an including the president) espouse primitive and morally tinged ideas about debt and fiscal policy but that they believe them to be settled fact.

As Krugman says, "many of the people insisting that deficits are the big issue probably don’t even realize that they’re taking a questionable position."

The notion that a government should react to economic crisis the same way a struggling family would is common sense only in the way the ability to inflict injury remotely by sticking pins in a sufficiently life-like voodoo doll is common sense. (It really is common sense, BTW. It is how our brains are wired. But common sense doesn't work for uncommon things out of scale with individual experience. eg. macroeconomics, relativity, quantum physics, etc.) And we face economic and political ruin because a lot of powerful people (and voters) cannot shake what they "know."

I will take the opportunity to coin this phrase: Deficit hawk-ism in a financial collapse is the 'abstinence only education' of economic world.

[RainDog]

1. kick. i hit unrec by mistake. sorry.

meant to rec. but I'll just kick. sigh.

[JCMach1]

2. So tell me, why don't we have Krugman in charge of the Fed.?

FK Bernanke and his repug business orientation!

[belpejic]

3. I'm glad that Krugman posted this

It seems that the MSM, David Sanger of the Times included, is buying into the whole Rove/Norquist/Moore narrative. If I recall correctly, people were saying similar things at the end of Bush I/beginning of Clinton. Yet Clinton made a few commonsense, relatively small moves to raise revenue, not strangle growth, and over the course of a couple of years conventional wisdom about the budget was upended.

I have a nagging feeling that Obama never took that into macro class, or if he did he wasn't paying close attention. He really seems to be hands off when it comes to economic advice, and unfortunately, as I think many of us would agree, he has some questionable people running the economic show.

[Kurt_and_Hunter]

5. The most questionable people running the economic show are the voters

I have never seen anyone with Obama's combination of slipperiness and seeming-candor. Everyone knew Clinton was slippery and he practically winked to let you know that he knew that you knew.

But Obama is a slippery politician with a public image as being as righteous as a Jesuit.

I no longer ponder what Obama actually thinks. What he says is all-thing-to-all-people so all we can do it work backward from what he actually does.

I have no idea what Obama believes about the economy. He may be a fool or he may be pretending to be a fool because the people are fools...

But either way the result is sub-optimal.

Of course Obama is smart. Some people say that like they've never met a smart person before! Smart doesn't mean you do everything correctly. Hell, unlike most conserva-hacks Grover Norquist is pretty smart... but that doesn't mean he's right.

I would prefer that Obama say what we really need and if he cannot sell the people on it then at least he tried to do the right thing.

There seems to be a limiting and very brittle fear of failure, real or perceived, in play.

Sigh.

[OHdem10]

4. Cm'on my friends, the Media have their marching orders from the

Elite Ruling Class. Get out there and scare the people.
We are tired of these entitlements. Something has to be done
and we (the well-off are not willing to pay for them).
The Middle Class has lost and will continue to lose
ground financially so their contributions will be be
smaller. Entitlements are a losing proposition for us.
So Media, scare the people into accepting changes in
the Entitlements---SS, Medicare and Medicaid.

The Drumbeat has started. Will we be Japan or Zimbabwe?
They are using this threat to sell Deficit spending as
the ruination of our Society. According to them SS Medicare
and Medicaid give us this horrible Deficit.


I say to you my friends: What about the bailouts( which
I supported). What about Globalization and Trade Policy
which has been poorly managed? This helped drive the
stake into the heart of the Middle Class. Millions are
not paying taxes because they do not have a job and there
fore, no job=no income=no taxes. The Government therefore
is not getting revenue it gets in normal times. Does this
not contribute to the deficit. Or do the powers that be
believe we will have chronic job loss because of their
their misjudgements over the years permitting our country
to lose it mfg base??? Do they see our future as a country
a smaller group over super-rich and rich and a large
large underclass with a few struggling in the middle???
No wonder, they needle the Gaggle of Geese out with the
Drumbeat against Entitlements??? Do not forget the Wars for
which we borrowed the money. This is part of the Deficit.

I realize something has to be done about Entitlements
but I want to hear the Fundamentalists on Free Trade in
both parties admit the problems---Do not blame entitlements.
Both parties have some Fundamentalist Free Traders. Check
out who is screaming the loudest about Entitlements and
Deficits. Bayh is leading the pack.

[Kurt_and_Hunter]

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