Posts Tagged ‘New York Times’

Paul Krugman’s Circular Reasoning Returns

Saturday, November 15th, 2008

There was a Paul Krugman Op-Ed in The New York Times November 14, 2008 titled, “Depression Economics Returns”.

I’m not sure that I’ve ever met a pure Swede, and if I do I may not be offered a prize, but to me the title of the Nobel laureate’s editorial was the last part of the piece that made any sense.

Professor Krugman’s argument is that the character of policy action in “normal times” shouldn’t be repeated in an economic crisis like this.  Now before anyone shouts, “At last, someone sensible!”, and leaps to his or her feet to applaud, I should clarify what these characteristics of past political policies are according to Krugman.  Have you guessed them yet? They are: modesty, prudence, caution, fear of “doing too much”, “fear of red ink”, … is there anyone who isn’t laughing yet?

It’s quickly rather sobering to see Krugman write that, “… in normal times modesty and prudence in policy goals are good things”, if you consider that it’s possible that some policy makers might read the New York Times.  One can almost hear the cheer going up in the beltway, “Hurray! Finally we’ve got some abnormal times, and can let go of all that egomaniacal imprudence we’ve kept bottled up for so long!”

The irony is, that Professor Krugman’s life can’t have allowed him much conception of normalcy.  A person living a normal American life can instantly see that there’s no modesty or prudence in Washington (and will have unfortunately had to instantly see it incessantly for their entire life).  Krugman must indeed be living in a rarified, insular, policy making zone.

Since the things that Professor Krugman describe as virtuous economic policies in “normal” times haven’t been tried for about a century, and all of his recommendations are exactly what has been tried, I believe he would have been more descriptive to title his Op-Ed, “I’m a Nobel Prize Winning Economic Dinosaur; Don’t Listen to Me”.

However, since he did mention depression economics, I should mention that there was one-twelfth of a sentence (yes, I measured it) in the body of the editorial that made sense.  The phrase, with the inanities about “stimulus” on either side of it removed, was, “…greater aid to those in distress…”

(So the final version of the professor’s editorial if I’d been his editor, leaving dinosaurism aside, would be:

Depression Economics Returns

Greater aid to those in distress.”

I’d have to admit that Times circulation could slide under my charge.)

While “greater aid to those in distress” is something for good societies to do, it isn’t directly a matter of economics.  It should be done with the “aid” and the “distress” in mind, not with any imaginary “stimulus” goals layered on top.  To pick up Professor Krugman’s normal times theme– in normal times, delusions of stimulus merely politisize the provision of aid to those in need– the aid, the politics, and the supposed stimulus are casually absorbed by economic vibrancy that has little to do with any of these other things.

In these abnormal and less than economically vibrant times, actually helping people, rather than helping economies, ideologies, corporations, houses or jobs, could provide easy policy guidance for modest government action (modest at least, by the nation busting standards of even just the current bailouts).  Too easy for Professor Krugman.  He’d rather help politicians do what they’ve always done, but with a firm warning not to be timid this time.

Why is Professor Krugman so sure that the “normal times” economic policies aren’t the cause of the abnormal economic times?  After all, those were the policies that were used, and here we are.

The radically different policies that we should try involve honest money and credit, with not only individuals, but also societies earning what they spend.

As long as it’s earned, it can probably be spent either timidly or boldly without the country crashing down on our heads.

By Les Lafave

Banking Reform – themaestrosrep.org