Its been a weird couple of weeks for Paul Krugman. First he popped up on CNN to speculate that the threat of an alien invasion of earth might be good for the economy. Lots of scope for Keynesian stimulus spending on ray guns you see.
Then he was forced to take to his blog to deny that that following the recent earthquake on the eastern seaboard of the United States he had said
“People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage”
The fact that many of the comments on that post on the now deleted Google + page of the fake Krugman were from Keynesians defending the statement rather undermines Krugman’s indignation when he bridled at being called a cheerleader for destruction.
But his denial of the earthquake comments contained yet another far out statement from the whack economist
“Just to be clear: World War II was expansionary because it led to a large increase in public spending”
Lets leave until another day the argument that the act of destroying large sections of the planet’s labour force and capital stock can in any conceivable way be said to exercise an “expansionary” effect on an economy you have to wonder where exactly Krugman has been for the past decade. And what has he been doing there?
We have had, along with the Americans, two foreign wars. Krugman’s fellow Keynesian Joseph Stiglitz estimated the cost of just the war in Iraq at $3 trillion. How’s that for stimulus?
The Federal debt ceiling was raised from just under $6 trillion in 2001 to nearly $10 trillion on the eve of the Lehman Brothers collapse in 2008. A massive stimulus and the economy still tanked.
Federal debt ceiling
So Krugman’s prescription for an ailing economy is a massive dollop of stimulus spending. That’s it. The same thing, in other words, that was being done to the economy as it hit the wall in 2007-2008. Maybe Krugman should stick to Space Invaders.
Frédéric Bastiat – Wiseguy
I know a guy who is very, very vocal on the issue of the deficit. He thinks it should be closed entirely with tax rises. He has even said he is willing pay a few extra pounds to safeguard those vital public services.
But when his fuel tax went up he went crazy.
Another friend of mine is also very vocal about the coalitions plans to deal with the deficit. Again, it should all come from tax rises.
She has now got a council tax refund of which she plans to donate not a penny to supporting those vital public services.
Indeed, one of the things you notice first about the people who think taxes should be raised to close the deficit is that they almost invariably mean that somebody else’s taxes should be raised to close the deficit.
Or as Frédéric Bastiat put it “Government is the great fiction through which everybody endeavors to live at the expense of everybody else”
Looking this smug is fine if you can perform miracles
A decent set of employment figures out today provided more proof that Ed Balls increasingly desperate cry that George Osborne is going “too deep and too fast” in trying to get Britain’s runaway borrowing under control is a load of rubbish.
Unemployment fell by 26,000 taking the rate down from 7.8% to 7.7%. Compare this with the 9.2% just announced in the United States, the economy the forlorn Balls used to point to as the poster boy of Keynesian spending.
Most encouragingly there were falls in the two most crucial sectors of the labour market; long term unemployment and youth unemployment, of 37,000 and 11,000 respectively.
There are some clouds in this picture. The number of people on Jobseeker’s Allowance rose and various Cassandras could be found to issue gloomy predictions about the future, a view I’m not unsympathetic to but not out of any disagreement with Osborne’s fiscal strategy.
However, these figures remain very good news. The last few years leading up to the crash saw the British government and public alike run up vast debts. Then came the credit crunch. First the private sector set about repairing its balance sheet (cutting borrowing in other words) and government stepped in as borrower and spender of last resort. Now they too are maxed out and are having to de-leverage (cutting borrowing in other words). With everyone now busy paying for what they consumed a few years ago few are spending any money on present consumption. Given that, for there to be any kind of job creation at all is little short of miraculous.
That is the situation in British political economy right now. You can choose Labour and immediate economic disaster. Or you can choose the coalition and have some pretty bad pain now but an economic recovery a few years hence. The third option, the painless escape from debt back to the go go days before the credit crunch, does not exist.
Who is the one person in this photo you shouldn’t take economic advice from?
Ed Balls, the disastrous Treasury advisor who was denied his dream job by his old boss and only grudgingly got it from his new boss, is giving his old theme that the coalition’s attempts to get runaway borrowing under control are going “too deep and too fast” another airing. Over on Labourlist today he calls for “a more balanced deficit plan” which will, apparently, get borrowing down by borrowing more money.
What Ed doesn’t tell you is that, according to the respected Institute for Fiscal Studies, the last plan of any detail put forward by Labour for dealing with the deficit called for spending cuts of 10.9% this year as opposed to the 12% the coalition is pushing through.
So it seems the difference between “too deep and too fast” and “a more balanced deficit plan” is 1.1%. With someone like that advising the Treasury for so long is it any wonder we ended up in the Brown stuff? Pun very definitely intended.
A temple which desperately needs ridding of its money lenders
Last week came the news that inflation, at 4.5%, was outside of the mandated target range for the 17th month in a row and, as Michael Saunders of Citi warned, 80% of the items measured in the CPI are rising by more than 2% year on year reflecting a broadening of inflation.
Despite all this we hear today from Paul Fisher of the Bank of England that apparently it is not rising prices and inflation which are the danger, but falling prices and deflation.
Think about what direction the prices of the fuel and groceries you buy have been moving recently and see if you share Mr Fisher’s concern that their prices might fall.
The Monetary Policy Committee of the Bank of England has been a total failure. It’s members, their pensions indexed for inflation, don’t even live in the real world.
The credit crunch has a thousand fathers
It’s amazing how much foresight economist have. With hindsight. Browsing in the economics section in Waterstones the other day I picked up a book whose blurb informed me that the author “was one of the few economists who warned of the global financial crisis before it hit”. It reminded me of the blurb on another book whose author predicted “the recent crisis well in advance of anyone else” or yet another, the author of which “predicted the slump years ago”. In fact it turns out that the credit crunch was so widely predicted among academic economists you almost long to meet the economist who didn’t predict the credit crunch. He must be out there.
Oh yes, I forgot, Ben Bernanke is now Chairman of the Federal Reserve.
When is a debt limit not a debt limit?
The United States has a government debt limit of $14.3 trillion. This limit is there for the very good reason that rocketing debt causes economic crises.
So it is rather strange to hear President Obama warn that an economic crisis will ensue if the Republicans in Congress do no allow him to keep borrowing and adding to the national debt. It’s especially strange given that the rating agencies are now starting to worry about the ballooning of American government debt, previously regarded as the safest investment in town.
Either way, there seems very little point in a spending limit that doesn’t limit spending.
Pedal to the metal
Mervyn King is in the news again. He has raised his prediction for inflation and lowered his prediction for growth.
This seems curious. King has been warning for months now that any rise in interest rates, such as would be needed to head off surging inflation, risks ‘derailing the recovery’. Yet the rail-worthiness of the recovery is clearly doubtful even with King’s ultra low interest rates.
At the very least this ought to throw more dirt on the coffin of the idea that printing money/lowering interest rates can pull you out of recession. It’s a bit like whipping the horses without them being tied to the buggy. Your inflationary nags will gallop into the distance but your real economy buggy will stay right where it is.
As if by magic
The following joke is currently doing the rounds on the ‘Keep spending’ circuit
“A banker, a Daily Mail reader and a benefit claimant are sitting around a table. There are 12 biscuits in the middle of the table. The banker takes 11, and then says to the Daily Mail reader, “Watch out for that bloke, he’s after your biscuit!”
All very amusing no doubt but you might have found yourself asking ‘How did the biscuits get there?’
This joke reveals alot about the economic attitudes of those who make it. Wealth is just assumed to arrive out of nowhere. It isn’t even a given, it just appears as if by magic. It focuses on how wealth is divided, saying nothing about how it is generated.
And that is the crucial question. There can be no debate, no debate at all, about how to divide up national wealth until there is a clear idea of where that wealth will come from.
This week the ever amusing Labourlist.org tried to cite the cutting of funding for English for speakers of other languages (Esol) courses while David Cameron is urging immigrants to learn English as evidence of his hypocrisy.
Labour still dont seem to have grasped that, just because something ought to happen, it doesn’t automatically follow that the government ought to pay for it.