One of my pet peeves is stupidity in all its forms, and today I received a particularly large dose of it in Dr. Paul Krugman's column entitled "America Goes Dark." Dr. Krugman, for those unaware, masquerades as an expert economist/economic commentator, writing for the New York Times. If Dr. Krugman were my doctor, I would have died long ago. He would have correctly diagnosed my problem, but given me the wrong prescription. When that inevitably failed, he would have prescribed more of the same, in ever increasing doses, until I finally died. He is usually correct in identifying a problem, but his prescriptions are often so preposterous that his solutions are often worse than the original problem.
In his column today, Dr Krugman correctly identifies a problem that state and local goverments are having providing some basic services. Streetlights being turned off, teachers being laid off, all a result of the recession that have depressed tax revenues and left local governments strapped for cash. Dr. Krugman's answer to this is the same as his answer to every problem: we need more and more government. Eventually, he would prescribe so much government spending, in ever increasing amounts, that the republic would eventually go bankrupt and die. So of course, he is proposing a tax increase, which he claims will leave local governments less cash strapped. As if this isn't silly enough, he claims that the politicians in Washington have only grudgingly provided a trickle of help. Huh? Let's break this down a bit.
First, Dr. Krugman assumes this is strictly a revenue problem. In part, it is. The recession of the past couple of years has clearly depressed tax receipts. But this is also a spending problem. However, in Dr. Krugman's world, the government cannot spend enough money. He also believes that the stories of vast armies of useless, paper pushing bureaucrats working for the federal government are a myth. Huh? He seriously does not believe that the federal government has a spending problem. He truly believes that the United States and should shoulder more and more debt (which will be a burden to our children and grandchildren) so that the federal government can continue living well beyond its means. Meanwhile, the national debt, at $13 trillion is approaching levels that forced the debt rating of Greece to fall to junk, and is pushing Spain and Portugal quickly in that direction.
He says you hardly see any stimulus at all because state and local governments are cutting back. Most state and local governments are also bound by balanced budget laws that force them to cut back, due to lower tax receipts. But last year, the federal government passed an $862 billion stimulus bill, by far the largest stimulus ever passed, and about 6.5% of GDP. This is hardly any stimulus? Approximately one-third of the stimulus went to state and local governments to help them preserve the status quo. That is not stimulus in any way, shape or form. Only 10% of the stimulus went to projects designed to stimulate economic growth. Isn't stimulus, by definition, suppose to increase economic growth? And yet, the economy has still lost about 3 million jobs since the passage of the stimulus. Dr. Krugman keeps telling us that the government should be spending more and more? Five quarters after the stimulus passed, and the economy is only growing 2.4%? Yes, we are finally seeing some employment gains, but we are also seeing large numbers of discouraged workers leaving the workforce. Hardly any stimulus? Or a poorly designed stimulus that had no chance to succeed?
In addition to more spending, Dr. Krugman also proposes that we should increase taxes. Name for me one legitimate economic theory that says you raise taxes during an economic recession? Lord Keynes advocated raising taxes only at times when aggregate demand was growing at an unsustainably high rate, with the excess proceeds used to pay down government debt. Keynes believed that lower taxes and increased government spending during economic recessions would increase aggregate demand. The competing economic theory, supply side, believes that by lowering taxes, particularly on producers, you would incentivize producers to produce at lower costs, and that consumers would benefit from lower costs and therefore, increase aggregate demand. But, Dr. Krugman, in all his infinite wisdom, proposes a tax increase in the face of a very weak economic recovery, which would practically guarantee a double-dip recession, depress tax receipts further due to lower demand, and spur Dr. Krugman to write further columns about the need for further, and larger, tax increases.
Another laughable point in Dr. Krugman's article is when says, "...when we give millionaires more money (through tax cuts) instead, there's a good chance that most of that money will just sit idle." Huh? Millionaires that I know did not become that way by letting their money sit idle. These people are extremely active in looking for investment opportunities that will yield high returns. In fact, many are obsessed with investment opportunities. Millionaires only let their money sit idle if they if there are no opportunities to earn a rate of return on their investment that is appropriate given the risk of the investment involved. Sit idle? Not with millionaires. Millionaires, or "the rich", have excess capital, or risk capital that they can invest in high risk investments. These are the investments in our future, such as new technologies, and new companies. If the money is sitting idle today (and I believe it is), it is because of a regulatory environment that is hostile to risk taking. Give these millionaires the regulatory environment of the Reagan years, and they would not be able to invest the risk capital fast enough.
Finally, Dr. Krugman concludes by asking how we got to this point, and what about the future. I will answer the former first. We got to this point, not so much because of anti-government rhetoric over the past 30 years (as Dr. Krugman claims in the article), but by example after example of government incompetence. What do the Post Office, Fannie Mae, Freddie Mac, Medicare and Medicaid all have in common? They are all government sponsored enterprises and all are a financial disaster. Freddie and Fannie were Ground Zero of the financial crisis that led us into our current economic environment (and were completely left out of the financial reform bill!). Medicare and Medicaid are insolvent, and Social Security is headed that way. The Post Office bleeds money every year, and last year lost nearly $4 billion. Yet Dr. Krugman would have us believe that only the Federal Government is qualified to get us out of our current mess.
Finally, what of the future? He says that well-educated populations and high-quality infrastructure are crucial elements of a growing economy. He is indeed correct. However, we also need abundant natural resources, price stability, incentives to invest, and a government that does not burden its people. He says emerging nations "are making huge efforts to upgrade their roads, their ports, their schools. Yet in America we're going backward." Emerging nations also have very low taxes, very little regulation and I am sure a host of other prickly little details that would appall Dr. Krugman and somehow escape his so-called expert economic analysis.
In a recent column, Dr. Krugman called Rep. Paul Ryan's Road Map For America "flimflam". I would say that Dr. Krugman is the real flimflam artist. He proposes solutions that are not supported by any legitimate academic theory. He blames the rich for sitting on their money, when the federal government is giving them every incentive to remain idle. He says that the federal government did not spend enough money when in fact the government had the largest stimulus package ever last year, and the package gave us far less than proper bang for our buck due to poor conception. Dr. Krugman's solutions are no solutions, but instead a prescription for disaster.
