Paul Krugman, "Easy Useless Economics": In the Twilight Zone

In case you haven't noticed, there is an ongoing war of words between New York Times op-ed writers David Brooks and Paul Krugman. On Tuesday, in "The Structural Revolution" (http://www.nytimes.com/2012/05/08/opinion/brooks-the-structural-revolution.html), Brooks took a swipe at Krugman, and began by citing a passage from an article by Raghuram Rajan of the University of Chicago in Foreign Affairs:

“Since the growth before the crisis was distorted in fundamental ways, it is hard to imagine that governments could restore demand quickly — or that doing so would be enough to get the global economy back on track. The status quo ante is not a good place to return to because bloated finance, residential construction and government sectors need to shrink, and workers need to move to more productive work.”

Brooks went on to say:

"Many people on the left [e.g., Krugman] are having a one-sided debate about how to deal with a cyclical downturn. The main argument you hear from these cyclicalists is that the economy is operating well below capacity. To get it moving at full speed, the government should borrow and spend more. The federal government is now running deficits of about $1 trillion a year. Some of these cyclicalists believe the deficit should be about $1.4 trillion."

Brooks next claimed that these leftists are not addressing the "core issues," which are "structural," including globalization, technological change, and a decline in human capital.

Today, in a New York Times op-ed entitled "Easy Useless Economics" (http://www.nytimes.com/2012/05/11/opinion/krugman-easy-useless-economics.html), Krugman fires back at Brooks. Pointing to the Rajan article, Krugman asserts:

"Actually, government employment per capita has been more or less flat for decades, but never mind — the main point is that contrary to what such stories suggest, job losses since the crisis began haven’t mainly been in industries that arguably got too big in the bubble years. Instead, the economy has bled jobs across the board, in just about every sector and every occupation, just as it did in the 1930s.

. . . .

All of this strongly suggests that we’re suffering not from the teething pains of some kind of structural transition that must gradually run its course but rather from an overall lack of sufficient demand — the kind of lack that could and should be cured quickly with government programs designed to boost spending."

In support of his persistent spending thesis, Krugman observes how the military buildup of World War II provided fiscal stimulus on a scale commensurate with the depth of the slump induced by the Great Depression.

But as noted by FactCheck in an article published in July 2011 (http://www.factcheck.org/2011/07/fiscal-factcheck/):

"Washington's spending has recently been higher as a percentage of the nation's economic output than at any time since World War II. But by the same measure, Washington's revenues are the lowest in more than 60 years."

FactCheck proceeds to observe:

■ Federal spending ("outlays" in budget jargon) is expected to equal 24.1 percent of the nation's gross domestic product in the current fiscal year [2011], which ends Sept. 30. The figure was 25 percent in fiscal year 2009, highest since 1945.
■ On the other hand, federal revenues are expected to drop to 14.8 percent of GDP this year, lower even than the 14.9 percent attained in both 2009 and 2010. There has been only one year since World War II when revenues have been as low as in any of these years: 1950, when the figure was 14.4 percent.
■ These historically high rates of spending and low rates of taxation have combined to produce a chain of deficits that are also the highest since WWII. The deficit was 10.0 percent of GDP in fiscal 2009. It declined to 8.9 percent last year as the economy started to recover, but is projected to go up to over 9 percent this year. Each of these deficits is larger than in any year since 1945, measured as a percentage of GDP.

Immediately after World War II, American debt as a percentage of GDP crashed, yet today, even if American involvement in Afghanistan were to suddenly end, there is no relief in sight. As noted by the Congressional Budget Office (http://cbo.gov/publication/41486):

"But the budget outlook, for both the coming decade and beyond, is daunting. The retirement of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid. Moreover, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services for many years (although the magnitude of that gap is very uncertain). Without significant changes in government policy, those factors will boost federal outlays sharply relative to GDP in coming decades under any plausible assumptions about future trends in the economy, demographics, and health care costs."

Spend wildly, as suggested by Krugman, to drag the US out of its economic morass? The reality is that the US has entered an economic twilight zone, which bears no comparison to the World War II years, and without meaningful fiscal and budgetary reform, no one knows where this will end.

Paul Krugman, "Bain, Barack and Jobs": Figures Don't Lie, But Liars Do Figure

I have always been fond of the pellucid witticism, "Figures Don’t Lie, But Liars Do Figure," which has been attributed to Mark Twain, but whose true source remains obscure (see: http://quoteinvestigator.com/2010/11/15/liars-figure/).

Paul Krugman, in his latest New York Times op-ed, "Bain, Barack and Jobs" (http://www.nytimes.com/2012/01/06/opinion/bain-barack-and-jobs.html?_r=1&hp), would have us compare the number of jobs created or lost by Barack Obama and Mitt Romney. With respect to Romney's claim that Obama has lost more jobs during his tenure than any president since Hoover, Krugman writes:

"But his claims about the Obama record border on dishonesty, and his claims about his own record are well across that border.

Start with the Obama record. It’s true that 1.9 million fewer Americans have jobs now than when Mr. Obama took office. But the president inherited an economy in free fall, and can’t be held responsible for job losses during his first few months, before any of his own policies had time to take effect."

Krugman proceeds to observe that Romney's claim to have created jobs includes the period when Romney was no longer at Bain, and does not include job losses at companies which Bain scrapped.

Personally, I don't care for comparing such "figures." Krugman tells us, "The economy lost 3.1 million jobs between January 2009 and June 2009 and has since gained 1.2 million jobs," but doesn't tell us what kind of jobs were lost and what type of jobs were gained. Were the jobs gained of a sustainable nature or were they "make-work"? Were they of the kind that contribute to further economic growth? Were they of the kind that allow Americans to support their families and send their children to college?

Moreover, I also don't buy the capricious statistics foisted upon us by Romney staffers. Romney was not in the business of growing companies, but rather shopped for distressed companies to be scrapped or made more efficient and sold. Indeed, some of the companies purchased by Bain ultimately created additional jobs, but by the same token you cannot avoid acknowledging the jobs lost by those companies that failed.

However, let's look beyond the "figures" game. As observed by Krugman in an op-ed (http://www.nytimes.com/2011/12/12/opinion/krugman-depression-and-democracy.html) published less than a month ago, we are in a depression, and if you're over the age of 50 and looking for a job, your goose is cooked.

I live in an alternative reality, completely dissimilar to that of Krugman, in which I assist companies with disruptive, ground-breaking technologies in raising capital, which allows them to hire talented employees, create cutting-edge products, and save lives. And although there is plenty of money out there, people have never in my lifetime been so scared of investing.

In order to create jobs, we need to change the investment environment by reinstating Glass-Steagall, reinstating the Uptick Rule (see: http://jgcaesarea.blogspot.com/2010/02/reinstate-uptick-rule-immediately.html), and reducing long-term capital gains tax.

Answers from Obama, who never managed a company and who, by his own criteria, will have failed during his first term in office ("I expect to be judged a year from now [i.e. a year from August 2011] on whether or not things have continued to get better"), or from Romney, who made his millions from corporate raiding? I see "figures," but no solutions.