Paul Krugman, "The Stimulus Tragedy": Excuses, Excuses, Excuses

Have you ever encountered someone whose thesis has been proven wrong, but who persists in claiming that if everything had been done her/his way, the problem would have been solved? If not, have a look today at Paul Krugman's latest New York Times op-ed entitled "The Stimulus Tragedy" (http://www.nytimes.com/2014/02/21/opinion/krugman-the-stimulus-tragedy.html?partner=rssnyt&emc=rss&_r=0). His usual modest self, Krugman writes:

"All the evidence, then, points to substantial positive short-run effects from the Obama stimulus. And there were surely long-term benefits, too: big investments in everything from green energy to electronic medical records.

So why does everyone — or, to be more accurate, everyone except those who have seriously studied the issue — believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.

There’s no mystery about why: America was coping with the legacy of a giant housing bubble. Even now, housing has only partly recovered, while consumers are still held back by the huge debts they ran up during the bubble years. And the stimulus was both too small and too short-lived to overcome that dire legacy."

That's right, only Krugman has "seriously studied the issue." And yes, notwithstanding the fact that US federal debt now exceeds $17.3 trillion and will never be returned, President Obama should have bet the farm on stimulus, i.e. doubled down on spending on "big investments in everything from green energy to electronic medical records."

Me? I don't think Obama's stimulus was a failure. It may have been partially misdirected upon green energy and electronic medical record projects, but it was not a failure: the banks did not fail, and Ford and General Motors remain among the living. Regrettably, however, I believe that unemployment in the US might never return to its halcyon levels of 5 percent. Efficiency in our brave new world comes with a price.

On the other hand, Obama has also persisted in perpetuating the policies of his predecessors, which have destroyed the infrastructure necessary for future growth. Consider the effects of the cancellation of the Uptick Rule (see: http://jgcaesarea.blogspot.co.il/2013/08/maureen-dowd-summers-of-our-discontent.html) and the demise of antitrust law (see: http://jgcaesarea.blogspot.co.il/2014/02/paul-krugman-barons-of-broadband-when.html).

Place all our faith in Paul Krugman, and even now, go ahead with further massive stimulus? I don't think so. You see, Nobelist Krugman is far from infallible. Consider his past support for Occupy Wall Street  (http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html):

"Occupy Wall Street is starting to look like an important event that might even eventually be seen as a turning point.

. . . .

It’s clear what kinds of things the Occupy Wall Street demonstrators want, and it’s really the job of policy intellectuals and politicians to fill in the details."

Can you only imagine if "intellectuals and politicians" had indeed acted on Krugman's advice "to fill in the details"? I shudder at the consequences.

Paul Krugman, "Barons of Broadband": When Will the Federal Trade Commission Emerge From Suspended Animation?

Can you remember the last time Paul Krugman and I agreed about anything? Well, it has finally happened. In his latest New York Times op-ed entitled "Barons of Broadband" (http://www.nytimes.com/2014/02/17/opinion/krugman-barons-of-broadband.html?ref=opinion&_r=0), Krugman complains about the deal by which Comcast will acquire Time Warner. Krugman writes:

"So let me ask two questions about the proposed deal. First, why would we even think about letting it go through? Second, when and why did we stop worrying about monopoly power?

. . . .

In fact, a number of experts — like Susan Crawford of Benjamin N. Cardozo School of Law, whose recent book 'Captive Audience' bears directly on this case — have argued that the power of giant telecommunication companies has stifled innovation, putting the United States increasingly behind other advanced countries.

And there are good reasons to believe that this isn’t a story about just telecommunications, that monopoly power has become a significant drag on the U.S. economy as a whole."

Yes, the absence of competition means that there is no reason to innovate in order to maintain or improve market share. Needless to say, the absence of competition also means that corporations need not trim prices in order to continue selling their product.

But perhaps most important, particularly today, an absence of competition deriving from consolidation means fewer jobs. Inevitably following a merger, there is an attempt to eliminate redundant positions, which often extends beyond administrative work to basic research and development. Back in 2009, I wrote regarding the pharma industry (http://jgcaesarea.blogspot.co.il/search/label/antitrust):

"Does antitrust law still exist? If so, does the U.S. Federal Trade Commission do anything whatsoever to enforce it?

In recent months we have seen a wave of giant mergers and acquisitions in the pharma industry: Pfizer merged with Wyeth, Merck merged with Schering-Plough, Roche merged with Genentech.

Although these mega-mergers might have been wonderful for the financial industry, did they benefit consumers? Will they be conducive to competition, which will result in new lifesaving drugs and diagnostics?

Or, were these mergers corporate palliatives intended to remedy many failed years of R&D by combining dwindling pipelines and cutting costs, without remedying failed R&D?

You know the answers to all of these questions, and let me predict that in a few short years, several once great pharma companies will devolve into little more than pill marketers."

I wish I had been wrong. Prior to Pfizer's merger with Wyeth, in a Time article entitled "Pfizer and Wyeth: A Merger as a Way to Fire People" (http://content.time.com/time/business/article/0,8599,1873565,00.html), Douglas A. McIntyre correctly observed:

"Pfizer and Wyeth already have development teams working on drugs which may not even be tested for two or three years. Putting the two corporations together is not likely to make the combined operation grow faster. It is not like putting two search engine companies together because having more market share allows the new firm to raise prices as it delivers more customers than any of its competition.

M&A has become a tool for fighting the recession. Putting Fiat with Chrysler together is an excuse for letting tens of thousand of people go. The same would be true with a Pfizer deal to pick up Wyeth.These mergers do more to destroy the overall economy than they do to create new products and services which might help restart demand from customers and haul the economy out of its hole."

In the three years following its merger with Wyeth, Pfizer fired some 26,000 employees (see: http://www.bloomberg.com/news/2012-04-05/pfizer-to-cut-benefits-for-fired-workers-as-company-trims-costs.html).

More recently, this past October, Merck, the second largest US drug manufacturer by sales following its 2009 merger with Schering-Plough, announced that it would "fire 8,500 workers and revamp its research and development after seeing new medicines delayed by U.S. regulators" (http://www.bloomberg.com/news/2013-10-01/merck-top-scientist-plans-major-changes-for-drug-research.html).

Indeed, it is time for the Federal Trade Commission to emerge from suspended animation.

Does Antitrust Law Still Exist?

Does antitrust law still exist? If so, does the U.S. Federal Trade Commission do anything whatsoever to enforce it?

In recent months we have seen a wave of giant mergers and acquisitions in the pharma industry: Pfizer merged with Wyeth, Merck merged with Schering-Plough, Roche merged with Genentech.

Although these mega-mergers might have been wonderful for the financial industry, did they benefit consumers? Will they be conducive to competition, which will result in new lifesaving drugs and diagnostics?

Or, were these mergers corporate palliatives intended to remedy many failed years of R&D by combining dwindling pipelines and cutting costs, without remedying failed R&D?

You know the answers to all of these questions, and let me predict that in a few short years, several once great pharma companies will devolve into little more than pill marketers. Sad.

And while the Federal Trade Commission permits pharma companies to abandon drug and diagnostic discovery and mutate into pill marketers, it is also allowing the big banks to deviate from their core business of lending money to worthy companies and individuals.

An editorial in today's New York Times , "Even Bigger Than Too Big to Fail", takes the position that "banks that are too big to fail pose too much of a risk to the economy" and that "any serious effort to reform the financial system must ensure that no such institutions exist". I agree with The Times and favor some very strong medicine. My comment, if The Times agrees to post it:

"'If we have learned anything over the last couple of years, it is that banks that are too big to fail pose too much of a risk to the economy. Any serious effort to reform the financial system must ensure that no such banks exist.'

Some banks will always fail, but why allow them to become 'too big' with the attendant risk to the economy? Why enable giant financial institutions to control U.S. economic policy and deviate from their core business of lending money to worthy companies and individuals? Why enable them to pursue quick profit without risk to executive bonuses?

More to the point, was it wise to allow Bank of America to acquire Merrill Lynch? Should Wells Fargo have been permitted to acquire Wachovia? And should JPMorgan Chase have taken over Bear Stearns?

Is there still a Federal Trade Commission? Does antitrust law still exist?

Perhaps it is time to look at the possibility of divestment and fostering financial institutions that serve the interests of small businesses and not the inflated egos of bank management.

Or stated otherwise, perhaps it is again time for many smaller banks that are little enough to fail if they abuse financial norms without significant damage to the economy."