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I periodically get emails and phone calls from people wanting me to respond to particular statements from politicians, columnists, and other high-profile figures.
Not surprisingly, Paul Krugman occasionally is the subject of these communications, particularly with regards to his view that Keynesian spending is an elixir and universal cure for economic stagnation.
I certainly have waded into the so-called stimulus fight, addressing the issue over and over and over again. But I generally try to comment on the underlying economic and political issues while avoiding pointless arguments with other people (not always with total success, as seen here and here).
The most recent Krugman-related email I received, however, has nothing to do with fiscal policy. It deals with his views on housing bubbles. Here’s what he advised back in 2002.
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Given what has happened in the past five years, Krugman’s endorsement of a housing bubble certainly leaves him vulnerable. And if it turns out that Alan Greenspan took his advice, that would be rather damning.
But I think he should be criticized for his general support for economic intervention, not his specific recommendation for a housing bubble.
Sure, his advice doesn’t look very good with the benefit of hindsight, but economists are notoriously awful forecasters, as I’ve noted before. Moreover, Krugman legitimately could argue that his advice was for the specific circumstances of 2002, and not a permanent recommendation.
That’s why my criticism is limited to his overall belief that government should steer the economy. And if you want to understand that issue, this post looking at the work of Robert Higgs is a great place to start.
P.S. If you want some amusing Krugman-baiting, you should read Best of the Web by James Taranto of the Wall Street Journal. Taranto often refers to Krugman as the “former Enron adviser” and routinely mocks Krugman for his silly assertion that horror stories about healthcare in the United Kingdom are false.
Responding to widespread criticism of his AWOL status on the budget fight, President Obama today unveiled a fiscal plan. It already is being criticized for its class warfare approach to tax policy, but the most disturbing feature may be a provision that punishes the American people with higher taxes if politicians overspend.
Called a “debt failsafe trigger,” Obama’s scheme would automatically raise taxes if politicians spend too much. According to the talking points distributed by the White House, the automatic tax increase would take effect “if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade.”
Let’s ponder what this means. If politicians in Washington spend too much and cause more red ink, which happens on a routine basis, Obama wants a provision that automatically would raise taxes on the American people.
In other words, they play and we pay. The last thing we need is a perverse incentive for even more reckless spending from Washington.
Maybe Obama’s not so bad on Second Amendment issues.
His Administration has contracted with the folks at Ruger to produce a special pistol in honor of the government workforce.
This new gun will be called “The Bureaucracy Special.” The only downside is that it doesn’t work and you can’t fire it.
The Department of Housing and Urban Development is trying hard to win the “Bureaucracy of the Year Award,” and they have a new motto.
When I was in college and first became active in politics and public policy, I periodically would meet people who warned about sinister conspiracies that had to be exposed and overcome.
The most common villain, reviled by conspiracy theorists on the left and right, was something called the Trilateral Commission, though the Council of Foreign Relations often was mentioned in the same breath (I also remember a lefty friend warning about the Bilderbergers and Illuminati, though I never quite understood who or what they were supposed to be).
It’s been a long time since I’ve heard anybody mention any of the above groups, but this doesn’t mean conspiracy theories have faded into the sunset. There are thriving communities of people who think:
a) Obama is a Kenyan and/or Muslim (the birthers).
b) The U.S. government and/or George W. Bush were complicit in the 9-11 attacks (the truthers).
c) The Federal Reserve is a sinister cabal.
d) The Koch brothers have a secret plan to turn America into…well, I’m not sure, but they have a secret plan to do something bad.
This is probably just the tip of the iceberg, but you get the idea. The common theme in all these conspiracies is that wealthy/powerful people, in some unaccountable and hidden fashion, manipulate the levers of government to achieve some evil goal.
I suppose a quick disclaimer would be appropriate. The Koch brothers directly or indirectly provide 3 percent of the funding for the Cato Institute, so if they have a conspiracy, I’m part of it. Though I’m not sure how a conspiracy can be a conspiracy if it’s all public information.
But I digress. The main point I want to make is that it is almost always foolish to believe in conspiracies. Or, to be more specific, it’s foolish to believe in big conspiracies. We have a government that is spectacularly incompetent, filled with some of the most short-sighted and narcissistic people in the world, so why would anyone think it is realistic to believe that this bunch of buffoons could maintain a conspiracy using an organization that doesn’t even have the ability to give away money without creating giant clusterf*cks?
In a column for National Review, Jonah Goldberg made this point quite effectively in discussing the fevered speculations of the birthers and truthers.
I’m not saying there are no secret dealings in Washington. There are lots of them. But they involve run-of-the-mill corruption, with politicians doing things like providing earmarks in exchange for campaign cash. That’s the kind of scheme that works, because only a tiny handful of people are in on the deal, and they obviously have lots of reasons to keep quiet. Heck, in most cases there’s probably not even an overt conspiracy, just an implied understanding.
I think people are drawn to conspiracy theories because they assume that things happen for a reason, as part of a deliberate design. So if we have a TARP bailout, for instance, they assume that there was a deliberate effort to create chaos so the people who are part of the conspiracy can grab more money and power.
I’m willing to accept the last part of that scenario. Washington is filled with people who are willing to use any excuse to grab money and power. But I think it is silly to think that some hidden group of bigwigs orchestrated the financial crisis for that reason.
As indicated in my title, it is much more realistic to believe bad things happen because of corruption, incompetence, politics, ideology, greed, and self-interest. These ever-present characteristics of human nature help explain why politicians, bureaucrats, lobbyists, and interest groups pursued the various policies (easy money, housing subsidies, etc) that inadvertently came together in a perfect storm to destabilize the financial system.
Yes, powerful interest groups have a lot of influence on the political system. But it’s not a hidden conspiracy. Take the example of Goldman Sachs, which frequently is cited as being part of some evil plan. Their lobbyists are well known, their campaign contributions are public knowledge, and their policy positions are openly stated.
I often disagree with the actions of Goldman Sachs. But you don’t need to believe that the company’s endorsement of, say, the Dodd-Frank bailout bill is part of a conspiracy. It’s just the kind of the out-in-the-open, day-after-day, special-interest deal-making that is routine in Washington.
I like good conspiracy theories, but I like them in David Baldacci novels rather than as explanations for what happens in Washington.