The 4th Branch of the American Government has spoken. Paul Krugman, in his latest piece of propaganda, demands more stimulus for our economy, which essentially means bigger government. From the New York Times, Too Little of a Good Thing:
The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that’s also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we’re looking at many years of high unemployment.Krugman preeemptively calls the program a success even as: unemployment rises; consumer spending and consumer confidence decline; Commercial Real Estate implodes; State and Federal revenues collapse; the dollar gets wacked; and Federal deficits reach Banana Republic-like levels. Interesting. I want to know what data points Krugman is looking at.
And the free fall has ended. Last week’s G.D.P. report showed the economy growing again, at a better-than-expected annual rate of 3.5 percent. As Mark Zandi of Moody’s Economy.com put it in recent testimony, “The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.”
In regards to GDP, 1.66% of that "better-than-expected“ GDP number came as a direct result of a disastrous cash-for-clunkers program. Absent government stimulus, you're left with a really ugly GDP print. Nonetheless, the propaganda continues:
What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn’t do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don’t need to do any more. The truth, which is that the stimulus was too little of a good thing — that it helped, but it wasn’t big enough — seems to be too complicated for an era of sound-bite politics.What Krugman doesn't understand is that governments since the beginning of time have been proven to be the worst allocators of capital. Krugman fancies himself as an expert of the "lost decade" in Japan and the Great Depression. As such, he should be well aware that these are the two most prominent examples of government intervention reaching extreme levels. Is it a surprise that they also happen to be the most dragged out economic downturns of the 20th century?
But can we afford to do more? We can’t afford not to.
High unemployment doesn’t just punish the economy today; it punishes the future, too. In the face of a depressed economy, businesses have slashed investment spending — both spending on plant and equipment and “intangible” investments in such things as product development and worker training. This will hurt the economy’s potential for years to come.
Even the claim that we’ll have to pay for stimulus spending now with higher taxes later is mostly wrong. Spending more on recovery will lead to a stronger economy, both now and in the future — and a stronger economy means more government revenue. Stimulus spending probably doesn’t pay for itself, but its true cost, even in a narrow fiscal sense, is only a fraction of the headline number.
Just think back to the Works Progress Administration created during the Great Depression. If the program was such a stunning success- as revisionists will have you believe- then why did the Great Depression drag on for at least another 5 years? The WPA eventually became the biggest single employer in the country, which was good for those employed under the program since they received their wages regardless of the quality of their work. If full employment is the sole goal of any economic plan, then we might as well follow the model of Communist Russia.
If Krugman really thinks we're not paying higher taxes as a result of this reckless spending, I don't know what to say. His theory that government spending will boost economic activity, and thereby tax revenues, works only in theory. In order for that to hold true, the government's programs will always have to be more efficient than those of the private sector. The private sector is keen on risk, and thereby engages in projects that have a high likelihood of profitiablity. The government is just concerned with garnering votes by giving off the appearance of doing something, which leads to wasteful projects that would never have flown in the private sector. There is no doubt in my mind that we will pay the price very soon for the reckless spending of our government.
This post has been republished from Moses Kim's blog, Expected Returns.