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Showing posts with label paulkrugman. Show all posts
Showing posts with label paulkrugman. Show all posts
Op-ed at RealClearMarkets: Austerity Works: It's Time to Give It a Try

Op-ed at RealClearMarkets: Austerity Works: It's Time to Give It a Try

This piece is with my son Sherwin. The graphs are pretty powerful. The piece starts this way:
Austerity or growth, is that the choice facing Americans and others around the world?

The debate never seems to abate. European Union finance ministers last week gave Spain permission to delay cutting some government spending and reducing its deficit, though many such as The Economist magazine fear that even the cuts that will be made go too far. A similar decision may soon have to be made for Greece. Even though the pro-bailout parties won the June Parliamentary election, they too are asking for a two-year delay in cutting spending and reducing their budget deficit.

The Obama administration has put increasing pressure on German Chancellor Angela Merkel to ease up on Germany's austerity prescription. President Obama continually touts more government spending as the cure, and derided Republican "let's cut more" spending strategy as the cause of Europe's economic problems.

Last month, German Finance Minister Wolfgang Schäuble was having none of it, telling Obama to fix the U.S. deficit before giving Europe advice: "Herr Obama should above all deal with the reduction of the American deficit. That is higher than that in the euro zone." . . .

Estonia doing well with "austerity" budgets, and Spain is not an example of "austerity"

Paul Krugman, the guy who kept predicting disaster for Germany's austerity program, has gone after Estonia for what he calls being the "poster child for austerity defenders."


There are a couple of things that Krugman leaves out of his discussion.


1) Estonia was getting worse relative to other countries when it followed more of a Keynesian policy and has been growing relative to other countries since then.  Figure from The Global Post (click to make larger).  As that publication wrote: "Still, its recovery, after implementing austerity, is intriguing."  By the way, the publication also accuses Krugman of cherry picking data to show.


2) As the Figure above shows, Estonia has been growing relative to the US since mid 2009.


Note on Spanish "austerity."  Spain is in a lot of trouble, but it isn't because of "austerity."  From the WSJ.com.
In 2011, total public-sector spending in Spain was 13% higher than in 2007. . . .

"Florida versus Spain"?: How Krugman misinforms readers

Paul Krugman claims that Florida is doing well relative to Spain because Florida has gotten so much aid from the Federal government.
Aid on that scale is inconceivable in Europe as currently constituted. That’s a big problem.
Brad Plumer in the Washington Post writes:
Paul Krugman points out one big factor: Florida has received billions of dollars in aid from the rest of the United States. The state’s federal tax revenue fell by $25 billion between 2007 and 2010, but Florida didn’t have to make up that entire shortfall with growth-pinching austerity measures, the way Spain now does. Instead, the U.S. Treasury kept paying Florida’s Social Security, Medicare, and Medicaid bills. The federal government also sent an additional $6 billion in unemployment aid and food stamp benefits to Florida between 2007 and 2010. All told, Florida received at least $31 billion in outright assistance from the rest of the country in those three years. That’s the equivalent of 4 percent of the state’s GDP. And, while Florida’s economy is still struggling, things could be a lot worse. They could be like Spain, which never received this level of aid from the healthier regions of Europe. . . .
Yet, though the end of last year, Florida is one of the 31 states that receive less than the average amount of Stimulus money from the Federal government.  Given that the money for the Stimulus has to come from someplace, if you assume that the money that is being transferred to the Federal government is being equally taken on a per capita basis from all the states, Florida is actually a net loser from all this help that the Federal government is giving out.

 
Don't you think that it would have been useful for Krugman to acknowledge how little Florida received relative to other states?

Austerity and Economic Growth: Keynesianism didn't work so well in Europe

Paul Krugman told MSNBC: 
“We have actually had a massive unethical human experiment in austerity doctrine.  Here we have had this view that cutting government spending is going to be good for the economy even when the economy is deeply depressed and we have put it into effect in large parts of Europe and we have put it into effect to a significant effect in the US . . . . And the results have been exactly what someone like me said that they would be, which is there has been a very depressing effect on the economy.  Where is the evidence that this other view is at all right?”
Unfortunately, it looks as if Romney is inconsistent with his views on government spending, though it is possible to rationalize this quote by saying that changing spending will temporarily create frictional unemployment. From an interview in Time Magazine:
Halperin: I want to get to a lot of those, and let’s go to spending, which is a big thing for you, one of the bases of comparison – you say you’d cut spending a lot more than the President has.  And like most governors I know, you can get down in the detail.  A lot of people don’t know that about you; you can really get your arms around a policy issue and go deep, so let’s talk about spending.  You have a plan, as you said, over a number of years, to reduce spending dramatically.  Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office?  Why not do it more quickly? 
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.  What you do is you make adjustments on a basis that show, in the first year, actions that over time get you to a balanced budget.  So I’m not saying I’m going to come up with ideas five or ten years from now that get us to a balanced budget.  Instead I’m going to take action immediately by eliminating programs like Obamacare, which become more and more expensive down the road – by eliminating them, we get to a balanced budget.  And I’d do it in a way that does not have a huge reduction in the first year, but instead has an increasing reduction as time goes on, and given the growth of the economy, you don’t have a reduction in the overall scale of the GDP.  I don’t want to have us go into a recession in order to balance the budget.  I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline. . . . 
Obama again lectures EU to ease up on austerity

Obama again lectures EU to ease up on austerity

Well our stimulus has worked so well.  Obama is aligning himself with the new French Socialist president on increased spending.  Notice the one country that has controlled spending the most has been doing the best.  From Reuters:


U.S. President Barack Obama will press European leaders to ease up on fiscal austerity and focus on economic growth at a summit on Saturday that will discuss ways to stem turmoil in the euro zone and head off the risk of global contagion.
At the wooded Camp David retreat in Maryland's Catoctin Mountains, Obama and leaders from other large economic powers will try to forge a common approach to tackling a crisis that threatens the future of Europe's 17-nation single currency.
Though no major policy decisions are expected from the Group of Eight summit, leaders hope they can bridge enough of their differences to soothe rattled financial markets after worries about the risk of a Greek exit from the euro zone sent European stock prices to their lowest level since December.
"Hopefully we'll get some stuff done," Obama told Italian Prime Minister Mario Monti as he and other summit participants arrived for Friday evening dinner at a lodge at the secluded presidential retreat.
Obama earlier in the day aligned himself with Monti and new French President Francois Hollande by urging a solution to the euro zone crisis that combines fiscal belt-tightening measures with a "strong growth agenda."
On the other side of the debate is German Chancellor Angela Merkel, who has pushed fiscal austerity as a means of bringing down huge debt levels that are burdening European economies. . . .
Paul Krugman thinks that those who oppose increased spending are trying to destroy the country.  Here is Krugman making the case for more government spending.





Krugman: "We have actually had a massive unethical human experiment in austerity doctrine.  Here we have had this view that cutting government spending is going to be good for the economy even when the economy is deeply depressed and we have put it into effect in large parts of Europe and we have put it into effect to a significant effect in the US . . . . And the results have been exactly what someone like me said that they would be, which is there has been a very depressing effect on the economy.  Where is the evidence that this other view is at all right?
"
Paul Krugman on Republicans in Congress: "Sometimes you do wonder if these guys are moles, Manchurian candidates for I don't know who -- if their real job is to bring down America because they're really are doing the best they can."


It is interesting to note that Brazil's stimulus policies haven't been working out too well also.  From the Financial Times:


Brazil’s economic output shrank in March, defying government stimulus measures and surprising economists who had predicted that Latin America’s biggest economy would begin to recover from a prolonged slowdown.
The 0.35 per cent contraction, compared with February, makes Brazil’s growth the second slowest in Latin America in real terms, after Argentina. The news comes as Asia’s major emerging market economies, China and India, are also decelerating.
“The weak … conditions are likely to encourage the authorities to add more fiscal and monetary stimulus to the economy and to remain activist on the foreign exchange front,” said Alberto Ramos of Goldman Sachs in a client note. . . .

UPDATE: The WSJ's Political Diary has this on Monday, May 21, 2012:

Washington's $15.7 trillion of debt is now officially larger than the entire U.S. economy. But Team Obama has convinced much of the media that skyrocketing debt is only a problem if politicians try to restrain it.
Witness the Beltway media scorn heaped on Speaker of the House John Boehner. Last week Mr. Boehner said that before allowing the debt to grow beyond its current statutory limit of $16.4 trillion, he'll demand the same condition he attached to last year's increase: cuts in planned future spending equal to the amount of the increase.
George Stephanopoulos, interviewing Mr. Boehner yesterday on ABC, largely rejected the premise that spending cuts are necessary. He asked if tying cuts to the debt limit increase would "actually create more uncertainty over the next several months."
"No, George, the issue is the debt," said Mr. Boehner. "You know, people aren't clamoring to invest in Greece today. And if we don't begin to deal with our debt and our deficit" in an "honest and serious way, we're not going to have many options."
Replied Mr. Stephanopoulos, "Well, as you know, a lot of people say that what makes us like Greece is putting the question of whether or not we're going to pay our bills—making that a political question." . . .
Germany's economy grew at a 2 percent rate in the

Germany's economy grew at a 2 percent rate in the

So much for Krugman's predictions about Germany and their austerity policy. From the Financial Times:
The German economy grew five times faster than expected in the first quarter of the year, jumping 0.5 per cent. . . . The year on year increase was 1.7 per cent, beating expectations of a 0.8 per cent jump, and the German statistics office said growth was supported by an increase in net trade as exports to outside the eurozone gained. But this is still more a tale of divergence than cheer as French GDP came in flat and the Netherlands GDP fell 0.2 per cent as the country remained in technical recession. And while German’s performance could be the basis for a beat (with Austria providing some more support after it found 0.2 per cent growth in the first quarter), eurozone GDP is predicted to fall 0.2 per cent with the data due later this morning. . . .
New piece at Fox News: "Krugman's bad predictions"

New piece at Fox News: "Krugman's bad predictions"

My newest piece at Fox News starts this way:
Few prominent economists have a worse record predicting the impact of Obama’s economic policies than Paul Krugman. Writing for the New York Times and touting his close “genuine contact” with the “smart” economists and others in the Obama administration and the Democratic congressional leadership, Krugman has been, and remains, Obama’s most important champion. Not only has he been defending Obama’s Keynesian-type deficit-spending, but he has been advocating still more of these same failed policies. The economy just can’t gain ground. Thirty-four months since the "recovery" started in June 2009 and the actual number of jobs have increased by just 0.4%. Hardly making up for the 5.5 percent drop in jobs from the peak. Given Krugman’s continued prominence in supporting Obama during the coming election, the best way of evaluating the advice is going to give voters is to see how accurate his claims have been up to this point. It is important to realize just how terrible Krugman’s record has been. He predicted on CNBC: “I am still guessing that we will peak out at around 9 percent [unemployment] and that would be late this year.” . . .
Paul Krugman's embarrassingly weak analysis on the Supreme Court debate over health care

Paul Krugman's embarrassingly weak analysis on the Supreme Court debate over health care

Krugman's piece on Friday, "Broccoli and Bad Faith," continues his trend for polemics over accuracy or analysis.
Let's start with the already famous exchange in which Justice Antonin Scalia compared the purchase of health insurance to the purchase of broccoli, with the implication that if the government can compel you to do the former, it can also compel you to do the latter. That comparison horrified health care experts all across America because health insurance is nothing like broccoli. Why? When people choose not to buy broccoli, they don't make broccoli unavailable to those who want it. But when people don't buy health insurance until they get sick -- which is what happens in the absence of a mandate -- the resulting worsening of the risk pool makes insurance more expensive, and often unaffordable, for those who remain. As a result, unregulated health insurance basically doesn't work, and never has. . . .
OK, so if you wait until you are sick before you buy health insurance, you drive up the price of insurance for others. But the exact same argument exists for broccoli. If broccoli makes you healthier and you don't eat it, you are more likely to get sick and you will shift up the demand curve for health care, raising the price of insurance.
unregulated health insurance basically doesn't work, and never has. . . .
Krugman is well-known for his assertions. If you got rid of insurance regulations, prices would be set according to risk.
I was struck, in particular, by the argument over whether requiring that state governments participate in an expansion of Medicaid -- an expansion, by the way, for which they would foot only a small fraction of the bill -- constituted unacceptable "coercion." One would have thought that this claim was self-evidently absurd. After all, states are free to opt out of Medicaid if they choose; Medicaid's "coercive" power comes only from the fact that the federal government provides aid to states that are willing to follow the program's guidelines. If you offer to give me a lot of money, but only if I perform certain tasks, is that servitude? . . .
The discussion before the Supreme Court was over "coercion," not "servitude." "Coercion" means to impose a cost on others. As any economist knows, costs are always opportunity costs. Giving up money represents an opportunity cost. But let me make it simple for Krugman: You take money from me by force and give it back only if I do want what you want me to do. That sure seems like coercion.
Germany's unemployment rate continues to fall

Germany's unemployment rate continues to fall

Remember Krugman's attacks on Germany over the last couple of years? Here is something from a piece that he wrote in June 2010:

And here in Germany, a few scholars see parallels to the policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.

But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.

What’s the economic logic behind the government’s moves? The answer, as far as I can tell, is that there isn’t any. Press German officials to explain why they need to impose austerity on a depressed economy, and you get rationales that don’t add up. Point this out, and they come up with different rationales, which also don’t add up. . . .

But German politicians seem determined to prove their strength by imposing suffering — and politicians around the world are following their lead.

How bad will it be? Will it really be 1937 all over again? I don’t know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day. . . .


Yet, Germany's unemployment rate keeps falling:

Spain and Italy creaked under record unemployment rates at the end of 2011, while the German jobless rate fell to historic lows — results that put the onus firmly on Germany, with Europe’s biggest economy, to take the lead in steering the euro zone back to recovery.

Joblessness in Italy rose to 8.9 percent, its highest level since current records began in 2004, the country’s statistics institute said Tuesday. Spain ended the year with unemployment at a 17-year high of 22.85 percent.

German unemployment, by contrast, fell to 6.7 percent in January, a decline of a tenth of a percentage point from December. . . .


Germany's manufacturing sector is pulling Europe's along.

Markets were buoyed by manufacturing data from Germany, the U.K. and the euro zone, released Wednesday morning. The German Purchasing Managers Index rose to 51.0 in January from 48.4 in December, slightly beating consensus expectations. The euro-zone PMI rose to 48.8 in January, which was above the earlier flash estimate of 48.7, also a little above consensus. In the U.K., PMI rose to an eight-month high of 52.1 in January, up from a revised reading of 49.7 in December. . . .

S&P says that "euro zone's policy response to the debt crisis has been largely misguided"

Note that S&P doesn't think that "more fiscal stimulus" will help Europe. The countries that have been doing best (Germany and Poland) didn't follow the Keynesian policy prescriptions advocated by Obama. From the WSJ:

Standard & Poor's analysts on Saturday defended their downgrades of more than half of the euro zone's 17 members, as the highest-profile victim of the mass ratings cut—France—looked to play down the impact.

In a conference call hours after the downgrades, S&P analysts said they stood by their moves as they believe the euro zone's policy response to the debt crisis has been largely misguided and is building up future risks.

"The proper diagnosis would have to give more weight to the ... rising imbalances in the euro zone," said Moritz Kramer, head of European sovereign ratings. He pointed to problems such as divergences in competitiveness from one country to another, which he said is reflected in huge imbalances in national current accounts.

Mr. Kramer said the centerpiece of a December summit aimed at arresting the crisis, the adoption of tighter fiscal rules to avoid excessive deficits, "wouldn't have identified the risks" in advance as Germany had one of the largest budget deficits of all during the first 10 years of the euro's existence, whereas Spain, which is a problem area now, had a largely balanced budget.

But Mr. Kramer stressed that S&P isn't calling for more fiscal stimulus from the countries with the biggest debt problems, saying that they have neither the room, nor enough credibility in the debt markets, to try to spend their way out of trouble.

"That certainly wouldn't be regarded as a credit positive, not by our metrics at least," Mr. Kramer said.


Something more worrisome is on the horizon. If only the Europeans could deal with these pesky bond holders, the same way Obama dealt with the GM and Chrysler bond holders. From Market Watch:

but the real story is that the Greek bond “negotiations” on a “haircut” have broken down once again. The dudes in power over there are trying to put a good face on it and are sure they can get a deal done next week…but the markets appear to be running out of patience. . . .


Portugal is just barely above "non-investment grade." Greece is "likely to default."
Brent Bozell says that Krugman's "Thuggishness" set records this past year

Brent Bozell says that Krugman's "Thuggishness" set records this past year

Brent Bozell's piece is available here.

Krugman outdid himself for outrage in 2011. Every year, the Media Research Center collects a panel of conservative journalists and talk-show hosts and puts them on ride through the worst media bilge of the last 12 months to arrive at the Best Notable Quotables. Krugman sat in the sulfurous center with three other "bests." . . .


Krugman took the Quote of the Year

Krugman won the Grim Reaper Award for Saying Conservatives Want You to Die

Does the New York Times ever fact check Krugman?


Normally, I don't even bother responding to Krugman's claims, but this one deserved some comment ("Hey, Small Spender," New York Times, Oct. 10, 2010).

the big government expansion everyone talks about never happened. This fact, however, raises two questions. First, we know that Congress enacted a stimulus bill in early 2009; why didn’t that translate into a big rise in government spending? Second, if the expansion never happened, why does everyone think it did?

Part of the answer to the first question is that the stimulus wasn’t actually all that big compared with the size of the economy. Furthermore, it wasn’t mainly focused on increasing government spending. Of the roughly $600 billion cost of the Recovery Act in 2009 and 2010, more than 40 percent came from tax cuts, while another large chunk consisted of aid to state and local governments. Only the remainder involved direct federal spending.

And federal aid to state and local governments wasn’t enough to make up for plunging tax receipts in the face of the economic slump. So states and cities, which can’t run large deficits, were forced into drastic spending cuts, more than offsetting the modest increase at the federal level.

The answer to the second question — why there’s a widespread perception that government spending has surged, when it hasn’t — is that there has been a disinformation campaign from the right, based on the usual combination of fact-free assertions and cooked numbers. And this campaign has been effective in part because the Obama administration hasn’t offered an effective reply. . . .

Despite what Krugman and others have been claiming, Government spending went up this year





The CBO report is available here (see also here). Remember Krugman's piece on "The Austerity Economy," NY Times, September 3, 2011, where he claimed:

When the recession officially ended, spending was rising at an annual rate of around $60 billion; now it’s declining at an annual rate of $60 billion. That difference is around 1 percent of GDP, and maybe 1.5 percent once you take the multiplier into account. That makes the turn toward austerity a major factor in our growth slowdown. . . .


Krugman got this claim by ignoring government transfer payments. But for some reason Krugman previously thought that such transfers were extremely important ("Punishing the Jobless," NYTimes, July 4, 2010):

One main reason there aren’t enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months. . . .


In "The Austerity Economy" piece Krugman wrote:

Look, in particular, at actual government purchases of goods and services — governments at all levels buying stuff — which is what standard macroeconomics says should have the highest multiplier, since unlike transfers and tax cuts it is by definition spent rather than saved. . . .


Could someone please help explain these different statements to me? But it sure seems as if transfer payments are important except when they don't give him the right results.
John Merline on the Government Austerity Myth

John Merline on the Government Austerity Myth

As usual, John Merline has a useful piece available here.

When Republicans took control of the House in January, they pledged to make deep cuts in federal spending, and in April they succeeded in passing a bill advertised as cutting $38 billion from fiscal 2011's budget. Then in August, they pushed for a deal to cut an additional $2.4 trillion over the next decade. . . .

A July article in USA Today, for example, claimed that "Already in 2011, softer government spending has sapped growth."

Jared Bernstein, former chief economic adviser to Vice President Biden, wrote over the summer that "government spending cutbacks have been a large drag on growth in recent quarters and have led to sharp losses in state and local employment."

Economist and New York Times columnist Paul Krugman argued in September that "the turn toward austerity (is) a major factor in our growth slowdown." . . .

In fact, in the first nine months of this year, federal spending was $120 billion higher than in the same period in 2010, the data show. That's an increase of almost 5%. And deficits during this time were $23.5 billion higher. . . .

Total state outlays in 2010 were almost 10% higher than in 2008, according to the National Association of State Budget Officers' annual State Expenditure Report.

And general fund spending — which makes up about 40% of total state spending — is expected to climb 5.2% in 2011 and 2.6% next year, according to the association's latest survey. . . .
Krugman caught misstating things yet again

Krugman caught misstating things yet again

From Human Events:

The New York Times fully endorses Paul Krugman’s disgusting 9/11 column, since they haven’t fired him for writing it. A great number of their readers did not endorse it, so Krugman spent a few days hiding under his desk, with comments for both his initial screed and a subsequent expansion of his tinfoil-hat ravings turned off. Today he crawled back out to pen a little screed about how Republicans want everyone to be “free to die.”

What got Krugman thinking about this important subject was an exchange during the GOP presidential debate in Tampa:

CNN’s Wolf Blitzer asked Representative Ron Paul what we should do if a 30-year-old man who chose not to purchase health insurance suddenly found himself in need of six months of intensive care. Mr. Paul replied, “That’s what freedom is all about — taking your own risks.” Mr. Blitzer pressed him again, asking whether “society should just let him die.”

And the crowd erupted with cheers and shouts of “Yeah!”


Never forget that Paul Krugman is a liar, in addition to being a coward. The crowd did not “erupt with cheers and shouts of yeah!” when Wolf Blitzer said that. One or two people threw out a rowdy “Yeah!” It’s hard to tell if it’s the same person shouting it twice, so let’s just be charitable to the New York Times’ pet propagandist and say two.

Ron Paul’s answer to Wolf Blitzer’s question, transcribed precisely, was “No.”

What made the crowd erupt in cheers was Paul saying, “That’s what freedom is about: taking your own risk.” . . .


Krugman's ill considered claims about Giuliani and Bush on 9/11

Krugman's ill considered claims about Giuliani and Bush on 9/11

What exactly useful does Krugman add to this debate? Here is a link discussing Krugman's post entitled "The Years of Shame." What ideological or personal gain does Krugman think that Giuliani and Bush got from this tragedy?

What happened after 9/11 — and I think even people on the right know this, whether they admit it or not — was deeply shameful. Te (sic) atrocity should have been a unifying event, but instead it became a wedge issue. Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror. . . . A lot of other people behaved badly. How many of our professional pundits — people who should have understood very well what was happening — took the easy way out, turning a blind eye to the corruption and lending their support to the hijacking of the atrocity?

The memory of 9/11 has been irrevocably poisoned; it has become an occasion for shame. And in its heart, the nation knows it. . . .


UPDATE: James Taranto reminds us of an earlier weird economic claim made by Krugman.

"It seems almost in bad taste to talk about dollars and cents after an act of mass murder," he observed, then went ahead and did so: "If people rush out to buy bottled water and canned goods, that will actually boost the economy. . . . The driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings."

That was former Enron adviser Paul Krugman, who added that "the attack opens the door to some sensible recession-fighting measures," by which he meant "the classic Keynesian response to economic slowdown, a temporary burst of public spending. . . . Now it seems that we will indeed get a quick burst of public spending, however tragic the reasons." He went on to denounce the "disgraceful opportunism" of those who "would try to exploit the horror to push their usual partisan agendas"--i.e., conservatives who he said were doing exactly what he was doing. . . .


Minor point is that even if we want to focus on spending, spending depends on wealth and the country's wealth is destroyed.
"Krugman's toxic rhetoric"

"Krugman's toxic rhetoric"

I was looking through some past articles on Krugman and I came across this piece that did a good job of summarizing my views on Krugman's after the Tucson shooting earlier this year. It was amazing that within just a couple hours after the attack, with no evidence, Krugman was already assigning blame.

HOW did a deadly shooting spree by a disturbed young man with the typically inscrutable politics of political killers turn into a crazy referendum on the state of American political discourse?

Mere minutes after the identity of the alleged Tucson gunman hit the wires, partisans began a reprehensible scramble to out Jared Loughner as ideological kin to their political opponents. Actually, well before that time, some left-leaning opinionators began suggesting that Sarah Palin's now-infamous crosshairs map probably had something to do with the shootings. At the very least, intemperately fiery right-wing rhetoric probably had something to do with creating a cultural "climate" unusually encouraging to would-be assassins. Before anybody really knew anything, some people seemed to have become convinced that if not for the heavy weather of partisan antagonism summoned by intemperate tea-party types, Gabrielle Giffords would not have got a bullet through the brain.

In a blog item on Saturday, before any significant details about Mr Loughner's motivations had come to light, Paul Krugman wrote:

You know that Republicans will yell about the evils of partisanship whenever anyone tries to make a connection between the rhetoric of Beck, Limbaugh, etc. and the violence I fear we’re going to see in the months and years ahead. But violent acts are what happen when you create a climate of hate. And it’s long past time for the GOP’s leaders to take a stand against the hate-mongers.

This struck me as irresponsibly premature, and one might have thought that, given a little more time and information, Mr Krugman would change his tune, or at least turn down the volume. Nope. . . .
Did Stimulus merely move jobs around or hire the unemployed?

Did Stimulus merely move jobs around or hire the unemployed?

Garett Jones and Daniel Rothschild have this.

In an effort to boost hiring and job creation and to invest in a variety of domestic infrastructure programs, Congress passed and the president signed the American Recovery and Reinvestment Act (ARRA), commonly known as the economic stimulus package, in 2009. ARRA represented one of the largest peacetime fiscal stimulus packages in American history. But little is known about the ways in which organizations and workers responded to the incentives created by the bill.

To address the lack of knowledge about ARRA funding, we surveyed hundreds of firms, non-profits, and local governments that received ARRA funding. We collected over 1,300 anonymous, voluntary responses from managers and employees that allow us to better understand what happened at the organizations that received contracts funded by ARRA spending. This bottom-up study of ARRA is the first of its kind. We hope that others, especially government agencies, will build upon this on-the-ground analysis.

The survey asked a number of questions critical to analyzing the effectiveness of ARRA: Were new workers mostly hired from the unemployment lines or did they get "poached" or "raided" from other organizations? Did workers "game" the unemployment insurance system by waiting until benefits ran out before taking a job? Did Davis-Bacon prevailing wage laws force organizations to pay above market wages to new hires? . . .

In another case study, a budget shortfall forced a mid-size city to lay off 185 public workers—but the city received a $4 million stimulus grant to improve municipal energy efficiency. The manager of a construction company received funds for "the last thing on our list; and truthfully, the least useful thing." It happened to be a crane and a forklift. . . .

The second paper suggests that the stimulus did not "create or save" nearly as many jobs as the models indicate. On the basis of 1,300 interviews, Messrs. Jones and Rothschild estimate that merely 42.1% of the firms that received grants hired people who were unemployed. Instead, they poached workers from their competitors. . . .


The WSJ summarizes the findings here.

For readers who want to know, an important account is offered in a pair of new Mercatus Center working papers by the George Mason economists Garett Jones and Daniel Rothschild, who did field research on what they call the supply side of the stimulus.

The Keynesian theory was that a burst of new government spending would take up some of the slack in aggregate consumer demand. This was justified in 2008, again in 2009, and is still defended now based not on real-world observation but on abstract macroeconomic models that depend on the assumptions of the authors. The Congressional Budget Office's quarterly studies—often cited to claim the stimulus created tens of thousands of new jobs—are based on such a model. By informative contrast, Messrs. Jones and Rothschild interviewed actual people who received stimulus dollars and asked how they spent the money.

In the first paper, the authors survey 85 different businesses, nonprofits and local governments across the country and conclude that "As is often the case when economic models are transferred from the blackboard to actual public policy, there was a gap between theory and practice."

One of the major patterns Messrs. Jones and Rothschild uncovered was that the top-down stimulus was poorly targeted. In one redolent example, a federal contractor said he was told to use smaller, nonstandard tiles that are harder and more expensive to install in order to increase the cost of the project. That way, the government could claim the money was moving out the door faster. The famous Milton Friedman line about government ordering people to dig with spoons to employ more people comes to mind. . . .

In another case study, a budget shortfall forced a mid-size city to lay off 185 public workers—but the city received a $4 million stimulus grant to improve municipal energy efficiency. The manager of a construction company received funds for "the last thing on our list; and truthfully, the least useful thing." It happened to be a crane and a forklift. . . .

The second paper suggests that the stimulus did not "create or save" nearly as many jobs as the models indicate. On the basis of 1,300 interviews, Messrs. Jones and Rothschild estimate that merely 42.1% of the firms that received grants hired people who were unemployed. Instead, they poached workers from their competitors. . . .
Not surprisingly, the Nation magazine bungles the discussion on the Texas Housing market

Not surprisingly, the Nation magazine bungles the discussion on the Texas Housing market

Robert Scheer in The Nation claims:



From the first days of statehood in 1845, Texas has maintained the strictest laws on home mortgages in the nation. The Texas constitution’s blanket ban on home equity loans, born of outrage over previous land grabs by banks, has been eased substantially over the years, but a firm commitment that the total amount in loans on a house not exceed 80 percent of appraised value, and other consumer-friendly restrictions on mortgage lenders, saved Texas from the home mortgage disaster visited upon many other states. . . .




As a February 21, 2001 article in the American Banker notes, home equity loans have and are made in Texas. In 1998, Texas passed a law that "lifted a 150-year-old ban on home equity loans. . . . . In 1998 the state constitution was amended to allow home equity lending." Texas banks have been relatively small because of various past state regulations and these new loans were large made by out-of-state organizations.



Presumably this is the type of thing that Paul Krugman was misleadingly alluding to the other day in his attack on Texas.



The vast majority of companies making home equity loans in Texas are out-of-state banks and finance companies that are "big enough to absorb the risk," said Ann Graham, chief counsel and vice president of the Texas Bankers Association. . . .




Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending. . . .


The reason that Texas didn't have a meltdown is largely because it didn't have the huge rise in housing prices preceding it and the reason that happened was because Texas has relatively few zoning regulations that restrict growth.

Krugman's ill considered claims about Texas

Krugman makes several claims about why Texas' economy really isn't looking that good. An economist shouldn't be making the mistakes that Krugman does. Here are his claims:



"In June 2011, the Texas unemployment rate was 8.2 percent. That was less than unemployment in collapsed-bubble states like California and Florida, but it was slightly higher than the unemployment rate in New York, and significantly higher than the rate in Massachusetts. . . ."




Anyone who has been following the US unemployment numbers knows that things are a lot worse than the simply unemployment rate number indicates, and they are worse for a simple reason: people have given up looking for work and have completely left the labor force. People can stop being unemployed either when they get a job or when they give up looking for a job. Obviously, everyone wants to lower the unemployment rate through only the first option. Yet, unfortunately, people giving up looking for work has been the hallmark of the Obama administration. People are supposed to start looking for work during recoveries. It is during a recession that Americans give up looking for work. During the Obama "recovery" about 2.8 million more Americans have given up and completely stopped looking for work.



The data for individual states is available at the Bureau of Labor Statistics website. Texas' unemployment rate is better than the national average, and it is true that there are other states such as New York and Massachusetts who have very similar rates.







So how is it that Texas is creating all these jobs but not showing a drop in the unemployment rate? The answer is that unlike Texas workers in the nation as a whole as well as Massachusetts and New York have completely given up looking for work. While Texas' labor force has grown by 350,000 since the recession ended in June 2009, Massachusetts has remained virtually unchanged and New York's has fallen by 140,000. Keeping a similar unemployment rate to Texas isn't quite the wonderful accomplishment when so many people have given up looking for work. The rest of the states will suffer a long term unemployment problem that Texas won't face because eventually when the economy does recover those who have given up looking for work will start looking again.







"It’s true that Texas entered recession a bit later than the rest of America, mainly because the state’s still energy-heavy economy was buoyed by high oil prices through the first half of 2008. . . ."




If Krugman can see significant swings in either the number of people employed or the number in the labor force as gas prices change, he has better eyes than I do. Krugman notes that Texas benefited from gas prices rising in 2008, but he fails to mention how Texas still did well relative to other states even when gas prices plummeted in late 2008 and stayed low through most of 2010.







"Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending. . . ."




The reason that Texas didn't have a meltdown is largely because it didn't have the huge rise in housing prices preceding it and the reason that happened was because Texas has relatively few zoning regulations that restrict growth.



The Washington Post's Brad Plumer and Harold Meyerson largely get marching orders from Krugman, mentioning Texas' "oil boom" economy and then going after the high rate that Texans earn the minimum wage.

Plumer: "And Texas’ job surge hasn’t necessarily led to high-paying jobs: The state boasts the highest percentage of minimum-wage workers in the country, and its per capita income still sits below, say, California’s. . . ."




Meyerson: "It has the fourth-highest poverty rate of any state. It tied with Mississippi last year for the highest percentage of workers in minimum-wage jobs. . . ."




Unfortunately, neither of these writers really understand what these numbers mean. The biggest problem with both sets of claims is that Texas has the second largest percent of its population under age 18 at almost 28 percent. (Mississippi by the way is 8th.) Children ages 0 to 17 don't make much income if any, but obviously they go into calculating per capita income numbers. If you want to compare what people are making across states, a much more useful approach is to compare GDP per adult and in 2008 Texas ranked 8th, not too shabby. California ranked at 11th. This high rate of young people also dramatically raises the rate that people in the population are earning the minimum wage. Given that single women with kids make up such a large portion of those in poverty, it isn't surprising that this high rate of having children also drives up the poverty rate.







Another discussion of Krugman's claims can be found here.
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