Importance of Savings

Letter sent to the Raleigh News & Observer

In a recent editorial, Paul Krugman continues his cheerleading for the economic stimulus package by disparaging the idea of tax cuts. He says that the money will simply be saved, but savings has an important social function – it provides capital that helps create a progressing economy and gives people resources to weather economic storms. It makes me wonder if Krugman really understands the nature of savings.

He also claims that "when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts." Even if this magic government multiplier idea is correct, is it really wise to attempt to maintain consumption at levels that many agreed were unsustainable during the boom? If Democrats are so eager to use this crisis to remake society, why not let society adjust to a new consumption/savings pattern that allows for sustainable growth?

Krugman wants to claim that arguments against the stimulus package are fraudulent. Some of them may be, but some of his claims in support of the package are baffling, especially coming from an economist.

Whatever

• The wish list for remaking society. "Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before." How lovely.
• Here is a way to keep track of some of that "stimulation"
  
• "Congress gave final approval on Tuesday to a civil rights bill providing women, blacks and Hispanics with powerful new tools to challenge pay discrimination in the workplace." No, just the same old tool - the gun.
• Ok, here are some kudos
• Star Wars told by someone who never saw Star Wars

Obama the Great

The inauguration coronation of Barack Obama as the 44th President of the United States is done. While I can appreciate the significance and history of this moment, it seems that people need to be reminded that Obama is still mortal. Heck! Obama probably needs to be reminded that he is mortal.

Is it just me or has everyone come to believe that this man is omniscient, omnipotent, and every other omni-* you can think of? Every ill in the country world long history of human existence seems to have an Obama solution. I mean, how could you not get behind a man who will be able to definitively determine the champion of Division I College Football?

I think the history of his presidency is already in rough draft form and he will be considered one of the top four. He will be considered a great president because of his rhetoric, his ability to inspire people, and his “courage” to propose bold initiatives. If need be, the actual effects of his policies can be rationalized later by the court intellectuals.

It could be said that there is no way for Obama to rise to these high expectations, and that he is being set up for a big let down. I don't think, however, that the kind of mass orgasm we have seen over the past several months will be tempered by anything that will occur over the next few years. Like the gods of religion who continue to exist even in the face of the science that makes them irrelevant, the cult of Obama will outweigh any rational argument.

For how could any problem be the fault of Obama when he has staffed his administration with the brightest among us? Wise technocrats will be creating policy and the “right” people will now be in charge. Any difficulties we may face will inevitably be the result of some deficiency in ourselves.

Maybe I'm just too cynical. If so, Obama should be able to fix that as well.

Some other musings:

• Is dissent still patriotic?
• Party pooper
• Just plain yuck!
  

Alternate titles for this post: Omni-bama, The Great and Powerful Oz-bama, Oh, bama!

Failed Ideology

Sent to the Raleigh News & Observer

In advocating Obama's stimulus package, Paul Krugman takes another swing at Milton Friedman by comparing Friedman's monetary theory to the fiscal policy theory of John Maynard Keynes (i.e., large-scale deficit spending by government). Krugman says that “[t]he failure of monetary policy in the current crisis shows that Keynes had it right the first time.” This does not logically follow, however, because the failure of one theory cannot prove the validity of another. Maybe both theories are wrong.

The evidence showing that the large-scale government spending of the 1930s did not get us out of the Depression should show that Keynes' theory was flawed. Claiming, as Krugman has done in the past, that it was the massive spending during World War II that ended the Depression is a flawed notion as well because a command-and-control economy of rationing, price controls, and military production is not economic prosperity. In fact, it wasn't until the dramatic drop in spending after war that the economy got back to normal.

Krugman has claimed that it was a failed ideology that got us into the current situation. I’m afraid that Krugman’s ideology may make matters even worse.

No Herbert Hoovers

Paul Krugman, in his quest to justify increased government spending, claims that “the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.” This statement, however, is deceptive because every year of the Hoover administration saw an increase in federal spending.

One program, in particular, that the Hoover administration created was the Reconstruction Finance Corporation. The RFC gave billions of dollars in aid to state and local governments, banks, railroads, farms, and other businesses. It also provided funds for public works projects.

Now, it is true that Hoover attempted to balance the budget, but he did so by raising taxes. Claiming that he “slashed spending” is deceptive, and coming from Paul Krugman, it is most likely purposefully deceptive.

HT: Steve Horwitz