Nobel Nonsense and President Obama

I was going to take the week off and send you a nice holiday message and then one of my colleagues sent me the link to a Paul Krugman article. I guess I will send you my holiday message later in the week. 

I don’t like to read Paul Krugman articles because it is bad for my blood pressure. This guy has a Nobel Prize in economics which makes you think he might really care about his science but instead he uses his elite position to be the spokes person for one extreme view of economics. With his behavior he gives a bad name to the science and it riles me a bit. I would think that even liberals would be embarrassed by some of his antics.

In “When Zombies Win” http://www.nytimes.com/2010/12/20/opinion/20krugman.html , Krugman uses colorful language to say basically two things. First, Obamanomics didn’t fail – the President simply didn’t try enough economic stimuli. He had the right idea -- he simply didn't do enough of it. Second, he says President Obama, unlike Reagan who stuck with his ideas, has been cast into a spell by conservative zombies and they are going to eat his brain and our economy with it. Really – this Nobel Award winner said that!

To prove that Obama’s stimulus package was too small, he says “government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.” Wow – talk about a real economic scientist! He uses government spending on goods and services as the only real data pertinent to stimulus in the last two years. Dear Paul – what about government transfer spending? What about government bailouts? What about tax cuts? Does anyone really think he provides a full coffin of evidence about stimulus by measuring only GPGS? I am glad for any college student taking freshmen economics who would not give such an answer on his or her final exam.

Then Krugman says that conservatives are totally discredited because inflation and interest rates have not risen in response to the stimuli. I am guessing that few economists really predicted a rise in inflation BEFORE the economy started to recover in earnest.  Most of us believe that something called the GDP Gap needs to closed before inflation starts rising. We also would not see interest rates rising until the paranoia about slow growth significantly reduced the demand for government bonds. Krugman turned a very legitimate worry or concern about stimulus causing higher inflation and interest rates into a forecast – and one that all his adversaries must have agreed with.  Talk about creating a straw man!  He also says that disinflation continues. Technically, that means that the inflation rate continues to fall.  Does he provide a shred of data or evidence? How much did the inflation rate fall in the last, say six months? Three months?

That Obama had the audacity to praise Ronald Reagan and admitted that some austerity is necessary for historically high levels of deficits and debt, make the President Zombie prey.  Those nasty Republicans made him say “Uncle” and now, according to Krugman, he can never oppose their incessant demands for ghoulish austere economics.

Krugman cites Ireland as an example of why austerity policy is bad. I guess that is the sum total of his knowledge about austerity and the experiences of no other countries matter. I would hope that no freshman university student would write such flimsy answers to important questions. Of course, if you happen to be Irish then you might want to reserve judgment about what did or didn’t help the Irish find their way out of their very tough present economic condition.  

Like Krugman, I don’t like the way Obama supported a tax plan that goes in the wrong direction. As I wrote last week, this won’t create enough stimuli to reduce the rate of unemployment. But Krugman wants more stimuli and that’s where he and I part ways. The US economy is gagging on past stimulus and will eventually swallow and digest it all. At that time the economy will grow – especially if we quickly introduce a fiscal restructuring that deals with future deficits and debt. Krugman might call that austerity but I call it common sense.