Posts tagged Paul Krugmann

Column on Krugmann’s Failed Analogy

Krugmann’s Failed Analogy

Tibor R. Machan

Ok, so I’ll give him this: finally Dr. Krugmann put forth something akin to an argument instead of merely demonizing those with whom he disagrees! (See his column, The Hijacked Crisis, The New York Times, August 11, 2011.) The argument, however, is an analogy and as with many analogies, it fails to be an apt one.

Krugmann tells us that suggesting that what the US government should do is significantly cut back on spending is misguided because the economy is in need of immediate and drastic emergency treatment. Like a man who is bleeding profusely, this is not the time to counsel greater prudence and preventive treatment. What it needs is the infusion of massive doses of blood, as some patients require blood transfusions so as to save them from imminent death. We may assume, then, that once the infusion has done its job, the long term remedy of cutting spending can get under way. As he wrote recently, “For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability. … What would a real response to our problems involve? First of all, it would involve more, not less, government spending.”

Looks like a good piece of advice initially, but it misses the mark. The economy, first of all, isn’t some biological system. (And Krugmann has never ever conceded that spending cuts are needed, ever! Government must always spend and thus stimulate the economy.) As to the first point, the government’s taking massive amounts of money from people so as to spend it on “public” works, as per the priorities of government officials and their advisers, doesn’t constitute an emergency measure but only a change of who will do the stimulation. Instead of having the citizenry spend its labor and resources on what it chooses to spend it on, it will be government officials–politicians and bureaucrats–who will do so.

Even if the analogy had some promise, there is no reason to believe that these officials are going to spend our labor and funds on projects that will stimulate anything, certainly nothing that will do so better than were the citizens themselves to spend their own labor and resources as they see fit. If anything, when government takes over what by right we should be doing, they are far more likely to misspend than we would. You and I have some pretty good idea as to what we need to spend our funds on, whereas those in government are at best getting their priorities via the political process which very likely distorts the feedback system that informs the economy about what is most important to invest in, to spend on. Worse than that, they actually get it from their own imagination and fantasy, as when they want to build huge dams or highways where they are not at all needed.

The radical remedy Krugmann favors could well work in the case of a human individual, a biological entity whose medical needs can be ascertained by most physicians. But when it comes to an economy such as that of the USA, wherein the “demands” of the citizenry are inordinately diverse and can, thus, be best assessed locally, not by planners from Washington or even state capitols, doing the kind of stimulus Krugmann favors is just impossible (a la Hayek’s good teachings). Which is why the stimulus didn’t work before and isn’t working now.

So, yes we finally have something of an argument from Paul Krugmann. But it involves a misguided analogy. Individual human organisms are one thing; economic systems of a huge country another entirely. So what he attempts to derive from his analogy is in fact a colossal non-sequitor. It doesn’t follow and never has.

Column on Ignorance Amidst Erudition

Ignorance Amidst Erudition

Tibor R. Machan

Stanley Kauffmann is the film reviewer of The New Republic and his work in this area is worth the time it takes to read it, at least for me. He is what I would consider an erudite film critic, drawing on a vast familiarity with the history of cinema. Indeed, while the magazine has been turning more and more statist–in it early days it was actually an interesting ideological hybrid, guided by old or classical as well as new or modern liberal values–most of its good stuff comes from the back of the book, namely, the reviews it publishes. And from Kauffmann’s comments on films.

So I was taken aback when in a recent review of the movie Too Big to Fail by Curtis Hanson translation of Andrew Ross Sorkin’s book on the recent financial fiasco, Kauffmann opines that “The economy requires radical political intervention and we ducked that.” Just goes to show you that being knowledgeable and smart about movies can go hand in hand with utter ignorance of economic theory and history.

One need not be what Paul Kurgmann and even President Obama likes to refer to, disdainfully, as a market fundamentalist–i.e., someone who holds that as a general policy it is better to rely on free market processes than to trust the bureaucrats–to see that Kauffmann is way out of his depth. For starters, political intervention has been part of the norm in the American economic system from the beginning, with but very few lulls in that approach. (I once ran across a book published in the 1840s in which the author severely criticizes government involvement in the American economy and for its thwarting of free trade on innumerable fronts!) Alexander Hamilton, one of the prominent founders, had supported many measures that run against the principles of a free market economy and involve extensive and “radical political invention” in the economy. What is it that Kauffmann refers to when he states that “we ducked” such intervention? Does he mean the country never did opt for out and out socialism? On that score he is correct but such a remark assumes that financial and other economic messes are avoidable under a socialist economy. Yeah? Tell that to the former Soviet Union and its colonies and to the many European near-socialist governments that have been struggling with such problems.

Of course, Kauffmann’s idea is rather routine among intellectuals who take their economic education from the likes of the late Paul Samuelson (whose introductory text, Principles of Economics, was the main source of readings in college economics course for decades). While there have been some free market economists whose influence has been felt throughout higher education–and this is true now as well–the majority of students who take econ courses get mostly lessons in the wisdom of the mixed economy, the kind we see in most of Europe, North America, New Zealand and Australia. Such systems are riddled with political intervention!

The idea that such intervention is what an economic system needs so as to be functional itself rests on the myth that some people–politicians and bureaucrats–have special talents for guiding the economic conduct of others. This is quite literally a fascist conviction! It is diluted by mixing in democratic and capitalist and other features in the system–that’s why it is called a mixed economy–and it seems Kauffmann does not hesitate to embrace it.

Now mind you, what is really off in Kauffmann’s remark is the association with political intervention with radicalism. In fact it is the free market system that has brought to the fore a radical economic idea given that political intervention has been around from time immemorial. Mercantilism, which was the dominant economic doctrine prior to Adam Smith’s writings, especially his The Wealth of Nations (1776), is a thoroughly politicized economic system! Feudalism and nearly all the economic ideas and policies of the old order were nothing if not completely political.

So it seems that Mr. Kauffmann, who must be at least as old as I am by now, needs to go back to night school and take a good course in economic history. He would then perhaps admit that his comments about what the economy needs could at least use serious revision.