Posts tagged stimulus

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 Public Works on Steroids

Public Works on Steroids

Tibor R. Machan

What the Obama administration and its cheerleaders call “the stimulus” is by all sensible accounts the macroeconomic version of steroids. And you can get quite addicted to these–just as some athletes can to their versions.

Now there are lots of things wrong with these artificial public works projects although sometimes they look benign enough. Many folks will not objects to having extra upgrades and improvements on their roads and highways. After all, nearly everything suffers from some measure of wear and tear. And who can tell without considerable expertise when it is time for justified improvements on the infrastructure. Usually such matters are decided upon by individuals in their particular lives–like when should their cars be washed, when should they get an oil change, when is it time to visit the dentist again. Or when is it time to get a complete medical check up! Or get one’s pants cleaned or shirts laundered. These are individual matters and highly contingent on personal and family factors, such as needs and budgets.

When it comes to roads and highways the local public work departments make these kinds of decisions based on the advice of the road engineers and on the budget bureaucrats. Some kind of rationale is arrived at, although with public works there is always the problem of some version of the tragedy of the commons. Too much attention to the parks may get in the way of enough attention to the recreation facilities or city pools. But when one adds the artificial stimuli provided by politics that’s guided by the fantasy of Keynesian economics–you know, the multiplier and such–no rationale is possible. It is nearly all guesswork. Unless one has roads with gaping pot holes that just cannot accommodate traffic anymore, the time to spend funds on upgrades and fixes turns out to be arbitrary. Kind of like how many steroids should a body builder use–it is an artificial aid and no one can tell just how much if any of it is the right amount.

In my region of the country, Orange County, California, ever since I moved here about 12 years ago there’s always been some road construction afoot. But not so much as to cause too many delays and detours. After years of experience with the local needs, those responsible manage to figure reasonably accurately just when the work is needed. But the stimulus funds arrived, which enabled the local authorities to spend on all kinds of projects whether any real need exists, it becomes a spectacle of arbitrary public works. Dozens of roads get shut down out of the blue. Thousands and more commuters need to stand and wait in long lines so the work can get done. Gasoline is wasted, not to mention people’s time–life, actually–and who knows what other unintended harmful consequences result.

Never even mind for now the fact that the stimulus consists of loot extorted from citizens who are imposed and encroached upon with all kinds of cost that no one can tell buys anything worthwhile. I am certainly unable to tell if that shovel-ready road job that is keeping me from getting to work on time is required or invented by Keynes-inspired magical economics. I cannot judge whether the gasoline used standing idly by at innumerable road blocs is being wasted or not. No one can, I bet. We are all simply informed to put up and shut up–these are, after all, public works and interference from ordinary citizens can land one in jail!

It is bad enough that people are so much at the mercy of the decisions that are made about public works and, more generally, public affairs and not unless they vote out the team is there a chance of changing the guard. But when the policy if injecting funny money into the system is carried out, nothing resembling a rational system can be expected.

I believe it was my very first scholarly paper in a philosophy journal, titled “Justice and the Welfare State,” that laid out the case showing that under the welfare state simple justice is impossible. Causes and results cannot be linked, responsibilities are vague and defuse.

The current policy with stimulus-driven public works is just another case in point.

Column on the Power of Freedom

The Power of Freedom

Tibor R. Machan

At this time when most people are clamoring, or at least hoping for, economic revival, the major debate centers around how it could be achieved. One side, mainly the current administration and its supporters in the academy, believe in some variety of stimulus initiated by the federal government–funneling funds (taken from taxes and borrowed from future generations and foreign governments) to the various state governments that are to use them to pay for public work projects, improving infrastructure, etc. The other side, mainly more or less consistent free market champions, believe that removing government regulations, heavy taxes, and government management or regimentation will more readily help the economy get back into shape.

To attach names here is a bit testy since few are always direct about their proposals but let’s just say Princeton University’s and New York Times columnist Paul Krugman is among those urging the former approach, while George Mason University’s Professor Don Boudreaux among the latter. Both are public intellectuals and voice their views in various prominent forums, so one can easily check what they believe.

Let me explain why I believe the alternative promoted by Professor Boudreaux is fundamentally sound, while Krugman’s approach wrong. I do not imagine for a moment that Dr. Boudreaux fully agrees with my reasoning–his may be different. But here is what seems to me to give substantial support to those who advocate government getting out of the way, at least at the most fundamental level of analysis.

As best as I understand human nature, for people to live and live successfully, they need to have the opportunity to take the initiative in their lives, on every front but especially when it comes to aiming to prosper economically. In the fields of economics and business this is often referred to as the entrepreneurial spirit or attitude. Adult men and women make it through their lives more or less successfully depending on how intensely they face up to the challenge of coping and progressing in all their various tasks. Carpe diem, is one way to summarize the point–grab the day–although the sentiment didn’t initially pertain to taking the initiative but to focusing just on today! (That is not what makes the economy hum, not what gets one to prosper.)

What the anti-statists are confident about is that people will normally actively, consciously pay attention to the world and make the most of the opportunities it contains for advancing one’s lot. There is no guarantee that this will in fact always happen but those who have confidence in the power of freedom see it as the only option. For even those who advocate government programs as substitutes for the initiative and entrepreneurship of the citizenry admit, implicitly, that it all depends on at least some folks getting pro-active, moving things ahead. The pro-liberty people rely, implicitly at least, on this being the best general approach and a likely one because human beings are naturally self-starters. This is what makes them different in the world, their capacity to initiate the actions and institutions needed to flourish.

Those who are in favor of the governmental approach, via stimuli and such, basically believe, even if they don’t make this explicit, that most people cannot get going on their own, that we are like invalids or infants and need to be pushed around to get going. And once we are pushed around the push needs to be continued because otherwise inertia sets in. And in one limited respect they have a point–once the institutions of society have acclimated the citizenry to dependence on governmental boosts, they may form the bad habit of relying on it so as to make useful moves in their lives. The more this policy spreads, the more it is likely that fewer and fewer will take the initiative on their own.

At this point it is possible that for the entrepreneurial spirit to once again awaken, it will be necessary for the people to experience the cost of having abandoned it, of having it stymied by the entitlement mentality and the public policies which have encouraged it.

But there is an even more fundamental obstacle to a recovery, which is that the intellectual elite in many modern societies holds a view of human nature that denies human initiative and affirms, instead, the idea that we are all moving only when something moves us from the outside (or from some hard wiring in our make-up). This view of human nature, as essentially passive and not equipped to start moving ahead without prompters, invites the paradoxical approach to public policy of those who advocate the use of stimulus: only they have the capacity to get things moving, the rest of us do not!

Unless it is widely, prominently recognized that economic growth, including employment, investment, research, etc., must acknowledge that human beings are initiators and not passive, potted plants, the economy isn’t going to get going. Only if men and women are fully free will the power of freedom, namely, their own initiative, restart their engine of progress and prosperity.

Column on Here We Go Again

Here We Go Again

Tibor R. Machan

Innumerable arguments and research have been produced showing that government stimulus is useless. Despite what President Obama and his cheerleaders in the academy, like Princeton’s Paul Krugman, seem to believe (or at least say), there is no evidence that government stimuli do anything to restore market activities. Such policies merely take funds from the right pocket and put it into the left while most often the transfer entails wasting a lot of resources so the net effect is widespread economic loss.

Just consider the current administration’s plan to funnel billions into public works projects–building roads, improving rail lines, beefing up public parks, etc., and so forth. The funds come from someplace, right? Even if they are borrowed from China and future generations of Americans, there will be a minus sign somewhere on the ledger.

So what then is happening to provide a net gain? Nothing. The multiplier effect is a myth–one just cannot make something from nothing however much one might wish to do so. Thus some enterprises that would have been funded by the monies spent as stimulus will be unfunded; customers will have fewer dollars to spend, banks fewer dollars to lend, firms fewer to borrow, all because the politicians have decided to divert it all to projects they deem worthy. But what about projects that those deem worthy who have to be coerced so as to pay for all this?

Whenever one has funds extorted so as to artificially pay for improving highways, etc., one will no longer have them available to spend down at the mall or grocery store or one’s brokerage. Where is the stimulus here instead of the mere forcible redirection, something that will mostly mean spending on what the taxpayers didn’t want to spend on? Why is what the politicians choose to do with one’s funds more stimulating than what one would do with them?

This seems to be no more than a shell game, at best, or out and out fraud. Making it appear that politicians are doing something about the dire straits a large number of citizens are experiencing. But it is a mirage, nothing real. Again, one cannot get something from nothing and to make it appear one can, the net effect is gross waste. You rob me to support something you want so I don’t get to support what I want; but then I need to make provisions to replace the stolen stuff and you had to exert energy on the theft instead of on something productive. Nothing about it is an economic plus.

Most of the truth of this is hidden behind a lot of talk of what “we” are doing. But there is no “we” involved, only you, I, and the others who get rooked by it all. The United States of America is not a firm but a country. When politicians treat it otherwise they must engage in malpractice. Their job is to provide a setting for us to do productive work, not to embark on various ventures as some kind of corporate giant that keeps borrowing and borrowing but has run out of collateral. Somehow this point is being missed all over the place and journalists who are supposed to hold the politicians’ feet to the fire are failing to get to it during all their Sunday interview programs.

Whenever people’s property rights are violated by all the taking and regulating and redistribution done by the politicians what is involved is removing the people from the position of being able to choose, to allocate their labors and resources, and substituting the politicians and the bureaucrats for this role. Just why these folks are believed to know better is a mystery, other then that perhaps most citizens are still in the grips of the governmental habit inherited from the times when kings, czars, pharaohs and other rulers were supposed to know it all, with everyone else just following orders.

Yet that is precisely the system that was overthrown by the American Revolution! So why do so many Americans still believe in it? Why do they want to imitate Europe and other parts of the globe that American said “no” to in the first place? Go figure.