Liberal Economist Paul Krugman Unwittingly Comes Full Circle; Scoffs at He Own Economic Theory

Too funny.

Former Enron adviser Paul Krugman takes note in his New York Times column of what he calls "the incredible gap that has opened up between the parties":

Today, Democrats and Republicans live in different universes, both intellectually and morally.

"What Democrats believe," he says "is what textbook economics says":

But that's not how Republicans see it. Here's what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning's position (although not joining his blockade): unemployment relief "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work."

Krugman scoffs: "To me, that's a bizarre point of view--but then, I don't live in Mr. Kyl's universe."

What does textbook economics have to say about this question? Here is a passage from a textbook called "Macroeconomics":

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.

So it turns out that what Krugman calls Sen. Kyl's "bizarre point of view" is, in fact, textbook economics. The authors of that textbook are Paul Krugman and Robin Wells. Miss Wells is also known as Mrs. Paul Krugman.

It seems Krugman himself lives in two different universes--the universe of the academic economist and the universe of the bitter partisan columnist. Or maybe this is like that episode of "Star Trek" in which crewmen from the Enterprise switched places with their counterparts from a universe in which everyone was the same, only evil.

Like Spock, the evil Krugman is the one with the beard.

This is what comes of putting partisan politics ahead of intellectual honesty.  It will eventually come back to bite you. 

If your political and economic theories have any validity, they should have a shelf life of more than two or three years, and they should remain consistent regardless of which party holds the White House or Congress. 

That's why think it's important from time to time to highlight accurate predictions and those who made them -- as well as inaccurate predictions and those whose advice fails the test of time. 

Getting back to Krugman, this is the same liberal economist who urged the U.S. to double down on the (predictably) failed $787 billion stimulus:

Citing Obama's third quarter GDP figures on November 3, 2009, Krugman wrote:  "We now know that stimulus works, but we aren't doing nearly enough of it." 

In late November, the Obama administration revised those overly-rosy third quarter GDP numbers downward.  Here's Mr. Know-It-All Krugman right after the sharp downward revision in late November:

Second estimate of third-quarter GDP out; growth rate marked down to 2.8%.

This is really quite grim. At this growth rate it’s far from clear that we’re doing anything to reduce the output gap — the gap between what the economy could produce and what it’s actually producing. Correspondingly, there’s no reason now for even a bit of optimism on unemployment.

When the 3.5% advance number came out, I took to warning people that even if the economy continued to grow at that rate, we wouldn’t see anything like full employment until late in Sarah Palin’s second term. Given the latest number, the date at which we can expect to see a return to full employment is … never.

An economist whose positions cannot stand the test of time isn't worth reading.

Comments

[John Reilly]

Actually if you read the section from the Macroeconomics book further, you'll find that he actually isn't contradicting himself. You'll find the intricacies of his statement hidden in the "...." part of the paragraph that you edited out. That's where he's contrasting the US method of unemployment insurance (which pays a small fraction -- averaging well under 50% -- of the benefits compared to the unemployed worker's normal income) to the European version that pays benefits BOTH longer and closer to the workers normal income.

This doesn't contradict his belief that a temporary extension of benefits during this economic period is warranted. Check this link for more information on the potential economic disincentive to work created by extended unemployment insurance benefits.

http://www.nelp.org/page/-/UI/DisincentiveUI.pdf?nocdn=1

Many critics of UI programs wrongly assume that the behavior of jobless workers largely determines when they find a job. This criticism ignores the reality that employers have to offer employment before jobless workers can find work. Nobel Prize‐winning economist Paul Krugman describes the current labor market situation, one obvious to unemployed workers, in this manner: “What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant.”10 In other words, concerns about the theoretical potential that UI creates a work disincentive is entirely misplaced when the larger issue is that there are virtually no jobs available.

10 Paul Krugman, “Supply, Demand, and Unemployment,” New York Times, The Conscience of a Liberal Blog, Mar. 7, 2010, http://krugman.blogs.nytimes.com/2010/03/07/supply‐demand‐and‐unemployment/.

[John Reilly]

And another thing.

The stimulus package isn't going to cost us $787B. The current estimates (after selling off expected warrants/securities obtained by the government for issuing the stimulus money) are now much closer to $105B. Take a look at the most recent "105(a) report."

I won't say that I'm smart enough to know whether the debt/equity infusions of the TARP program essentially did it's job. But at least let's speak the truth regarding the expected cost of the bailout (admittedly still an estimated figure because they're not sure if the investments in AIG/Citi for example will ever be recovered).