Monday, February 9, 2009

Krugman's and other rants

Paul Krugman is decrying the Republican attempt to contain spending in an overly lavish Senate bill. His take on it and his tact in arguing are both interesting and curious.

The Blame Game... or the good is the enemy of the best...
He comes to the conclusion -- ( in today's NYT, 02/09/09) at -- that the net result of Republicans stonewalling the bill was to take some of the more useful stuff out of it. He blames the results on 'centrists'. Now the Senate bill was constructed by Democrats, but to get the plan though some Republican votes were necessary. As a result the Democrats have- after the fact - courted THREE Republicans who now are apparently to bear the blame for this 'disaster'.

Supply AND Demand
Let me explain to Mr. Krugman something about supply and demand. I do not know the details of this closed-door process that produced the current 'compromise result' but it is clear that the Republicans 'demanded' some reductions in the planned spending and Democrats 'supplied' them. To think that THREE Republicans did such damage all by themselves is ridiculous. They wanted less spending and these are the compromises that were struck, partly reflecting what the Democrats would part with and what they would not part with - it's supply and demand.

So this change also reflects where Democrat priorities lie.

Next step: Pass and reconciliation; then a real budget
We are not done. There will still need to be a Senate/House reconciliation when (if) this bill passes and then Mr Obama will have ANOTHER crack at his regular budget, which is different from a stimulus plan. The stimulus plan is not the end of it, only the beginning. Democrats still have a huge majority and many budgets to come. Let's not lose sight of the fact that this plan was about STIMULUS.

Spend, spend, spend, spend!
Let me say this once again; that the Democrat penchant is for spending. This spending is not even to be executed IN TOTAL all that quickly. The choice is a reflection that they opt for control. When you spend instead of cut taxes you, the government, decide where the monies are spent. Tax cuts give the people the choice where monies will be spent. While the multiplier on spending is higher, the chosen spending programs take so long to queue up that a full menu of tax cuts WOULD HAVE WORKED FASTER and provided more immediate stimulus. Would have... Now of course I know there are poor for whom tax cuts are no help and so there is plenty of reason for spending and other programs to help those on the bottom-most rung of economic life. But the Democrat spending plan goes far beyond that. I am not talking about spending that mostly benefits the poor; it's the other spending.

Too compromising? Not GREEDY enough (in a partisan sense)?
So Krugman is unhappy with the (pending) results. He blames Obama for being too conciliatory; for being too much of team player to start. It's an interesting point of view since the team playing got none from the other side to join in. That was to much? None? I find that on the face of it, Krugman's is a hard conclusion to justify. It still might be right, but it is not the only conclusion available given the facts.

Who went which extra mile for whom?
Maybe the President did go the extra mile and the Republicans were still obstreperous and refused to join in, isolating House and Senate Democrats. I don't know how you tell the difference between that and the conclusion that there was not enough compromise to draw the Republicans in to start. Who to blame? The conclusion depends on your perception of the 'proper' ideology. There are the obvious nut cases like Rush Limbaugh who wish the President to fail. I realize politics is a constant battle. But I also somehow believe if there had been a bit more compromise in the initial Democrat deal ALL REPUBLICANS would not have hung the Democrats out to dry. As we can see, Democrats have drawn three Republicans in with some added compromise. So I find Krugman's assertion on this subject somewhat crankish and self-serving.

Also on the crank side of things is Janet Yellen, President of the San Francisco Fed with a comment over the weekend that those worried about inflation are being "ludicrous' - and that is her word, 'ludicrous'.


Yellen's Folly
Yellen is a democrat. She was one of the first to break with the use of rhetoric endorsing some sort of inflation targeting/referencing at the Fed. She has been mentioned as a possible successor to Bernanke. But we can see in her stance here is a very partisan disposition. Should she become Fed chair at some point and she is not likely to be the same sort of consensus-builder as Bernanke. She has the Alan Greenspan gene only with a Democrat twist.

Right way and wrong way
I have no problem with Yellen asserting that the Fed knows what it is doing or trying to convince us that it has the know-how to pull stimulus out before inflation strikes. I may not agree with that but I would call that sort of comment 'appropriate' for a Fed President. The fact is that excess money supply growth (or Fed balance sheet expansion) is a well known risk to inflation. Many economists are worried about it, Europeans and those at the Bundesbank in particular hold such views. Are they ludicous? They are real reputable hard-money types. Also folks like Bill Poole a well known academic economist and former President of the St Louis Fed are concerned. He has been complaining of the lack of an end game plan for the Fed's application of stimulus and the risk for inflation. Now Yellen can disagree with this, but to call a respected and sane opposition view ludicrous is ,well, ludicrous itself.

So this is the problem: Lack of respect for legitimate opposing views. We can argue about policy and disagree about what is best, but by pretending that a legitimate opposite view has no merit we do the state of discourse harm.

Krugman wants all the blame for the modified stimulus plan to fall on the President for being too conciliatory and on Republicans for diverting the plan more toward to middle of the road. In fact Krugman is simply arguing for the Democrats to be more obstructive and less bipartisan. LESS! Yellen wants to dismiss any notion that we are being too stimulative in any way. The Democrat jingoism is that there is a real and pressing need for lots and lots of stimulus of all sorts and that Democrats alone should decide what it is. There is no inflation risk and spending is the way to do it. The Democrats want to calibrate this spending for their constituency.

Krugman even pans a part of the plan to provide some relief to homeowners, calling it a sop to the rich. I guess in his mind anyone who owns a home is rich. That's some view of America isn't it?

Fortunately Krugman did not earn his Nobel Prize for his views on class warfare.


Hector A. Maquieira said...

You only make abstract objections to krugmann, but you don't address any of the concrete realities of what krugmann argued. The reality is that the stimulus plan is actually too small. In case you didn't know, january saw 600 thousand jobs lost. that's the worst month yet. In other words, this recession is still nosediving and it's still getting worse at an accelarating pace.

Also, yes, three republican senators can do this, becuase the republican party did everything in to fight the stimulus and those three senators would only switch sides at incredible costs.

Finally, yellen is right. Inflation worries, IN THE US, are ludicrous. Maybe euro bankers are worried, but theyre economic situation might be different. in the us though, treasuries yields are still extremely low and the main problem right is DEFLATION. so yes, because right now the problem is deflation, being worried about inflation is ludicrous.

So, despite your abstract pseudo logical objections to the what i will call, the mainstream left (krugmann, and yellen) the concrete realities show categorically that they are in the right.

Hector A. Maquieira said...

you completely misused the word jingoism, which, if you didnt already know, is defined in the oxford english dictionary;
"extreme patriotism in the form of aggressive foreign policy"

T-Bone said...

I took Krugman's use of "centrist" as tongue-in-cheek. The "centrist" changes he describes are anything but centrist.

And your concepts of this just being a case of supply and demand is ridiculous. The "demand" is more like "demands", as in extortion. Like a gun to the head, threatening no stimulus at all. Democrats and Republicans charged at each other to see who would yield first to prevent a collision, except Republicans didn't seem concerned about a crash. That's as much supply and demand as in a robbery.

And I felt the same way as Krugman in regards to the stimulus initially being a generous compromise before all the GOP attacks on it. It now seems to me the best way to approach it would have been to have the Democrats have the bill be almost entirely spending, very little in tax cuts. Then the bill being considered today would be much more like what economists who advocate spending would suggest.

Currently, this bill has a high cost in large part due to relatively low effectiveness tax cuts. And that's on top of tax cuts that are classified as spending, such as federal medicare funding that would result in state property tax reduction in NY.

On the homebuyer's credit, it's not for homeowners, it's for homebuyers. And whereas first-time homebuyers can normally get a 7,500 tax credit on their purchase if they earn less than 150k a year, this new provision says there is no income limit, there is not a first-time requirement, and it's 15,000 maximum credit. And now the credit can only be applied to the maximum amount of taxes owed in the year, unlike how they currently can claim the full credit.

So basically, lower-to-average income homeowners get less money now when buying a home, wealthy get up to 15,000, and there is concern for fraud as people can flip houses to claim the tax credit. That's makes for a very expensive, more regressive, lightly stimulative tax provision.


Somebody is always raving and ranting about something.