Two Views on Government Loan Guarantees
Somebody once observed that if you laid all the economists end to end, they wouldn’t reach a conclusion. We see this stereotype epitomized when it comes to government loan guarantees. Back on May 12, an economist who was quite a fan of the program wrote this about the DOE’s loan guarantees for renewable energy projects, to show that the critics who went on and on about the “scandal” of Solyndra were really going overboard:
I haven’t weighed in on the JPMorgan stuff….But an interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on this case (actually I don’t wonder — they won’t).
The obvious objection is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they? And it was the only loss.
And JPMorgan is also part of a broad program of guarantees, explicit on deposits, implicit through the general aspect of too-big-to-fail. There have been government losses on these programs, and will be in future — and misbehavior like what seems to have happened here feeds such losses. And as best I can tell, JPMorgan’s story looks a lot more like actual malfeasance.
But of course JPMorgan wasn’t doing do-gooder liberal stuff like solar, it was just engaging in financial tricks of little or no social value. That makes it all OK.
In contrast, on June 15 we can quote from this economist, who is quite wary of the abuses introduced by government loan guarantees:
George Osborne, the architect of Britain’s austerity policies, has just done an about face (without, of course, admitting it). Jonathan Portes has the goods: he points out that the assumptions under which the UK government’s new policy of subsidizing private investment — including infrastructure investment! — through loan guarantees makes sense are exactly the same assumptions under which debt-financed government spending on, say, infrastructure makes sense.
So why funnel the money to private corporations via loan guarantees rather than simply doing the obvious and restoring the huge cuts that have recently taken place in public investment?
One answer, of course, would be that doing that would be an implicit admission that the Cameron government has just wasted two years doing exactly the wrong thing. It has, of course, and apparently realizes its mistake; but presumably the government hopes that privatizing the process will confuse enough people that it can escape blame.
But let’s also note that funneling funds through the private sector offers an opportunity to lavish favors on friends. Now, to be fair, so does government contracting; but that’s a familiar enterprise, with well-established rules and safeguards in place. This will be something new, which may make it possible to slip in some big giveaways that nobody notices.
So as you can see from the title of this post, it sounds to me as if Osborne has come up with a new wrinkle in policy that I hereby dub Crony Keynesianism — doing policies whose logic calls for government spending, but take the form instead of incentives to favored private-sector interests.
From a macro point of view, even crony Keynesianism is better than continued destructive austerity. But we should be aware how basically strange it is, and how subject to abuse.
With such divergent views, it’s no wonder people don’t trust economists…
“Crony Keynesianism” sounds a bit like a Pleonasm to me…
Thanks for making me look up the word “pleonasm.”
I would have just said “redundancy”, but pleonasm has more panache.
Ditto for “panache”.
My vocabulary has exponentially increased due to the internet.
Especially Latin, since I am heavily involved in argumentation and debates.
If you had said “Logic a sine qua non” to me back then, I would have looked at you the way Krugman looks at Austrian economics.
You had ad hominem nailed long ago M_F.
Whose ad hominem?
the way Krugman looks at Austrian economics.
that’s an oxymoron. which is the only kind of morons I can stand. (that excludes you M_F)
I usually don’t defend Krugman, but I don’t see any contradiction in these two quotes.
Here, let me help you:
May 12th Krugman:
“The obvious objection [Major_Freedom: to the government guaranteed loans to private sector] is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. >Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they?” (Italics added).
This is Krugman defending government loan guarantees to private sector.
——
June 15th Krugman:
“So why funnel the money to private corporations via loan guarantees rather than simply doing the obvious and restoring the huge cuts that have recently taken place in public investment?”
“One answer, of course, would be that doing that [Major_Freedom: “that” meaning government loan guarantees to private sector] would be an implicit admission that the Cameron government has just wasted two years doing exactly the wrong thing.” (Italics added).
This is Krugman attacking government loan guarantees to private sector.
It’s not an exact, literal, word for word contradiction. No, when Murphy posts these Kontradictions, it’s Krugman using THE SAME DATA, the SAME FACTS, to make OPPOSITE arguments, depending on whether he is defending his own views, or attacking his ideological enemy’s views.
I guess you have to know the history of all this, but I hope I made it clear so that Murphy doesn’t have to keep repeating what’s going on at the meta-level.
Actually this statement is even more definitive:
“But let’s also note that funneling funds through the private sector offers an opportunity to lavish favors on friends.”
Notice how Krugman never said anything about government bureaucrats lavishing favors to friends in the case of Solyndra. And why not? Because there Krugman was addressing conservative critics of the loan guarantee program, which immediately turns the Solyndra loan guarantee into a “good”, “progressive” program.
Yes, that was the killer contradiction.
For millennia kings and emperors practised these policies. The differences were just of tactical-political considerations. They didn’t need excuses and explanations ( they had Legions, it was enough). Grabbing their tributes directly or through proxies of pseudo – private companies was a matter of prudence and political calculation.
But now we are living in the Shining World of Democracy, Human Rights, and Social Justice ( Allah Akbar!) so our kings and emperors need excuses. And our brave economists are happy to offer them. If a kings is a liberal we know that feeding economy through direct orders and Gosplans is the best solution ( and Marxist economists have proved it, as 2+2 is 5). If our kings are conservatives they prefer to do it through big banks and corporations, and the Chicagoan ( Milton Friedman and Al Capone’s) style is the best ( again, 2+2=5). And if they can’t decide what is better and are in total mess, Lord Keynes is always for rescue! ( 2+2= 5, or 6, or 3, or pi, or mc^2, whatever you wish. The best economic theory ever invented!)
So.. why do you think people don’t trust economists? They do!! And properly do.
so our kings and emperors need excuses. And our brave economists are happy to offer them.
Statist economics is just one giant welfare program that is fully dependent on productive people who don’t even need half the garbage coming out of economics departments, and the economists are just modern day court intellectuals.
Look at where the money is coming from, and you’ll see what incentive economists have in promoting one theory over another. It should not be surprising that the banker financed University of Chicago would produce monetarists, for example.
Na. Most of the people I talk to know it’s crap, they knuckle down and pretend to believe because that’s what is expected of them.
Murphy, did you laugh at this part?:
“So as you can see from the title of this post, it sounds to me as if Osborne has come up with a new wrinkle in policy that I hereby dub Crony Keynesianism — doing policies whose logic calls for government spending, but take the form instead of incentives to favored private-sector interests.”
Wait, did Krugman just claim that Krugman coined “Crony Keynesianism”?
Really?
“From a macro point of view, even crony Keynesianism is better than continued destructive austerity. But we should be aware how basically strange it is, and how subject to abuse.”
Whew! That was a close one. He almost criticized what he didn’t coin.
I see what you’re saying MF, but no, I wasn’t laughing. I was waiting with baited breath for Krugman to explain why all of this potential for corruption wasn’t mentioned when Krugman repeatedly defended the DOE loan program over the last year, and was kind of stunned when he didn’t say a word.
I understand.
I have to say though that Obama is a liberal, and to Krugman liberals cannot be corrupt in this way. They can only be looking out for everyone, like wanting them to have solar energy. Conservatives like Osborne on the other hand can be corrupt in this way. They want profits, and to exploit the workers.
To Krugman, government loan guarantees are bad, or suspect, when conservatives do it, but good, or defendible, when liberals do it.
How many times do we need to be “stunned” at Krugman’s blatant political hypocrisy, before it becomes expected? He’s been doing this kind of stuff for years. You’ve kept on top of a lot of it.
Are you holding out hope that one day he’ll stop pulling stunts like this? I admire your tenacity.
I’ll just say that Keynes finally converted…but on his death bed.
I bet he prefers crony Keynesianism to crony capitalism, as well.
Maybe Krugman is suffering from schizophrenia. Poor guy. He must be off his meds again.
Another Osborne contradiction!
I am waiting with baited breath for Murphy to make fun of him
Can The Krugman be considered an economist?
Yes. Anyone can.
Here is a fool’s view, “On Government loan Guarantee”
WHY, why would a monetary sovereign guarantee a private bank to “print” its currency, and the do something so stupid as pay that for profit corporation “compound interest’ a condition that could only lead to a fatal flaw of capitalism ,I.E.,all of the currency will eventually become the property of the private, for profit financial institution, depended only on the rate and amount of time.
THIS IS A MATHIMATICAL SERTAINTY.
Read More:
http://bit.ly/MlQWNs
Please challenge, if you can get pass the errors
.Sorry, there was a little battle going on between my “right side and left side.”
Which side won?
They both lost.