29 Oct 2012

Krugman Has Trouble Parsing Robert Samuelson

Economics, Krugman 21 Comments

This is really astounding, even for Krugman. If you have 10 minutes, and you’re the kind of person who loves to see Krugman executing a mob hit on an ideological opponent, then first read Krugman discussing Robert Samuelson’s piece on government job creation. Based on Krugman’s commentary, imagine what you think Samuelson’s actual article must have said. Then, go read Samuelson’s actual article. Your jaw may just drop.

For those who don’t have the luxury of doing the above, let me walk you through some highlights. Here’s how Krugman opens:

Both Dean Baker and Josh Bivens weigh in Robert Samuelson’s outburst at the New York Times for saying that the government can too create jobs. (He went so far as to call it “flat-earth” thinking). Sadly, Samuelson’s attitude is widely shared — even, at least rhetorically, by Barack Obama.

So let me not focus on Samuelson’s piece so much as on the general proposition. What can it possibly mean to say that only the private sector can create jobs?

It could mean that government jobs aren’t “real” jobs — presumably that they don’t supply something of value to society. Samuelson disavows that position, I think — and rightly so. After all, the bulk of government workers are in education, protective services, and health. Do you really want to say that schoolteachers, firefighters, and nurses provide nothing of value? [Bold added.]

Now, the first part I put in bold is important, because–as we’ll see–Krugman actually can’t use his attack on Samuelson’s actual piece. So, that small little pang of the Conscience of a Liberal told Krugman he needed to be clear that really what he would critique in this post was someone who had the same conclusion as Samuelson, but used a different train of thought to arrive at it.

Now the second thing I put in bold is very interesting. Krugman says that somebody might mean that government jobs don’t add something of value to society. Krugman then very graciously says “Samuelson disavows that position, I think.” Well, Samuelson was probably really slippery about it, eh? That’s why Krugman says “I think”?

Actually, here is what Samuelson said, after his general case for why government doesn’t “create jobs” the same way the private sector does:

Now, let me add three crucial caveats to avoid misunderstanding.

First: I am not saying that private-sector jobs are superior to public-sector jobs. Obviously, we need teachers, soldiers, police officers, epidemiologists and the other workers the Times mentioned. How many we need and what they should do are political questions. It’s also true that many government activities — basic research, highways, schools — can support the private sector. I am not making an argument for or against a given size of government; that’s another debate. My aim is merely to explain how government employment increases. [Emphasis in original.]

So in light of the above, I am going to live dangerously and venture to guess that Samuelson was not saying that he thought governments jobs didn’t contribute to society. But Krugman is an objective scientist, and always likes to hedge himself, apparently. Hence the “I think” caveat when discussing Samuelson’s position. (And notice what I meant about Krugman switching from Samuelson’s piece to the “general proposition”–Krugman asks rhetorically in the block quote above, “Do you really want to argue…” because even Krugman with his liberal conscience can’t say, “Does Samuelson really want to argue…”)

After the above fiasco, Krugman continues like this:

What then? Well, Samuelson argues that when the government adds jobs, these come at the expense of jobs elsewhere. This is manifestly not true when the economy is depressed; all the evidence on big multipliers amounts to saying that under current conditions government jobs create additional jobs in the private sector, rather than crowding them out.

Under near-full-employment conditions, however, it’s true that expanding government employment displaces other employment. But this is equally true of any expansion in private employment!

Now if you had just read Krugman’s post, you probably would have bet $1000 that Samuelson did NOT have the following in his original article:

And third: There is one glaring exception to the logic I’ve outlined. When the economy is in a deep slump, government can — in theory — increase hiring by borrowing and spending when consumers and businesses are retrenching. If the Times had confined its argument about government job creation to this possibility, it would have been on more solid ground. Note, however, that economists fiercely debate how much government “stimulus” succeeds in practice. If stimulus programs inspire offsetting private-sector behavior — suppose consumers and companies react to larger government budget deficits by increasing their saving — then employment gains would be muted. I don’t intend to settle this debate either.

But if you did, then you’d be out $1000, because that was the third caveat Samuelson put at the end of his article.

In closing, let me confess that Samuelson was indeed a bit confusing. I had to think a minute about what his basic point was, since he hemmed and hawed his way to apparently undercut it. So I don’t fault Krugman for disagreeing with Samuelson, I am merely faulting him for bringing up two “zingers” that Samuelson himself brought up.

Here’s what I think Samuelson was getting at, and there’s nothing wrong with this claim: There is a fundamental sense in which private sector job creation is the bedrock, and government job creation is laid on top of it. When the government expands employment in some sector, those resources come at the expense of potential employment elsewhere.

Krugman argues that this same logic applies to private-sector employment, but actually it doesn’t–at least not in the same way. If I am a private firm and hire somebody, I didn’t take money away from somebody else to do so; I used my own money (or borrowed it). When the government does the same thing, there is a qualitatively different sense in which it really does take away from other entities, in order to expand its hiring.

Yet another way of seeing the difference is to realize that the private sector could exist without government workers; we could at least imagine a complete laissez-faire market. In contrast, government as a “mixed economy” could NOT exist without a private sector to tax; it would turn into outright socialism. So in the present system, there is a sense in which the government could arguably provide important services that the market couldn’t (I personally disagree with this, naturally), but even here the means with which to provide those services come out of the bounty of the private sector.

If one wanted to use loaded terms, one could say the government is a parasite on the host. Yet that’s not even what Samuelson is trying to say. It’s more like saying, infants and senior citizens depend on the workers for their survival. To say this doesn’t imply that we hate infants and senior citizens. Indeed, infants are necessary for the continuation of society. But there is a genuine sense in which society can’t function just with infants, but it can function (at least for a few decades) just with middle-aged workers.

21 Responses to “Krugman Has Trouble Parsing Robert Samuelson”

  1. David R. Henderson says:

    Wow!

  2. Major_Freedom says:

    Both Baker and Bivens also display a confusion on the nature of government. They too are both making the general claim that because money spending that is redirected from A to B in the private sector leads to a form of “crowding out” of investment and labor within the private sector, that because the state’s spending is allegedly doing the same thing, Samuelson has no real justification to criticize government jobs on those grounds.

    The fundamental error of Krugman is that he believes teachers and firefighters are introducing value into society. To sort of rescue Samuelson from his rather muddled post, I will borrow a good point he made about distinguishing between “legal” (jobs) and “economic” (jobs): Yes, one could make the argument that teachers and firefighters are introducing value into society. But this is a “legal” value, not an “economic” value. Economically, it cannot be argued that public teachers and firefighters are introducing economic value into society, because the government is, as Murphy alluded to, completely dependent on the private sector. Whatever value is introduced by public employees, it comes from consumptive labor, not productive labor.

    Teachers and firefighters are akin to personal home cooks and servants in the economic sense. Yes, they can be argued as introducing value to (some) people, but they are engaging in consumptive labor, not productive labor. Their wages are paid not for the purposes of producing making sales in the open market, where economic value is manifested and judged/compared at the individual level, but to serve the interests of those paying the wages. Once those paying the wages actually pay the wages, that’s it, the money is gone. A fresh new sourse of outside funds is necessary to repeat it. Things are different in the private market. Investment expenditures are self-sustaining. They bring in subsequent sales revenues (if the investment is sound). This is probably another idea Samuelson was getting at, because he used similar phrasing to describe private sector activity.

    Government employees cannot be argued as producing value in the economic sense, where the market test of profit and loss actually shows us whether value is being created or destroyed on net. Krugman jst announces ex cathedra that public teachers and firefighters generate value. Well, from a prejudiced perspective, it seems they do, but from an economics perspective, it is pretty clear that they don’t.

  3. Max says:

    The government surely can create jobs (even at “full employment”) by hiring people who are unemployable by the private sector. There are a lot of them…people who can’t do much, or people that nobody trusts due to criminal record etc. But whether it’s a good idea to create jobs (which may not have much value to society) is another issue.

  4. Anonymous says:

    The number of people willing and able to work….. at any given time …… is finite.

    So, it is indeed true that private entities can only grow by poaching labor from other private entities when the economy is close to full employment.

    Now, it is absolutely true that private sector “crowding out” almost always involves labor being re-deployed from unproductive to productive lines, causing society to be better-off on net, but that is not the argument that Krugman was refuting.

  5. Maurizio says:

    Krugman argues that this same logic applies to private-sector employment, but actually it doesn’t–at least not in the same way. If I am a private firm and hire somebody, I didn’t take money away from somebody else to do so; I used my own money

    Suppose Krugman replies that government too is using its own money. Then what?

    (I can imagine a couple of ways he can argue that: argue that government is the legitimate owner of the money because hey, goverment printed it; or argue that taxes become the legitimate property of the government).

    • Major_Freedom says:

      I can imagine a response to that imagined response:

      The state used coercion to transfer the power of control of money production from individuals in a market setting, to themselves in socialist setting.

      I can always say none of the dollars are legitimate property of the state, even if they print them, the same way I can always argue that food production monopolized by the state is not legitimate property of the state.

      Legitimate meaning, of course, acquired via original appropriation or trade.

  6. Maurizio says:

    I think that, in order to argue that government services produce value, you have to prove that in the absence of governemnt those services would not be provided. Krugman does not seem aware of this, so his argument is incomplete at best.

    • Major_Freedom says:

      That is actually not even necessary, Maurizio. The fact that the state does X, does not mean that we have to make a case that the market will provide X in the absence of the state. This is because we can’t assume individuals actually value what the state is doing. They may prefer more Y than the state’s X.

    • Matt Tanous says:

      You would have to prove that they would not be provided without government, and that there is a preference for them to be so provided. As the preference of individuals cannot be demonstrated by a coerced act, there can be no proof that government services produce value.

  7. Ken B says:

    Occam’s razor suggests Krugman only read part of the article and lit into that.

  8. RPLong says:

    For the life of me, I cannot figure out why so many economics blogs invest so much time pointing out the various mistakes, falsehoods, and outright fibs that appear on Paul Krugman’s blog. The column he writes is titled The Conscience of a Liberal. He writes an ideologically slanted blog aimed at ideological liberals, to give them sound-bite ammunition against whatever economic criticisms can be aimed at left-leaning political ideas.

    Krugman is a great economist, but his blog is not economics. It’s politics. It’s punditry. He makes mistakes because his job is to sell copies of The New York Times. He’s going to make lots of mistakes and rile people up because the purpose of his blog is to get a rise out of people.

    IMHO, responding to his shenanigans with point-for-point counter-analysis gives more weight to Krugman’s blog than it deserves. His job at The Times is to troll, and he does it very effectively.

    • Major_Freedom says:

      I would agree with you if his blog was TREATED by his readers as nothing but political punditry. But most of his readers actually believe he is presenting sound economics. For that reason, point by point counter-analysis is, IMO, justified.

      It’s not so much cowtowing to Krugman, but more a question of assuming that within his readership, there are those who value good ideas over bad ideas, even if they go against their ideology.

      Krugman is, in essence, a huge threat to cooperation, prosperity, and social peace. He wants to use violence to achieve his goals. That alone makes focusing on him a justified enterprise.

    • Jonathan M.F. Catalán says:

      A lot of people like Krugman’s older academic writing, because he went through an evolution of thought. His older work usually experiences less friction when dealing with free market advocates. His blog expresses many sentiments which he developed over time, especially after his 1998 Japan paper. So, I don’t think his “bad economics” has to do with the fact that his main concern is political punditry or that he’s trying to sell copies of the NYT; rather, the blog expresses how he sees things now.

      Nonetheless, it’s also true that his blog writing is probably much less nuanced than his academic writing, but this is probably true of just about everybody.

      • RPLong says:

        I don’t think his blog is “bad economics” because I don’t think it’s economics at all. I think if he were really to sit down, put his economist hat on, and think through the issues he’s writing about, he’d produce articles that say completely different things.

        Really, I don’t fault him for this. He’s in a different stage in life. He achieved all he could possibly achieve as an economist, and now he’s more of a celebrity than anything else. That’s fine. I just think people should engage him as such. It’s just kind of silly to see all these other economists trying to engage him in honest debate when Krugman clearly has no interest in it. Krugman isn’t the one who comes off looking bad in these instances.

    • successfulbuild says:

      For the life of me, I can’t imagine why people would spend time refuting people like Robert Murphy’s outright fibs, lies, and exaggerations (global warming is a fraud science, we need to re-think the AIDS hypothesis, intelligent design is a science, and so on).

      Robert Murphy and Thomas Woods make a lot of mistakes because their job is to sell Politically Incorrect Guides. He’s going to make a lot of mistakes and rile people because he has an interest in promoting conspiracy theories, because he’s a troll that likes getting a rise out of people.

      IMHO, responding to Libertarians with a point-for-point counter-analysis gives more weight to these cranks than they deserves. The purpose of Libertarians is to troll, and they do so very effectively.

      • RPLong says:

        You’re doing it wrong.

        “Pigeons suck because they fly over my car and crap on it.”

        “RPLong sucks because he flies over my car and craps on it.”

        That’s not exaaaaactly how it works…

        • Ken B says:

          Right on my windshield too. Why you, you,…. you Keynesian you!

  9. Keshav Srinivasan says:

    Bob, you say “Krugman argues that this same logic applies to private-sector employment, but actually it doesn’t–at least not in the same way. If I am a private firm and hire somebody, I didn’t take money away from somebody else to do so; I used my own money (or borrowed it). When the government does the same thing, there is a qualitatively different sense in which it really does take away from other entities, in order to expand its hiring.” Could you elaborate on this? I don’t quite understand your argument against Krugman here. When the government consumes resources, it is using up things others could have used. The same applies to a private company. So what is the difference? Are you making a philosophical distinction, because you believe government action is inherently immoral?

    • Ken B says:

      Let me take a stab at a reply, and then Bob can mock it.

      Consider this case.
      If I don’t use my resources, let them lie fallow, then it is because I don’t see enough advantage in converting them to use right now. My choice based on my utility and expectations. Now the governemtn steps in and commandeers them. What can we say about utility? Well mine has been diminished right? So have my *choices*. I cannot now lend them to Bob to use. So my voluntary deal with Bob is impossible. I have really lost an opportunity. (So has Bob.)

      But if instead Bob makes me a better offer and borrows my stuff, so he can use them and I cannot, I get sufficient compensation. So in that sense Bob’s use of the resources does not *deprive* me of their use: Bob is the medium by which I put the resopurces into use, and by which I am compensated.

      • skylien says:

        I guess you are almost right. I just would add that you get compensated by the government (maybe with even more than you would have expected, since a government aimed at stimulating the economy isn’t eager on hard negotiations, and just to be sure spends more according to the good old stimulus motto: More is more..). Yet there is another person called Matt who gets taxed and lost (or will lose ;) the opportunity instead of you.

        • skylien says:

          … those smilies…
          *or will lose* should be in brackets completely…

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