11 Mar 2009

Krugman’s Naivete

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I am a walking violation of rational expectations theory, because I do not learn. I continue to be shocked by Krugman’s blog. Check out this one:

So I read this:

Boehner said Americans want government to practice the same financial restraint they have been forced to exercise: “It’s time for government to tighten their belts and show the American people that we ‘get’ it.”

and I wonder if this country can handle the crisis we’re in. Remember, John Boehner is, in effect, the second-most influential member of the GOP (after Rush Limbaugh)….

So the fact that Boehner’s idea of economics is completely insane matters.

What’s insane about Boehner’s remark? He’s talking about the current economic crisis as if it were a harvest failure — as if we faced a shortage of goods, so that the more you consume the less is left for me. In reality…we’re in a world desperately short of demand. If you consume more, that’s GOOD for me, because it helps create jobs and raise incomes. It’s in my personal disinterest to have you tighten your belt — and that’s just as true if you’re “the government” as if you’re my neighbor.

OK up till now it’s just standard “scarcity doesn’t apply when unemployment is above 6 percent” nonsense. The first time I read it stated so nakedly (months ago), I was stunned, but I’ve gotten over it. Yet Krugman continues, and makes a qualitatively worse mistake, that has all the political sophistication of a 7th grader:

Plus, who is “the government”? It’s basically us, you know — the government spends money providing services to the public. Demanding that the government tighten its belt means demanding that we, the taxpayers, get less of those services. Why is this a good thing, even aside from the state of the economy?

Again, this is what the leaders of a powerful, if minority, party think. Can this country be saved?

OK first of all, if the government is “basically us,” then Krugman’s blog post just proved that Krugman doesn’t understand Keynesian economics. After all, Boehner is part of the government, Boehner doesn’t understand Keynesian economics, the government is us, Krugman is part of us…you get the idea.

But second of all, notice that Krugman says “even aside from the state of the economy.” Let that sink in for a second. Krugman is actually saying that it is NONSENSE for anyone to suggest that there exists even a THEORETICAL DRAWBACK to more government spending, EVER.

Seriously, am I misreading him here? Isn’t that what he’s saying?

How in the world did we get to a point where a Nobel economist can say that even in normal times, government spending is costless? Can I* be saved?

* You see what I did there?

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