No, It Is Not

Paul Krugman posted this on his blog site yesterday. It is a spectacularly clear statement on Keynesian policies.

Economics Is not a Morality Play

Brad DeLong catches someone wondering if I am actually advocating war as a solution to our problems. Against stupidity, the gods themselves …

To be fair, though, I understand from the Times that whenever I mention in my column that WWII ended the Great Depression, the paper gets a lot of mail accusing me of being a warmonger. Amazing.

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity — a pretty good system most of the time, though not always — with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits. Cuba doesn’t work; Sweden works pretty well.

And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment — mainly because short-term interest rates are up against the zero lower bound — the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.

The trouble in practice is that conventional modes of thought tend to prevail even when they shouldn’t; in particular, public spending on the scale needed never seems to happen. That’s why Keynes facetiously proposed burying bottles full of cash in coal mines, so people could dig them up again: since any proposal to spend money on things we need got shot down on grounds of prudence and efficiency, he proposed completely pointless spending instead.

And what actually ended up doing the trick was spending that was beyond pointless, it was actually destructive – a sort of cruel joke on the part of the gods of economics.

The point is that it would have been much better if the Depression had been ended with massive spending on useful things, on roads and railroads and schools and parks. But the political consensus for spending on a sufficient scale never materialized; we needed Hitler and Hirohito instead.

The Rich get Richer and the Poor get Poorer

Data from the latest Census:

WASHINGTON — The income gap between the richest and poorest Americans grew last year to its widest amount on record as young adults and children in particular struggled to stay afloat in the recession.

The top-earning 20 percent of Americans — those making more than $100,000 each year — received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line, according to newly released census figures. That ratio of 14.5-to-1 was an increase from 13.6 in 2008 and nearly double a low of 7.69 in 1968.

full AP article here

Republicans Will Cut Social Security

Republican Representative Eric Ryan (the likely chair of the House Budget Committee if Republicans take the House) on his proposal for Social Security:

"The Ryan plan would cut traditional guaranteed Social Security retirement benefits substantially compared to the benefits now scheduled to be paid. Much of the reduction would stem from the adoption of what is called "progressive price indexing," which would reduce the benefits of future retirees except for the bottom 30 percent of wage earners. For the average new retiree, defined benefits would be reduced by about 16 percent in 2050 and about 28 percent in 2080. Reductions would be greater for retirees with higher earnings."

Young Guns: A New Generation of Conservative Leaders, Rep. Eric Cantor (R) and Rep. Kevin McCarthy (R)

from the Orange Devil

Americans Have the Right Values - They're Just Not Very Well Informed

"Recent analyses have shown that income inequality in the US has grown steadily for the past three decades and reached its highest level on record, exceeding even the large disparities seen in the 1920s, before the Great Depression. Norton and Ariely estimate that the one percent wealthiest Americans hold nearly 50 percent of the country's wealth, while the richest 20 percent hold 84 percent of the wealth.

But in their study, the authors found Americans generally underestimate the income disparity. When asked to estimate, respondents on average estimated that the top 20 percent have 59 percent of the wealth (as opposed to the real number, 84 percent). And when asked to choose how much the top 20 percent should have, on average respondents said 32 percent -- a number similar to the wealth distribution seen in Sweden".

The author is conflating wealth and income inequality here. The data I presented was on income inequality (top 1% receive 17.1% of all income) while Norton and Ariely present wealth data (top 1% have 50% of total wealth).

Nevertheless, the point stands. Americans have their values right; they are just ignorant. I would say that is the fault of the media.

link

Obama on the GOP "Pledge"

"It is grounded in same worn out philosophy: cut taxes for millionaires and billionaires; cut the rules for Wall Street and the special interests; and cut the middle class loose to fend for itself. That's not a prescription for a better future. It's an echo of a disastrous decade we can't afford to relive."

link for video

Wonder Why?

In an Associated Press-GfK Poll this month, 60 percent disapprove of the job congressional Democrats are doing — yet 68 percent frown on how Republicans are performing. While 59 percent are unhappy with how Democrats are handling the economy, 64 percent are upset by the GOP's work on the country's top issue. Just over half have unfavorable views of each party.

Most say President Barack Obama isn't cooperating enough on the economy, yet even more accuse Republicans of the same thing. Former President George W. Bush and former Alaska Gov. Sarah Palin — the only two Republicans the AP-GfK Poll tested — are both viewed negatively by more than half in the survey, worse than Obama's marks. And people overwhelmingly fault Bush more than Obama for the recession.

link

That's About Right

From Bill Maher:

"But I've done some math that indicates that, considering the hole this country is in, if you are earning more than a million dollars a year and are complaining about a 3.6% tax increase, then you are by definition a greedy asshole."

full link