I know Paul Krugman has a Nobel Prize, ostensibly for his work in economics, though I suspect it’s more for his New York Times column, where he has never shown an inkling of doubt that all economic troubles arise from the refusal of conservative and libertarian cretins to embrace government solutions for every malady that ails any economic system. And though Krugman has a Nobel Prize and I’m just a curmudgeonly blogger in the attic, it still feels as if I must condescend when answering some of his ridiculous claims, such is the magnitude of his stupidity when he tries to twist and contort economic realities to fit his political impulses.
Now he’s claiming that Reagan was more Keynesian than is Obama. From the very start of his polemic in the premises, he assumes that none of his readers have a clue as to what Keynes actually advised governments should do in the face of collapsing demand, as he evaluates and compares Reagan and Obama’s economic initiatives according to the level of growth in government spending. Keynes theorized that government deficit spending could kick-start a moribund industrialized economic system, not simply government spending. Government spending that is not in excess of revenues is just a transfer payment, taking from one economic actor to give to another. Deficit spending borrows against what is hoped will be a brighter economic future in order to get things moving in the right direction today. Or so, that’s how the theory goes. In reality, it was never seriously tried during the Great Depression that spawned the idea, at least not until the very end, and then it involved massive deficit spending to fight and win World War Two. Since America’s victory in World War Two so fundamentally altered the economic landscape of the industrialized world, one would be hard-pressed to attribute the robust American economic growth that followed the War solely, or at all, to the deficit spending which prosecuting the War required. Victory made a fair measure of the entire industrialized world safe for capitalism and trade, which alone made for a huge economic payoff from the “investments” the War’s deficits represented.
Of course, Keynes also advocated government surpluses during economic expansions to tamp the animal spirits of expansion to a manageable level and to keep inflation under control, a recommendation that has been summarily ignored by virtually every extant political entity, including in the US, state and local governments and the federal government (except for a short stretch during Clinton’s term). Krugman, though, has never advised at any time of which I am aware, for any reason, that government run a surplus and pull in the spending reins. Government spending and influence has a one-way, upward trajectory for Krugman; for Keynes, not so much.
But to directly answer Krugman’s claims, let’s parse what he says, from the NYT’s column:
They [Republicans] love, in particular, to contrast President Obama’s record with that of Ronald Reagan, who, by this point in his presidency, was indeed presiding over a strong economic recovery. You might think that the more relevant comparison is with George W. Bush, who, at this stage of his administration, was — unlike Mr. Obama — still presiding over a large loss in private-sector jobs. And, as I’ll explain shortly, the economic slump Reagan faced was very different from our current depression, and much easier to deal with. Still, the Reagan-Obama comparison is revealing in some ways. So let’s look at that comparison, shall we?
First, just a niggling thing, but I’ve not seen either side, Democrats or Republicans try to compare Obama to Reagan. Is this just Krugman’s straw man?
But what about claiming that Obama should instead be compared to George W Bush on job creation? The following is a chart from FRED, the St. Louis Federal Bank’s data base, showing total employment levels over the Bush and Obama eras:
At the same time in Bush’s presidency as Obama’s, total employment levels had just begun to tick upward after the “jobless recovery” from the 2001 recession. In 2012, it appears that total employment is robustly growing, but here’s the catch–it still hasn’t reached the pre-recession level for either the 2001 or the 2008 recession. Bush and Obama presided over employment levels that remained well-below pre-recession peaks in excess of two years. Their Administrations have both presided over jobless recoveries. Because the same phenomenon appears no matter which political reign is involved, it might be that employment levels and government initiatives have a very weak causal link, but that’s not what Krugman wants to hear. For Krugman, it just wouldn’t do to have an economic system where subtle governing difference don’t translate to real differences in economic outcomes. No one would need the likes of Krugman if economic performance didn’t turn on political whim.
More from the article:
For the truth is that on at least one dimension, government spending, there was a large difference between the two presidencies, with total government spending adjusted for inflation and population growth rising much faster under one than under the other. I find it especially instructive to look at spending levels three years into each man’s administration — that is, in the first quarter of 1984 in Reagan’s case, and in the first quarter of 2012 in Mr. Obama’s — compared with four years earlier, which in each case more or less corresponds to the start of an economic crisis. Under one president, real per capita government spending at that point was 14.4 percent higher than four years previously; under the other, less than half as much, just 6.4 percent.
He goes on to say, in case you hadn’t already guessed it, that Reagan led the big increase in government spending (the 14.4%) and it was Obama who had less than half as much. But again, Keynes never said government spending was the trick to jump-starting the economy. He said government deficits were. And how do the deficits of the two presidents compare? Another graph from FRED:
(Negative values, i.e., when the values lie below the zero line, indicate deficit spending). Clearly, as an absolute matter, and as a percent of gross domestic product, Obama is quite the more Keynesian, if “Keynesian” means doing as Keynes advised, and running government deficits in the face of weak demand, than was Reagan. As a percent of GDP, Obama’s deficits approach the level of World War Two. As an absolute matter, they have added roughly six trillion dollars to the national debt over the course of his presidency. Just look at how much Keynesian stimulus the US has got itself on the hook for over the last four years:
Wow. It goes without saying, the slope of the line depicting total government debt (which is a function of the amount of the deficit added each year) is not nearly as steep at any point in the last half century or so as it’s been since Obama’s presidency (roughly the front edge of the last shaded area). If Keynes was even a little bit right about his prescription for jump-starting growth, growth should by now have revved to life and be barreling down the track.
In calculating and comparing government spending during the Reagan and Obama eras, Krugman includes state and local government spending. Which is curious, for the federal government, and by extension the guy leading it, has little power to impact the level of state and local spending. Krugman reasons his way around the reality by implicitly blaming Reagan for why state and local spending hasn’t kept pace this time around, from the article:
Why was government spending much stronger under Reagan than in the current slump? “Weaponized Keynesianism” — Reagan’s big military buildup — played some role. But the big difference was real per capita spending at the state and local level, which continued to rise under Reagan but has fallen significantly this time around.
And this, in turn, reflects a changed political environment. For one thing, states and local governments used to benefit from revenue-sharing — automatic aid from the federal government, a program that Reagan eventually killed but only after the slump was past. More important, in the 1980s, anti-tax dogma hadn’t taken effect to the same extent it has today, so state and local governments were much more willing than they are now to cover temporary deficits with temporary tax increases, thereby avoiding sharp spending cuts.
Thus it was Reagan’s killing of automatic aid to the states from the federal government (one wonders how, exactly, a President unilaterally changes any Congressional spending program) after he’d used it clandestinely to Keynes up the economy, along with those cretins who now oppose, after the spending profligacy of the nineties and aughts, higher taxes for local government, that are keeping the US from Keynesian bliss. It’d be hard to make this sort of fantasia up.
The bottom line is that the US has been on a Keynesian fiscal binge since 2008, running deficits each year well in excess of a trillion dollars. It has also been on a Keynesian monetary binge, tripling the balance sheet of the Fed with money that no one even bothered to bury first before digging up (a reference to another of Keynes’ prescriptions). The economy is limping along, not growing robustly, nor desperately declining, mainly because domestic unemployment remains stubbornly high. The amount of Keynesian stimulus thrown at the problem, with little to show in the way of results, should conclusively prove that engineering economic growth is not as simple a matter as increasing the size, scope, breadth and reach of the government. But don’t bother telling Krugman. He made up his mind–a proven strategy for developing the ignorance needed for becoming a good polemicist–years ago that it was. Really, just do what he proposes, and we’ll all be living on hard rock candy mountain.
Shooting down Krugman is so easy it’s really quite dull.