Monthly Archives: September 2011

Can’t someone on the “This Week” roundtable bring this up?

 

The Krugman Fallacy

By Jonah Goldberg
Posted on September 14, 2011 4:08 PM

Stan, I’m afraid you’re heading down a blind alley. You cannot hold pre-NYT Economist Paul Krugman up to the current version. You’ll just go mad. Sallie James pointed out the problem with Columnist Paul Krugman, when it comes to the concept of competitveness.

But my favorite example was well chronicled by our friend James Taranto last year. When Sen. Jim Bunning held up an extension of unemployment benefits, Krugman lamented “the incredible gap that has opened up between the parties”

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. …

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

Krugman added, “To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe. And the difference between the two universes isn’t just intellectual, it’s also moral.”

Intrigued, Taranto went out to investigate what “textbook economics” says on the matter. He went to, of all places, Paul Krugman’s textbook (co-written with Robin Wells, AKA Mrs. Krugman) Macroeconomics. It says:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

Now Krugman’s extended moralizing about helping the unemployed is not invalidated by his hypocrisy, but his pose of astonishment that anyone could agree with what his own textbook says is hard to square with claims of consistency or good faith.

Once in a while, seemingly when I need it most, I can’t remember the list of President Obama’s “big ticket” policy enactments. Thankfully, Michael Boskin listed them in a column in the Wall Street Journal on September 8, 2011:

  • $825 billion stimulus package
  • Public-Private Investment Partnership to buy toxic assets from the banks
  • “Cash for Clunkers”
  • Home-buyers credit
  • Auto bailouts
  • Five versions of foreclosure relief
  • Numerous lifelines to Fannie Mae and Freddie Mac
  • Frank-Dodd
  • Healthcare reform (Obamacare)
  • Energy subsidies

Boskin points out that the stimulus bill cost $280,000 per job – by the administration’s estimates of jobs “created or saved,” and much more using more realistic estimates.

Results:

  • Fraction of the population working is the lowest since 1983 (58.1%)
  • Long-term unemployment is by far the highest since the Great Depression (45.9%)
  • Job growth during the first two years of recovery after a severe recession is the slowest in postwar history (.5%)
  • Home-ownership rate is the lowest since 1965 and foreclosures are at a post-Depression high (59.7%)
  • Share of Americans paying income taxes is the lowest in the modern era (49%)

 



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