For those of you unfamiliar with Dr. Krugman, he is a Keynesian. In other words, he thinks that activist government spending helps the economy in times of recession. His opponents (who are very vocal on Facebook and are always posting articles to the contrary from websites like "big government overreach" and "the conservative voice") reject the notion that government intervention to aid the poor or to regulate the economy could be beneficial. In fact, they believe that any type of government involvement, including slashing of taxes to "boost economic activity" is absolutely useless and detrimental to the economy. They claim that stimulus spending leads to hyperinflation and economic disaster, and they believe that all economic exchange regardless of its nature, is highly beneficial to society. Yeah I saw Breaking Bad and not all economic exchange is beneficial.
|Ben Bernanke, former head of the Federal Reserve, nominated by President|
George W. Bush to succeed Alan Greenspan. He has since been succeeded
by Janet Yellen.
I don't understand Libertarian points of view. Not any of it. Reading their rants over government spending is like trying to find the logic in a David Lynch movie. Even a stooge like me can see that if you want to stimulate the economy, there has got to be money being spent. This is not rocket science. If no one is buying anything, then the economy goes to pieces. I get this. So at a time when America was hit with a recession as big as the Great Depression of 1929, why did so many people have a hard time seeing that government spending needed to step up to the plate while Americans lost jobs, hoarded money, and banks tightened up lending? We couldn't depend on our neighbors to continue spending, not when they were either losing a job or not getting a raise for years to come, and when the place they were working at was going through a hiring freeze or reorganizing under Chapter 11.
Nothing that any "Ayn Randian" voice has said about how to get out of a recession makes sense to me. In a way, it's like they're all writing fiction and spouting off specious arguments with the conviction of a Baptist preacher. Conservatives and Libertarians called the Federal Reserve bond buying program ($80 billion a month for a year) a ticking time bomb. "Inflation will sky rocket," they screamed. "This will create (or did create) an asset bubble that's gonna pop and destroy the economy!" Well guess what? That program ended successfully and there's been no asset inflation. How do I know this? I've been paying ATTENTION.
The fact is that the consumer price index which measures inflation is dangerously low at 1.5 percent. Healthy inflation according to those (like Krugman) who have the educational chops to tackle such economic science agree that inflation in the United States needs to be at 2-3% The fact that we are far below that number is why your savings account is worth nothing. Most places (if you carry a balance less than $10,000) just give you an interest rate of .01 percent per year (that's 1/100th of a percent). This means that if you keep your money in your savings account, you might as well be stuffing it in your mattress. Inflation is eating it away every day at the rate of 1.5% per year making it worth less and less over time. Why would the Federal Reserve do such a horrible thing to the saver? Because they want you to do other things with it rather than just sit on it because that's how economies prosper.
Yesterday, in an article in The New York Times entitled Francs, Fear, and Folly, Paul Krugman again said something that makes sense to me. And again, I don't think it's politics at play. What sent a shiver of fear through the stock market yesterday was that the Swiss National Bank (their equivalent to the Federal Reserve) shocked the world by abandoning its policy of pegging the franc to the euro. It also cut the interest rate it pays on bank reserves to -.75%. What? Why would they do this?
The world outside of the United States is fighting deflation (the opposite of inflation). Deflation causes economies to stagnate. People hoarding money in bank accounts can act like dominoes toppling one after another until you have this out of control spiral which is essentially what's happening in Europe and in Japan. The United States thus far appears to be the only relative safe spot in the world to put your money, but it's been fascinating to see how the rhetoric of those who hate Krugman keep saying that our central bank needs to hike interest rates soon. But if this happens before the economy is ready, my understanding (thanks to Dr. Krugman) is that this would be disastrous. Of course the anti-Krugman crusaders disagree in droves probably because saving money seems like a logical thing to do.
Hiking interest rates is a saver's boon because suddenly your CD's and your bonds and your saving's accounts are all worth something again. But here's the rub: hiking interest rates puts the brakes on a roaring economy, and our economy isn't roaring. Trust me when I say, I want higher interest rates too. I don't want to have to chuck all of my money into risky assets just to stay ahead of inflation and make a nest egg suitable for my retirement. However, Krugman thinks the time isn't right, and I believe him especially after the spooky event that just happened in Switzerland yesterday.
As further evidence that all is not right with our economy yet (it's come a great distance with low gas prices, falling unemployment, a healthy stock market, etc.), just last week we saw an unemployment report that indicated that wages were FALLING across America even as job hiring was robust. There are several theories to how this is happening because when the labor pool dries up, wages are supposed to rise. Some voices say that it's because all the jobs that are being created are crap jobs, ones that are part-time with no benefits and with low pay. All the good ones have people squatting in them because they know better than to leave. And without that sense of value, well there's just no arguing with an employer about a raise. Add to that good-paying jobs being lost in droves from the oil industry as the falling price of oil strangles huge employers like Schlumberger, and we've got problems, folks.
Overall, defending Dr. Krugman in pitched Facebook battles against people who don't read his articles has been like banging my head against a wall. I finally just decided to stop, because it isn't worth my time to do so with people who just post clips that they find from around the internet to "counter" the points that I make. I've basically either blocked those people or made their posts invisible. Isn't Facebook supposed to bring us closer together? I think I fail at social networking. But here I am, yet again, posting my final thoughts regarding Dr. Krugman, because I feel like I need to defend the man whose ideas I agree with, and it's not just politics.
Why can't everyone see that there's a reason Dr. Krugman has a Nobel Prize in economics?