Friday, January 16, 2015

In defense of Dr. Paul Krugman and how I think he's right about everything

Paul Krugman is a Nobel-prize winning economist and writes for The New York Times. I also agree with just about everything he has to say. Is politics to play? Am I so abashedly liberal that I cannot embrace other points of view? When I read his opinions I most unabashedly find myself nodding yes, because (to my brain) what he's writing sounds so logical. I suppose by stating this, I should be thankful that I'm indeed not famous. My obscurity shields me from public attack by the ilk who frequent such capitalist pig publications like Forbes (who basically hate him). After all, defending one's opinions online against a horde of people who hate Obama and by extension everything that's been done under his watch (and have discovered their web browser allows them to comment thereby giving them a voice) is mentally exhausting. Trust me; I speak from experience.

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?

14 comments:

  1. I agree with you all the way here, Michael, and there are some of us out here who 'get it', though the idiot trolls are so numerous that it's hard to believe sometimes. Since the right is only working to benefit the wealthiest, the majority of the trolls are actually working hard to harm themselves (along with the country they supposedly love). And with college being purposely made more and more expensive, it becomes harder for anyone who isn't wealthy to attend, meaning these hordes of stupid people will only tend to grow larger over time.

    ReplyDelete
    Replies
    1. It's good to have an ally out here, Ted. I guess I just live in the wrong state to be putting out talking points like the one I have here.

      Delete
  2. If you look in the trending posts on Facebook you will find all kinds of people arguing. They all seem to be on one side with no sign of ever considering that they might be wrong. Pretty much...a big waste of time to get involved.

    Facebook does bring people together. I've found that I've reconnected with distant friends and family. It's also helped me stay in touch with them. But in other areas people love to fight on FB.

    ReplyDelete
  3. I wish the economy would create a job for me.

    ReplyDelete
    Replies
    1. I hear all kinds of rhetoric on Facebook. Some people call for the dismantling of the Federal Reserve which just sounds crazy to me. We're lucky to have them. Their monetary policy (in my opinion) has pulled us back from the brink.

      Delete
  4. @Pat: You got screwed, and I'm sorry that happened to you, Pat. I am hopeful that our economy will improve and that we will all have jobs that pay a liveable wage. I think everyone deserves a liveable wage. I guess this "rant" of mine is born because I feel that Krugman is right on the money (and I'm glad that we have a Federal reserve that is more or less going that direction too) on how to get us back, yet there are tons of people out there who could derail the train and have us going over a cliff again. It makes me very depressed when I think about it.

    ReplyDelete
    Replies
    1. The only reason the economy hasn't truly improved has been the purposeful policies of the right, whether it's ensuring more money goes to the already well off or their austerity tactics or refusing to do any meaningful infrastructure bills and lots more obstructionism.

      Delete
  5. Thanks for posting your views Mike. I don't pay enough attention to politics - find it a losing battle for us little guys, especially as county or state employees - and enjoy a well thought out, opinionated rant. Gives me some perspective aside from the FB snippets and too convoluted talk shows.

    I do agree with Krugman about the income caps; there should not be such a disparity between the very rich and the very poor. Yep, I'm all for capitalism, but there needs to be some social equality about it. Equality is not quite the word I'm looking for. Hopefully you get the gist.

    ReplyDelete
  6. In 1929 Herbert Hoover faced a collapsed economy and his Republican advisors urged him NOT to pour money into the economy, saying that business would straighten things out. Obama faced this same situation in 2009. People forget that the Republican method of improving the economy was tried, and it failed miserably.

    ReplyDelete
  7. Believe it or not, libertarian economics work. It's done well for the economies of the 3rd world, and in the olden days when it was called feudalism.

    So yes they work, but only for the few. Which isn't me nor you.

    ReplyDelete
  8. Everyone has a right to their opinion. Sadly that also means the ones who think no one should have one can run their mouths too. Hoarding money will not help a country. What are they? Smaug's cousin?

    ReplyDelete
  9. I think what pisses off the Ayn Rand libertarians and other right wing nutcases is that events have proven Krugman to be correct again and again; the same goes for his fellow Nobel Prize-winning economist Joseph Stieglitz. Krugman and Stieglitz have history and reality on their side, while the extremists have only their twisted politics and a weird philosophy that haven't worked and are hurting this country. If I had my way, Elizabeth Warren would be the next president and Krugman would be the her Secretary of the Treasury.

    In a somewhat related topic, I noticed this last week how the New York Times ran an editorial by Tom Hanks in which he praised Obama's plan to make community colleges almost free for Americans, thus helping struggling folks to get job training and move on up. Hanks pointed out that his own humble CC experience made him the man he is today, and judging by the hundreds of comments to his piece most people said that cheap or almost free community colleges changed their lives for the better. Then I saw a Wall Street Journal editorial about Obama's plan for community colleges, and you'd think the sky was falling and those colleges are mere cesspools full of inferior people. The arrogance of the 1% and their grubby minions really is out of control.

    ReplyDelete
  10. People don't argue on the internet because they want to learn something. They argue to argue. They believe that they are right, and they are determined to outshout everyone else. It's not worth your time.

    Did you see this on io9? http://io9.com/lokis-wager-is-why-you-cant-win-arguments-on-the-inter-1679484756 I think it sums things up nicely.

    ReplyDelete
  11. I find myself nodding with a lot of what you have here. History shows us how huge gaps between rich and poor, too much power in too few hands, etc. have disastrous consequences.

    ReplyDelete