Skip to comments.Paul Krugman keeps pretending that spending has gone down
Posted on 06/12/2012 6:28:49 AM PDT by SeekAndFind
In his June 08 column, New York Times columnist Paul Krugman says a major part of the reason the recession under Reagan recovered more quickly than the current recession is because of government spending. From the column:
Why was government spending much stronger under Reagan than in the current slump? Weaponized Keynesianism Reagans 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.
There are a myriad of things with which to respond to Krugman over this his most egregiously inaccurate claim and other points and inferences in his column. Below are several:
First and foremost, local and state government spending hasnt gone down since the recession started. The linked chart does show that government spending went down in from 2009 to 2011 as a percentage of Gross Domestic Product, but in pure numbers (also seen at the link) only 2009 saw a drop, and the spending in 2010 more than matched the 2009 drop.
(Data for this claim comes from the Bureau of Economic Analysis, and the linked chart and data come from Just Facts.)
Second, the spending prior to and during both recessions was both different and similar. From 1975 through 1979, state and local spending as a percentage of GDP fell by .9%, and then fluctuated for the following several years. Meanwhile, local and state spending went up by 1% of GDP from 1999 to 2002 and 2003. This reversed course for several years, and has since fluctuated. However, at no point did the spending as a percentage of GDP in the current recession drop even to the high point prior to the 1980s recession, an important context Krugman seems to ignore.
The above shows how the periods are different. They are similar insofar as the actual dollars spent consistently grew, meaning that Krugmans overall contrast is still wrong.
Third, Dan Mitchell of Cato wrote a piece in February stating the obvious: The same bad policies Bush was responsible for that both contributed to the recession and exacerbated its problems have been continued by Obama. From Mitchells analysis:
To see some of these points in a more humorous way, check out this cartoon comparing the similarities in policies between Bush and Obama. All in all, for Krugman to blame (as he insinuated in this column and has outright stated in others) Republicans for allegedly holding Obama back and preventing Keynesian economic policies is insincere. Keynesian policies, as well as incestuous Big Business and Big Government back-scratching, have been the norm under the last two Presidents.
Fourth, as my good friend Bill Beach pointed out last week, our economy is incredibly sluggish compared to the 1980s recession, even though we are nearly five years out from its start and three years into the recovery. This is despite massive government spending in TARP, two stimuli, unemployment benefit extensions, the auto bailout, and trillions in Federal Reserve spending. Again, if its more outgoing federal money Krugman wants, he should simply look at the last several years.
Fifth and finally, Krugmans argument about local and state governments and their alleged woes was coincidentally (or not?) discussed by President Obama on Friday, when the President said the nations economy is struggling mostly at the level of local and state governments. However, as the Wall Street Journal pointed out, Census data shows revenues for local and state governments have increased by six percent over the last two years.
In short, Paul Krugman is doing what Paul Krugman does best: cherry-picking a fact and making a completely unrelated conclusion that lacks proper context and fails to hold up even to the most cursory of examinations.
The single best thing for the US economy would be for Zer0 to resign.
Not unlike what the Norwegians do when they award the Nobel Peace Prize.
Were Krugman an aero engineer, he’d have designed the British Comet.
Were Krugman a mech engineer, he’d have designed the Tacoma Narrows bridge.
Were Krugman a “climate researcher,” he’d have developed the hocky stick.
Were Krugman a software engineer, he’d have designed Vista.
Thankfully, he was none of these...mainly because that’s clown’s meager intellect only allowed him to be an economist.
Shove it up your smelly Obama, Krugie. You’re a slacker.
New Ad Slams Obama with His Own Words against George W. Bush: Unpatriotic Video 6/11/12
Laffer and Moore: Obama’s Real Spending Record
There’s no way around the facts. Under Presidents Bush and Obama, government exploded as a share of the economy.
GNP = C + I + G + (Ex - Im)
Gross National Product equals Consumption plus Investment plus Government Spending plus Exports minus Imports.
This is true enough if read in a left-to-right direction:
“What is produced in a year is the sum of what is consumed plus what is invested plus what the government spends plus “net exports” in that year”.
This equation should not be read in a right-to-left direction. Such a reading suggests that, if C and I and Ex and Im do NOT change, then an increase in “G” (Government Spending) will NECESSARILY “cause” an increase in GNP.
But that suggestion is demonstrably false.
Consider this case:
(1) President Obama hires a big campaign contributor for a no-show job that pays an annual salary of $100,000.
(2) As a result, “G” increases by $100,000
(3) However, a “no-show” worker PRODUCES NOTHING.
(4) Therefore, GNP (Gross National PRODUCT) does NOT increase!
(5) Therefore, since G (Government Spending) has increased, C (Consumption) may have decreased — probably due to increased taxes and/or increased inflation that damage consumers.
(6) or I (Investment) may have been decreased — probably due to the crowding out of productive investments caused by increased government borrowing.
As this case shows, an INCREASE in “Government Spending” actually causes a DECREASE in “Consumption” and/or a DECREASE in “Investment”.
Hmmm... Does this case remind anyone of the Obama economy?
If Krugman’s wish-fantasy that “Increased G causes Increased GNP” were correct, then North Korea would be the most productive and most prosperous country on Earth.