Krugman is talking about how the people who have succeeded in the administration are those who are more interested in politics than those interested in providing the real answers about the economy.
In what Keynes considered to be Hayek's "grand book", Hayek talks about why the worst end up on top. I just reread some of that section, and of course it talks more about totalitarianism and socialism specifically than the market democracy of the United States and the Obama administration. But the point is the same: politicians succeed in politics. Often, economic science suffers or simply fails to make a dent.
This post makes largely the same point about the new prominence of anti-Keynesianism among Democrats.
Wednesday, July 6, 2011
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Krugman wrote, "To those defending Obama on the grounds that he’s saying what he has to politically, I have two answers. First, words matter — as people who rallied around Obama in the first place because of his eloquence should know. Yes, he has to make compromises on policy grounds — but that doesn’t mean he has to adopt the right’s rhetoric and arguments. The effect of his intellectual capitulation is that we now have only one side in the national argument."
ReplyDeleteGive me a break. Obama is following Keynesian policies under prudence, but unfortunately he must use anti-Keynesian rhetoric while doing so, for political purposes. God forbid!
This annoys Krugman?
Give me a break. He is starting to sound like a free marketer. One who is as upset about rhetoric as about implementation. Effectively, he proves his own point. The only ones concerned about rhetoric are Krugman, who gets to see an invisible, intangible "intellectual defeat". If that is the worst consequence of mixing prudent policy with contradictory populist rhetoric, then so be it? Let academics whine.
Lousy argument from a brilliant man.
it talks more about totalitarianism and socialism specifically than the market democracy of the United States and the Obama administration.
ReplyDeleteIt doesn't. Hayek is not referring to totalitarianism. All governments have this propensity. Read the whole book.
I don't entirely agree with you, but I do want to assure you I agree that substance matters more than words.
ReplyDeleteBut this doesn't mean that words can't be substantive.
When I've been saying that "Keynesianism is bad for politics" I mean that politicians don't get elected by either promising or aggressively pursuing deficits. This, I think, is unquestionably true - certainly it's true under most circumstances.
Now - would a prominent politician consistently making the case that deficits are good during a depression (1.) help, or (2.) hurt the chances for such Keynesian policy? One argument is that this pragmatic rhetoric could help sneak Keynesianism in by stealth - this is the argument you seem to make. But the chances of a fiscal stimulus seem to me to be entirely nil. So I can't really dismiss Krugman's concerns here. I don't think this is stealth Keynesianism here. There is really no chance of a good Keynesian policy, and a big part of that is because the debate is not over whether deficits are good or not. Why isn't the debate over whether deficits are good or not? Because Obama has chosen not to enter that debate, and all the people who showed some glimmer of wanting to have that debate are no longer in the administration.
Obama's got a good team. I'm not fearing disaster from them. They aren't going to slash the budget or anything. But they aren't going to make great policy either.
I have to agree with Mattheus here.
ReplyDeletere: "It doesn't. Hayek is not referring to totalitarianism. All governments have this propensity. Read the whole book."
ReplyDeleteThis is a widely debated point (about how narrowly he was focusing in on socialism and totalitarianism), which I'm not qualified to decide. But let's say I completely concede this point. My point is that if someone were to skip to that chapter I want to warn them that it talks a lot about totalarians and socialists.
Needless to say, Mattheus and Gary, that Daniel still seems to be on the same page as you. He said in the opening post that Krugman is making a Hayekian point that incentives of politicians are not the same as incentives of economists.
ReplyDeleteDefinitely, a politician will lower prices of public utilities, even when it means reduced supply and poorer quality of those services. Even with electric shortages, a politician finds it politically more profitable to forcefully cut prices, even if it doesn't solve anything.
The current budget deficit is about 1.5 trillion. And as far as I know Obama plans to have about the same deficit the next two years.
ReplyDeleteHow much deficit would be actually enough? Is there a rough number to get an idea?
skylien -
ReplyDeleteI'm not sure exactly what's ideal. We are just rolling back the stimulus now, and that stimulus was supposed to be about half as big as necessary. So if we're at 1.5T now, then presumably that... 2T, 2.5T would be great.
Now - you think we're MAINTAINING that for the next two years? This is news to me. A lot of the new stimulus is rolling back now. Perhaps falling revenues and automatic stabilizers can keep a 1.5T hole gaping open for two more years, but I somehow doubt this and nobody is presenting plans for a 1.5T budget. So I'm a little curious where you're getting this.
You know, with the end of QEIII and a 1 to 1.5T deficit I imagine we'd have a slow, weak recovery that's prone to reversal. THAT'S a good way to rack up debt. Concerted money creation around the world and a 2 to 2.5T deficit for another year would probably help this tepid recovery take hold.
I don't know. I'm not a professional macroeconomist. But I have to push back on this insinuation that 1.5T is this outrageous number, and on this notion that you "Obama plans to have about the same deficit the next two years". If he plans that that's news to me, and I'd be very interested in details.
Daniel,
ReplyDeleteWidely debated by whom? Hayek is discussing the propensity for what can be considered a "liberal" government to turn towards socialism. In his mind, specifically, was England.
Thanks for the answer. No I don't think so either. At least not without further QE.
ReplyDeleteYep, on the planed deficit I was wrong (Don't know were I got this from). It is projected to be about 1.1 and 0.7 trillion for 2012 and 2013. Sorry.
On the other hand in 2009 they planed a deficit for 2011 of only 0.9 trillion (https://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf)
In 2001 they projected to wipe out nearly all debt until 2011 (5.6 trillion surplus over 10 years), then a year later revised it to only 1 trillion surplus in aggregate for 10 years. Instead of Zero or only 4.7 trillion there is now about 10 trillion more. (http://www.ombwatch.org/node/1000)
So there is lots of room for projected deficits to be wrong. Mostly in one direction...
Daniel Kuehn,
ReplyDeletePublic debt is bad; it is what in significant part of the warfare state to continue.
skylien,
ReplyDeleteTo pro-debt intellectuals and their dupes debt really doesn't matter as long as the country in question can pay the interest on it. This kind of thinking goes back to Hamilton's desire to create a permanent debt so as to support a large central government that wages war (and expands by military force) as effectively as America's European counterparts at the time. The debt was also supposed to be a means by which to expand other powers of the state, including the ability of the state to surveil the citizenry, enforce good morals, etc. Well, we have that.
Gary,
ReplyDeleteI really don't believe that Daniel is for "create a permanent debt so as to support a large central government that wages war (and expands by military force)" and "[debt as] a means by which to expand other powers of the state, including the ability of the state to surveil the citizenry, enforce good morals, etc."
I would argue that he sees that the powers a government needs to be able to pursue the policies he favors, may have the tendencies you describe above. That doesn't mean he is in favor for all or even any of it.
Contrary to us he just believes those are in over all the lesser evils compared to not respond fiscally to a recession.
And I am asking this questions because I need to learn a lot. And it’s nice to be able in 2014 to go back and see what was asked for, what was projected and what did happen. I mean if earlier budget projections tell you one thing, then it is that if you wish for higher spending, you have a good chance your wish comes true, although the politicians promised the exact opposite.
Prateek Sanjay,
ReplyDeleteDaniel has said repeatedly that he has no objection to public debt as long as the economy is growing fast enough in order to pay the interest. May be Daniel can clarify this point.
Public debt is an evil that should be rarely indulged in and quickly remedied when one has to.
Whoops, that last comment of mine was meant for skylien; many apologies.
ReplyDeleteGary,
ReplyDeleteNo problem, I got it ;)
“Daniel has said repeatedly that he has no objection to public debt as long as the economy is growing fast enough in order to pay the interest.”
I didn’t question that point. I questioned if you think Daniels motives are therefore automatically big all controlling ever growing government which is waging endless wars etc… That is not tantamount.
“Public debt is an evil that should be rarely indulged in and quickly remedied when one has to.”
Completely agree. (And I somehow have the feeling that even Daniel does. Where we really differ is WHEN is it justified to indulge in and WHEN can you quickly remedy them. All that follows from the different conclusions drawn by Austrians, Keynesians, Monetarists….)
re: "“Public debt is an evil that should be rarely indulged in and quickly remedied when one has to.”
ReplyDeleteCompletely agree. (And I somehow have the feeling that even Daniel does. Where we really differ is WHEN is it justified to indulge in and WHEN can you quickly remedy them. All that follows from the different conclusions drawn by Austrians, Keynesians, Monetarists….)"
No, I don't agree. What in the world is "evil" about using credit markets responsibly? I can't think of anything that could motivate Gary to say this. This is a blindspot of Jefferson's, but then again understanding of public debt was changing rapidly during Jefferson's life (if you plucked him up and put him down a century later I think there's little reason to assume he'd still be a vigorously opposed to it). To quote an anonymous English pamphleteer in 1719 - "Let us be, say I, a free nation deep in debt, rather than a nation of slaves owing nothing".
I strongly recommend James Macdonald's "A Free Nation Deep In Debt: The Financial Roots of Democracy". I don't know how Gary has the time to plow through the books he does, but if he still holds this superstitious position that public debt is "evil", then Macdonald's book is well worth his time.
To put an even finer point on it: running surpluses will probably make sense sporadically to work down large debt run-ups like we're building up now. But aside from those sporadic, situational surpluses there is no reason at all that we shouldn't be running deficits year in and year out from now until eternity.
ReplyDeleteSome people say Keynes supported surpluses in boom years and deficits in busts. I've never come across him saying that plainly. If he did, he was wrong. We should run smaller (i.e. - debt reducing) deficits in boom years and bigger deficits in busts, and only resort to surpluses when we have to. Not a balanced budget over the business cycle, but a debt-neutral deficit over the business cycle (with an average debt level that the markets and the taxpayers find appropriate).
Daniel,
ReplyDeleteThis isn't Jefferson's view, it is the view of the radical Whig tradition that Jefferson adopted and it is one I wholeheartedly support. Public debt is an evil in that tradition and we've spent essentially the greater part of the 20th and now the 21st centuries ignoring that fact.
skylien,
These three things go hand in hand: public debt, standing armies, internal armies and internal taxes. Once those are in place then you see a general erosion of public liberty - be it in the power of the state to seize private property, to enforce "morals laws," to search property without a warrant, to reduce the involvement of juries in the trial system, to quell free speech, etc. Not surprisingly all that has come to pass in the U.S.
skylien,
ReplyDeleteAnd public debt is much of what gets the ball rolling; once that is in place then a strong, centralized state can enhance its powers to control and make legible the populace.
re: "This isn't Jefferson's view, it is the view of the radical Whig tradition that Jefferson adopted"
ReplyDeleteIn other words... this is Jefferson's view. Which is what I said.
I'm well aware Jefferson didn't invent the idea.
The Whigs didn't either.
Daniel Kuehn
ReplyDeleteJefferson really has nothing to do with this actually. Whether Jefferson held to this POV is meaningless in other words.
Daniel,
ReplyDelete“What in the world is "evil" about using credit markets responsibly?”
I have to clarify one thing. I don’t think debt is “evil”, I merely think public debt is bad, because it has the tendency not to be run up responsibly. And this is exactly the point I made: When to indulge in (public) debt and when to get out. When is it responsible and when not. The theory and premises we have tell us when, don’t they?
But I am sure you don’t justify being in debt year in year out because it facilitate waging wars, expand other government power, spy on the citizens, serves special interest etc..; In short: To restrict liberty more and more and replace the rule of law with the rule of arbitrary power. That is not what you describe as responsible, right?
Gary,
“These three things go hand in hand: public debt, standing armies, internal armies and internal taxes. Once those are in place then you see a general erosion of public liberty - be it in the power of the state to seize private property, to enforce "morals laws," to search property without a warrant, to reduce the involvement of juries in the trial system, to quell free speech, etc. Not surprisingly all that has come to pass in the U.S.”
I agree but I just don’t think that
A: it is the goal Daniel wants to achieve. If he really wants a police-state then there would be no sense in following his blog..
B: he even agrees that this connection is there, or at least the tendency for all those things is secondary to the evils without government monopoly in issueing money inclusive the fiscal policies he wants to have enacted.
skylien,
ReplyDeleteI am not suggesting that he does favor such things; I'd guess he would argue that there are ways to work around those dangers and get the supposed benefits of public debt (whatever those might be - I think those benefits are mostly illusory).
Gary,
ReplyDeleteOk, then I have misunderstood you. Sorry.