Wednesday, July 7, 2010

Does Anyone Listen to Paul Krugman Anymore? Let's Hope Not!

In a July 6th entry to his blog entitled, The Conscience of a Liberal, Paul Krugman cites Lincoln's statement to General McClellan that if McClellan wasn't going to use the army to engage in battle against the South, Lincoln would like to "borrow it for a while," as a springboard for his argument that the government must continue to stimulate the economy even if it means borrowing the money. (For those who have lost their way in the blizzard of Obama spending, we are referring here to more of the same $787B Stimulus Bill--recalculated by the CBO to actually cost $862B. The same Stimulus bill that Obama promised would ensure unemployment remain under 8%. 18 months after the Stimulus Bill was passed, unemployment--those who haven't yet given up on finding work--hovers at 9.5%. It is estimated the real unemployment rate or U-6* as the Bureau of Labor Statistics calls it, is more like 16.5%. Either way, a far cry from 8%, 862 billion dollars later.)

Yet Mr. Krugman still believes more spending will solve the problem. It seems, if one follows his logic, the only problem here is that we haven't spent enough. He (and others) observe that American corporations are holding large levels of cash and idle cash doesn't help anyone. Spending money will benefit the economy. You know, like the Obama Stimulus plan improved the unemployment picture. If $862B didn't make a dent, perhaps we should double down? For a Keynesian like Krugman, spending is always good. Borrowing to spend? Even better. I invite you to read the following excerpt from his blog: "So shouldn’t that be our response to all that idle corporate cash? We don’t literally have to borrow from the corporations; they’re parking their funds in the money market, and the feds would borrow from that market. But the end result would be to put some of that idle cash to work — and, ultimately, to give the corporations a reason to start investing, too, so that the deficit spending would crowd investment in, not out."

For my part, I don't understand how the government borrowing MORE money will "give the corporations a reason to start investing, too, so that the deficit spending would crowdinvestment in, not out." Because Mr. Krugman says so? Because Obama says so? Because Nancy Pelosi believes that Unemployment checks are the biggest single incentive-for- growth tool that the government has to utilize? Following their logic we should all quit working, collect unemployment and spend ourselves into prosperity.

Many years ago when Gray Davis was still the governor of California, I sold my company to a much larger one and became the CEO of the larger, somewhat troubled company. My predecessor was a generous man in Mr. Krugman's world. He liked to spend. So the company had an earnings problem. The State of California was suffering from the same malady. I was preparing a report for the Board of Directors to explain what steps we were taking to cut costs and grow revenues. About that time I heard Gray Davis answering a question from the press on the budget deficit California was facing. He said (and I paraphrase for I don't remember the exact words though I do remember the essence): It's not that our spending was too great, just that our revenues were too low. I would have liked to try that one on my Board. Just for laughs, you know.

Revenues are taxes. For bureaucrats there are never enough revenues and ever increasing, more revenues are good. Politicians don't view taxes as a burden on the working public, they view them as revenues. More revenues, more spending, more debt, more borrowing, more everything. Until tomorrow. Until they wake up and realize money comes from somewhere. Until they realize we have to pay it back. Or, until we kick them out of office.

*The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment.

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