Wednesday, July 07, 2010

And Krugman Yet Again

Paul Krugman is now suggesting that the government should borrow some of the “excess cash” that corporations are sitting on and use that to create some jobs because it is the same money that, if the corporations spent it, would create jobs. It’s a variation on the “all money is fungible” theme.

“I have never seen a coherent objection to this line of argument,” he says.

And you won’t get one from me either, Paul, because I’m all in favor of the government providing jobs when the private sector is not doing so. I think it’s a better idea than extended unemployment compensation, although some of that is probably needed as well, and I’m not concerned about a short term accumulation of federal deficit.

I even think it’s cool to play at overcoming the “deficit hawk” objections by saying that we should use the “excess cash held by corporations.” It’s a bit disingenuous, but in a clever and usefully argumentative manner, sort of Puckish, and I rather enjoyed it. (It's still government debt, of course, but...)

But then he goes and ruins the moment with his last sentence,

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.

[emphasis mine, J]  It is that which Krugman claims to have seen no “coherent objection” to, probably because everyone who has heard it has been rendered speechless by the sheer audacity of the non sequitur.

In what manner is private investment stimulated by government-provided jobs? Does business suddenly realize, “Hey the government is stealing my employees,” and resolve to steal them back? Do they suddenly decide to go into competition with the government for whatever business it is that the government is doing with those jobs?

He’s back to his, “FDR’s New Deal spending caused the economic boom,” a boom which didn’t happen until twenty years and a World War after the spending ended. He adds additional proof, rather oddly, in the form of “When the FDR tried to balance the budget in 1937 the economy promptly slid back into recession.” I’ve never been quite clear on how that proves that the spending was working to “restart the economy.”

So not only did the spending end before it caused the recovery, but there was a recession after it ended and before the recovery which was caused by it happened. And no “coherent objection” can be made against his cause and effect.

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