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Paul Krugman: "The austerity agenda looks a lot like a simple expression of upper-class...

Paul Krugman: "The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1% wants becomes what economic science says we must do." Ken Langone responds: Runaway deficits are the older generation "stealing" from the young, and Paul Krugman has never met a payroll and doesn't have to worry about profit margins.
Comments (36)
  • Both don't get it....
    27 Apr 2013, 08:27 AM Reply Like
  • Krugman is evil, his economic ideas will ruin this country. Fed, easy money, QE, cannot stop this oncoming bear, and it will be a doozy.
    5 Charts say Sell Now
    27 Apr 2013, 09:28 AM Reply Like
  • Indeed. The Krugster knows perfectly well that austerity is BAD for the 1% because it takes away their crony gravy. The Krugmeister is a spokesman for the 1% who feed off of crony gravy at the expense of future tax payers. Kruginsky is spreading FUD for the proles to soak up so his fellow cronies can continue soaking up the proles.
    27 Apr 2013, 04:14 PM Reply Like
  • I will take Langone's take. Govt is spending more than $1T annually under Obama (Also someone who never had to meet a payroll) while tax revenues are now coming in higher than FY2007. That is not austerity, that is a spigot that needs to be closed.
    27 Apr 2013, 08:40 AM Reply Like
  • Paul Krugman resembles his own remark: "a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1% wants becomes what economic science says we must do."
    27 Apr 2013, 08:50 AM Reply Like
  • Half the sequester "cuts" are to military spending. That doesn't sound an "upper class preference".


    Krugman the warmonger.
    27 Apr 2013, 08:59 AM Reply Like
  • The elite do not live like 95% of the rest. I would ignore anything they say and continue to look out for number one.


    That is the only way to live in this brave new world.
    27 Apr 2013, 09:20 AM Reply Like
  • I am simply amazed that basic thinking about people, corporations governments living within their means has been painted as such an evil thing. Sure, people are unhappy when this happens but we certainly should be able to live with the presence of very real resource and labor constraints. If we could simply monetize the problem away, it would be wonderful but history shows that the real physical constraints cannot be ignored forever. I can agree with Krugman that the solutions proposed by the 1% (less entitlements vs. more taxes) seem class-based, but the alternatives proposed by others seem unworkable. I believe that history will show the CBs simply acted too soon to prevent a depression rather than allowing massive deflation followed by QE (i.e. more banks and other companies should have been allowed to fail first before applying the stimulative fix). The result of their fix will be not to avoid depression but to simply spread it out over more years and make it a bit shallower. Neither Keynesians nor "austerians" have yet proposed a sensible way out of this problem so we are all witness to another "race to the bottom' in trying to determine which of the two bad positions is worse. We clearly need a third solution.
    27 Apr 2013, 09:25 AM Reply Like
  • We have yet to take our medicine is the simple truth of the situation.


    There is no excuse for the level of personal debt that exists in our country. I am amazed at the number of people that have two cars, three I-phones, all kinds of other electronic gadgets that I don't even know the names of......and on and on - and yet they are living paycheck to paycheck. Its ridiculous. When I was a kid there were several years we had one car. When my mom needed something her son ran to the store (and no it wasn't 5 miles uphill both ways, but it was about a mile). We didn't have electronic gadgets. We bought school clothes twice a year. Somehow I survived and was actually quite happy as a kid.


    People simply don't know what is a need and what is a want.


    And that extends to our government. Throw on top of it horrendously poor leaders and you have the mess that exists. It is remarkable to myself that any proposed cut in spending - any - no matter how large or small - is immediately identified as hateful, bigotted, uncaring, "war", etc, etc.


    How is it even possible that more than 50 million people receive food stamps (or cards or whatever its called today)???


    We have replaced local food banks and soup kitchens (run by private - mostly church based organizations), with big government and highly paid bureaucrats. Which group do you think cares more about the individual that is hungry? Those that volunteer their time? Or the bureaucrat that produces metrics on the growth of their market?


    We have fundamental things in this country that need to be changed. We need to remove the federal and state government from the day to day activities of supporting those among us that need basic help. And we need to realize that spending money - no matter how much money - is not going to remove unfortunate situations in life. It only enriches the bureaucrat, lessens our freedoms, frays and removes the social fabric of our communties, and doesn't produce any better outcome than when no money was spent.


    Krugman and his supporters are knowingly creating a framework for debate, where if you support less spending and removing government from anything - you are a hater and don't care. I put forth exactly the opposite - its Krugman and people like him that hate. They hate communities that have norms, they hate communities that support their own, they hate those that don't need them. And they use the exceptions in life to try to create a "need" for themselves. Its called legislating by sob story. Whatever you cut we'll find someone somewhere that tomorrow will have to figure something out on their own and say your destroying their life and don't care about them. But the truth is that unless we change - we are destroying the lives of our children and grandchildren.
    27 Apr 2013, 04:20 PM Reply Like
  • Langone doesn’t really address Krugman’s analytical framework, only a comic book version of that framework of Langone’s own devising.


    Krugman has over the years been consistent in advancing the classical Keynesian argument that fiscal expenditure should be countercyclical, that is to say: There should be public sector budgetary surpluses during periods of economic growth and public sector budgetary deficits during impending or actual recessions or depressions. The goal of such countercyclical budgeting is to offset private sector booms and busts respectively (or, better still, forestall such lurches off course) thereby keeping the economy roughly in equilibrium.


    If this were 2004-5 and Krugman were advocating the running of large fiscal deficits (which he wasn’t at that time), then Langone would have been spot-on. However, in the circumstances that have been experiences in the wake of the 2008 global economic meltdown, fiscal austerity against the backdrop of private sector retrenchment clearly risks returning the economy to recession. In fact, the resulting recession could well, amongst its other ill effects, lead to greater fiscal deficits than would be incurred through timely fiscal stimulus.


    Langone in this exchange is merely trying to score rhetorical points with the economically unsophisticated by talking nonsense.
    27 Apr 2013, 11:07 AM Reply Like
  • That's all well and fine, but what is the calculation for risk to massive hyper-inflation, and at what point does the massive debt and deficits simply over-power any hope of sustainable GDP growth recovery?


    In other words, if "printing money" was the simple solution to recessionary times, wouldn't civilization already have figured that out by now? It doesn't take a rocket scientist to come up with the idea of storing up in the good times and spending it in the bad times.
    27 Apr 2013, 12:15 PM Reply Like
  • Essence,
    If Krugman and other classic Keynesians were to advocate (which they clearly don’t) sustained fiscal stimulus during economically buoyant times as well as during recessions, then your fears would be amply justified. It is also true that political leaders too often during buoyant times persist with fiscal stimulus (and central banks with monetary expansion) because they benefit politically and that this both
    (a) risks inflation and creation of economic bottlenecks and similar dislocations, and
    (b) depletes the balance sheets of both governments and central banks thereby weakening their capacity later, when the economy weakens, to provide countercyclical support for the economy.
    Arguably, the US Federal Government and the US Fed acted in the irresponsible way described above in paragraph (b) around 2003-5.


    Further, it can be argued that both Japan, during the past couple of decades, and the US, since the 2008 economic meltdown deployed fiscal stimulus weakly over a protracted period and that this had the unfortunate effects of
    (i) not sufficiently offsetting the private sector contraction, and
    (ii) running up public debt and the notional money supply over time in ways that had sub-par effect in terms of promoting recovery and also weakened the fiscal and monetary capacity of the Government and Central Bank to address future challenges as these arise.


    However, accepting all the forgoing, the fact remains that:
    1. The threat of inflation during the period subsequent to the 2008 meltdown has been (and currently remains) non-existent.
    2. Should the threat of damaging inflation later arise during the eventual strong recovery, this can be adequately addressed through fiscal austerity and monetary tightening at that time. (Undoubtedly, the fact described in point (ii) above may well make addressing eventual inflationary pressure during the future recovery necessarily more painful than otherwise needs be the case.)
    27 Apr 2013, 02:24 PM Reply Like
  • Bob,
    I would respectfully disagree that Krugman and his ilk stand for fiscal restraint during good times. I must have missed his campaign to reform social security and medicare prior to the financial crisis? His solution to both is higher taxation. Which is also his solution to any fiscal imbalance that will ever exist.


    Krugman is simply a far left socialist that believes he and people like him are put on this earth to determine who will have what. They are the self-annointed elite, and we are the peons that need to be herded around.


    And to be clear, I have no issue with true stimulus. I fully supported that the federal government in 2008-2009 should try to step in and cushion the blow that the country was absorbing economically. And what happened? Did we spend 400 Billion to rebuild our electric grid in 60% of the country? Did we spend 125 Billion for 8 new nuclear power plants? Did we spend 10 Billion on pure medical research at our academic institutions? Did we spend 20 Billion on pure scientific research at our academic institutions? Did we spend 20 Billion on Scientific projects at NASA?


    No, it was simply given to political supporters. And notice that my numbers don't even add up to 800 Billion. I've still got 225 Billion to spend.


    Keynesian economics assumes that your starting from a decent overall financial situation. We are far from that. Also, when Keynes put together his theories - we didn't have the level of private debt that exists today in our society.


    Stimulus spending by the government is money spent on things that can generate economic benefit for years to come. Money handed out to voters and supporters is bribery, not stimulus.


    Krugman is a false prophet. All IMO of course.
    27 Apr 2013, 04:02 PM Reply Like
  • The reality is that Keynesian economics - if it indeed implies austerity during surplus years - is simply not compatible with democracy. You cannot have both. Politicians don't get elected by promising to store up reserves for a future rainy day.


    If Keynesian economics is instead just another flavour of socialism, then it is fatally flawed.


    There exists a very real tipping point at which the debt and deficit simply out-weigh the nations' ability to ever catch up without massive expansion of currency or significant reduction of expenses which make the current talk of "austerity" child's play by comparison.


    I don't think the Krugmans' of this world have even the tiniest bit of control of this massive macro-economic experiment the world is currently engaged in. Perhaps we've invented a new system where the traditional rules of debt and currency no longer apply and we can all live happily every after. Perhaps... but the alternative is probably worse than anyone can fully contemplate.
    27 Apr 2013, 04:22 PM Reply Like
  • David and Essence,


    Arguably you both too quickly conclude that Keynesian macro-economic
    analysis is inherently a tool of the political left or that it hobbles the democratic process. The better view is that it simply notes the advantage of countercyclical fiscal policy to offset potential or actual booms or busts in private sector expenditure. What form fiscal stimulus or austerity might take is essentially an open question to be decided on a political basis largely extraneous to Keynesian analysis itself. Thus stimulus might take the form of measures generally favored by the political right (i.e. tax reductions favoring the higher income and business communities, subsidies to business, infrastructure supporting industrial development and other ‘trickle down’ measures) or of measures generally favored by the political left (i.e. enhanced entitlements, increased employment within the public sector, reduced taxation upon low income earners and other ‘bottom up’ measures). Likewise austerity can target high income groups (i.e. generally favored by the political left) or all persons equally without regard to ability to pay (i.e. increase premiums for public services on a flat rate basis or introduce a regressive value added tax – measures generally favored by the political right.


    In post WW II US Federal politics, a striking example of how both the left and the right have each used Keynesian economic analysis is
    (a) the support of the defense industry by the political right on unacknowledged Keynesian grounds (even where many of these same representatives on the political right strongly oppose the deployment of certain Keynesian measures that serve to build up the civilian public sector), and
    (b) the converse opposition to the ‘military-industrial complex’ by the political left but their support for a growing civilian public sector on Keynesian grounds.


    You are on sounder ground in implying that Keynesian macro-economic analysis does assume a greater role for the State than does many other schools of economic analysis often favored on the political right. Note as well, however, that over the past two hundred years or so (i.e. the period during which political forces have been analyzed using assumptions assuming that there is a ‘left’ and a ‘right’ in political life) there have been many eras during which the ‘right’ was the ‘pro-state power’ and the ‘left’ the ‘anti-state power’ faction.


    In short, the various schools of economic analysis are essentially neutral in the political arena and each of these schools largely serves as talking points and intellectual fodder for political factions on either side from time to time. Arguably, this serves to give structure and order to political debate thereby enhancing the political process without thwarting or biasing the scope of debate.
    28 Apr 2013, 03:01 AM Reply Like
  • Bob, If I get the time this evening I will reply in full. But I want to point out that your assertion "What form fiscal stimulus or austerity might take is essentially an open question to be decided on a political basis largely extraneous to Keynesian analysis itself." is not correct. Keynes specifically identified spending on public good and identified as being delivered by those that aren't profit seekers.


    One can make a damn good arguement that our "public good" is no longer provided by those that aren't profit seekers. Public education is run by the teacher's union, our federal government is bloated and drastically overpaid, and the list goes on and on from there.


    Keynes wrote a lot about how to get back to "full employment" - classical economists of the time viewed that long term prices and wages would drop and that would lead you back to full employment - Keynes wrote (quite well) about the stickiness of wages and how nominal wages didn't decline for a variety of reasons. I believe he would be shocked at the wage structure in our economy today and would NOT identify government employment as being "non-profit seeking". Keynes never imagined his man digging ditches and filling them the next day as being better paid than the public he was digging ditches for.


    I have no issue with Keynes theories as they were written by himself. I have great issue with the way they are obscured by people like Krugman.


    I stick with my assertion that Krugman is a false idol. Either he doesn't understand what Keynes wrote (unlikely) or he intentionally paints a picture that he knows to be untrue - but one which meets his belief that there are elites like himself are here on earth to run other people's lives.


    The conversation needs to go back to some of the most basic things. Why is our government now profit seeking? And how does that impact Keynes definition of the public good - and what economic impact does that have on the overall economy? I'd assert none of the answers to those three question leads us to anything positive as a nation.
    28 Apr 2013, 06:20 AM Reply Like
  • David,
    I agree that Lord Keynes had strong political opinions as well as an evolving philosophy on economics as his thinking developed during the years between the two world wars. On the political front he remained within the Lloyd George wing of the Liberal Party (and was one of its prime policy wonks) long after most other Liberals decamped to the Conservative Party (such as Winston Churchill) or the Labour Party. Arguably, he was a progressive on lifestyle and foreign policy issues, never a reactionary on class matters but remained very much a centrist on most other political issues. He certainly never was confused with a socialist or social democrat during his lifetime.


    His economic thinking was influenced by his political thought but arguably not in the way you suggest. He retained throughout the pre-WW I antipathy of Liberal Party adherents to the Conservative Party but, as a Cambridge Don, he wanted to do his bit to wean bright students away from Marxism which had a strong attraction for many during the 1930s for obvious reasons. He therefore presented his economic ideas as a progressive but anti-Marxist alternative to Tory reaction. In truth, however, his economic ideas provided a basis for public policy development congenial to a broad spectrum on both the democratic right and left to meet the challenges of post WW II recovery and the challenge of Communism in the 1940s. Keynes looked forward to being a leading intellectual in this context but he died before his ideas for the post war world could be expressed.


    My point, however, is that most schools of economic thought (and those schools based upon the writings of Keynes in particular) can be used equally by those on the political left or right to good (or bad) effect. In two comments upon the following SA article I go into this in greater detail.



    In conclusion, as a Canadian social democrat I undoubtedly would disagree with someone like Bruce Bartlett, the US conservative political commentator, on many public policy goals. Interestingly, however, we each might well employ analysis based upon the writings of Keynes and his followers to make our case.
    28 Apr 2013, 12:12 PM Reply Like
  • The sad thing is Krugman has clearly won the debate.
    27 Apr 2013, 12:22 PM Reply Like
  • He may have won the PR battle, but I don't think he's won the debate at all. His arguments compare apples and oranges. He is clearly a Keynesian (but likely recognizes that past US govts have only played one side of Keyne's formula) but his arguments against "austerity" (or fiscal responsibility as I like to call it) raise a complete strawman in equating austerity with severe cuts in entitlements and tax cuts. This is incorrect; it is only the interpretation of the current Republicans. Simply put "austerity" is fiscal responsibility; making a balanced budget and living within our means. Some countries cut back on spending, some raise taxes or various combinations of both. Austerity today is a direct consequence of overspending yesterday. The fear many have is that if we continue to overspend through this recession, the resulting debt burden will become insurmountable and have many more dire consequences than tightening the belt now. Austerity, per se, is not the real problem but current proposed implementations might be targeting savings in unappetizing ways. However, Krugman seems to be adverse towards saying how and when the pain should be inflicted and on whom. There will undoubtedly be pain and for any economist (even a Nobel prize winning one) to think we can avoid any pain is completely disingenuous.
    27 Apr 2013, 01:19 PM Reply Like
  • Nicely said. Krugman has equated austerity to something that is bad while slamming anyone that is fiscally responsible. When you spend 1T more than the previous guy, you need to shut it down right away. Unfortunately, since BO came into office, I am afraid that doing what is best for the country is exactly opposite to his way of thinking. Interesting that most local governments have figured it out as have business and most individuals.
    27 Apr 2013, 02:39 PM Reply Like
  • wmateri:


    No, Krugman has won.


    He knows that a large majority of Americans depend on a big, powerful federal government and have no idea how to live without it.


    He has his cover and confidently approaches every debate knowing that vasts swathes of the American public will die defending his ideals.
    27 Apr 2013, 05:22 PM Reply Like
  • Krugman LOL Who pays any attention to this joke?
    27 Apr 2013, 01:35 PM Reply Like
  • Obama does
    27 Apr 2013, 02:32 PM Reply Like
  • Much of the argument that develops over monetary policy, deficits and the "need to take our medicine" derives from a fundamental misunderstanding of what money is, especially money in an open-ended fiat monetary system. Money is not a store of value; the sovereign debts resulting from its creation don't even have to be "paid back." Money is a convenience, simply a medium for facilitating exchanges of the moment and to be reconverted back into some other asset, not held, stored, hoarded or valued, like investments. Money, as a transfer mechanism, is unlimited. It is not a scarce resource, nor should it be.


    Those that see money in its more prosaic gold-based terms see money as some rare commodity that needs to be guarded and dispensed with care. If it's lost -- such as occurred with the sinking of the S.S. Central America in 1857, with resulting panic and depression -- then, we must do without it and have that much less currency. Or, if it's invested poorly and the resultant value of those investments is "lost," there, too, we must do without and take our punishment. We thereby make money even more valuable in its shortage and encourage people to hoard it even more and to transact less business, as a consequence. Such a policy is simply asinine.


    Money, as a facilitator of commerce, and nothing more, should be made readily available, so that the supply is always there to permit, yes encourage, business to be transacted. If some of the money disappears --it makes no difference down what rat hole it evaporated -- it should be replaced, so commerce can continue.


    That's precisely what the Fed does and has done; it's repopulated the currency and credit that was otherwise lost by mal-investment and resultant deflationary credit contraction. Bad debt, i.e., lost money, doesn't need to be repaid or hang like an anvil over the economy. It can be recapitalized -- yes, created out of whole cloth -- because the money is simply an instrument of commercial convenience, not a scarce resource of value. The primary mission of Government and Fed should be to keep people interacting and transacting business, not keeping some arbitrary balance sheet, making money appear as if it were some rare priceless entity that could not be replaced or produced anew, but whose loss had to be mourned and penance suffered therefor, like some religious ceremony.


    Declines in standards of living will never occur because the quantity of money increases; that just results in repricing of transactions. No, the decline in standards of living occurs when people stop transacting business in favor of hoarding scarce money, worshiping it, rather than commerce, like the proverbial Golden Ox.
    27 Apr 2013, 05:33 PM Reply Like
  • Credit ≠ money.
    27 Apr 2013, 05:39 PM Reply Like
  • DVL:


    In that statement you are simply 100% incorrect. Credit is exactly how money is created in our system, the only way. Where do you think money comes from?
    27 Apr 2013, 05:43 PM Reply Like
  • Tack - I hear what you're saying but have to add that money is also motivation to invest, both in new companies and from outside into a country's bonds. As such, don't you think there would come a time when those investors would simply realize there is no payback to be had (even at zero risk). If what you believe is true (and I partially agree with you) and every country can simply create all the money it needs, what happens when external constraints (of resources or capital) begin to raise their ugly head? Hint - history shows that this leads to the ends of many empires. While money may have started as solely a medium of exchange, now it is clearly so much more.
    27 Apr 2013, 06:42 PM Reply Like
  • wm:


    No, it's the opposite. If you feared there was too much money, you'd want to own anything but money.


    Also, money originally had more value, not less. In it's earliest forms, the money itself was useful, even edible. Some seeds were used for money. Then, we migrated to gold, which obviously has an almost spiritual value attached to it, notwithstanding that it's not useful for much else besides jewelry, a few commercial applications and worship. The advent of "valueless" money is a rather new development.
    27 Apr 2013, 06:47 PM Reply Like
  • Tack:


    Money comes from scarcity and durability.


    Money can't be "created". Only credit (and other debt) can be "created".


    That is what you don't understand.
    27 Apr 2013, 08:03 PM Reply Like
  • And that is the nutshell that should scare us all:


    "The advent of "valueless" money is a rather new development."


    In other words, we are betting the house on an untried, unproven, macro-economic experiment of unparalleled proportions.


    Gee, I feel better now. Every time we're told it will be "different this time", it always is(n't).
    27 Apr 2013, 09:33 PM Reply Like
  • DVL:


    I could suggest reading up on money, credit and the Fed, but I doubt it would alter your views.
    27 Apr 2013, 10:18 PM Reply Like
  • Tack,
    Declines in standards of living will never occur because the quantity of money increases


    That would depend on whether or not that increase is spread amongst the general population.


    In terms of monetary policy, I agree with you. It doesn't really matter (up to a point) that the Fed decides to issue more money to financial institutions to replace "lost" credit. There always has to be a belief that fiat money has some "worth" - otherwise people will abandon holding it and eventually accepting it.


    But in terms of fiscal policy - the spending does matter. The debt requires interest payments. Currently those are kept artificially low by the FED. Now, they could decide to do that forever - but that has other impacts. I think most folks would agree some type of normal rates (historically) are best for the long term health of the economy.


    After WWII we basically inflated our way out of our debt. I believe that in the 6-7 years after WWII we have cumulative inflation of over 40% - in essence we taxed all the bond holders that had bought during the war. Thats fine and it worked out because the economy was expanding rapidly - those bondholders were earning more and had plentiful job opportunities. How are we to pay off the current debt? It will require higher taxes on our children and grandchildren. From money that 1. Would be better spent on actual services to the public. 2. Would be better spent by our children and grandchildren on their own.


    Today, we are experiencing inflation in the basic necessities of life - but we aren't seeing a corresponding increase in the overall economy and we certainly aren't inflating away our debt. When we have inflation that exceeds the growth in the economy we have declines in standard of living - and that is what our children and grandchildren will face.


    We are passing out money to people that has to be paid back - and yes we can pay it back later with money "worth" less. But that means everything else will cost "more" and if economic growth doesn't keep up with that inflation we'll have a standard of living that is "less".
    27 Apr 2013, 10:44 PM Reply Like
  • Tack:


    ...that's basically the same message I was about to write for you.


    You're gonna believe what you believe. Oh well...
    28 Apr 2013, 08:28 PM Reply Like
  • Keynesian economics will work in a centrally managed economy such as China but in a socialist-republic such as the USA it will fail every time. Voters have learned that they can vote themselves free stuff and politicians on both sides of the aisle have learned that they must promise free stuff to the voters in order to get elected. The great, late Margaret Thatcher said it best “The problem with socialism is that you eventually run out of other people's money". Krugman is irrelevant.
    28 Apr 2013, 10:02 AM Reply Like
  • As long as productivity and innovation occurs living standards would rise. All else is just noise.


    Government intrusion can slow down innovation. The leaner the government the better. More government spending is a sign that excess production is faltering and productivity is waning.
    28 Apr 2013, 10:44 AM Reply Like
  • "wrapped in a facade of academic rigor" Right on , Paul--apt description.


    Here is one of my favorite false popular platitudinous similes from the same crowd as Langone--- Government budgets are comparable to a family sitting around a kitchen table deciding their vacation plans.--that's why we have sequester.
    28 Apr 2013, 08:28 PM Reply Like
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