A Little Economic Realism (translated into plain english for the common man):
Posted by Michael A. Kamperman on July 6, 2010
I thought it would be helpful to interpret David Brooks column in this morning’s New York Times on ‘A Little Economic Realism’ into plain English. Be sure to read the actual column before reading the translation: http://www.nytimes.com/2010/07/06/opinion/06brooks.html?_r=1&hp
You’re President Obama. The economy is starting to tank again. You’re feeling stuck between a rock and a hard place.
The vast majority of smart and sensible economists say we need another stimulus bill. Some aligned with Republicans favor more tax cuts aimed at jump starting the private sector, while others aligned with your Democrats favor more federal spending to support state governments. Almost all of these economists agree stimulus focused on infrastructure projects that make the nation more competitive would be a good way to go. They all have models they swear by, all of which failed to predict the downturn in the first place. They claim the solution is a simple math problem where 2+2=4 and that you shouldn’t trust the other guy’s model. Yet because the economy is $14 trillion the price of poker in all of the models starts at several hundred billion dollars and goes up, way up from there.
The Keynesian economists are giving you a plan for another round of stimulus. But your not married to Keynes. Your a practical politician and are paying attention to the polls.
Krugman and his colleagues are brilliant economists, and they dismiss the ridiculing of their ideas by people who can’t walk and chew gum at the same time. They have complete faith in their models. But they and economists of other schools of thought failed to predict the downturn because they only modeled on the post World War II inflationary era and ignored the deflationary era of the Great Depression. Who knew national home prices could actually fall? You are therefore very hesitant to risk your political career on their advice.
My fellow NYT columnist Paul Krugman thinks everyone who disagrees with him is either immoral, a moron, or both. While some economists want tax cuts and spending cuts and others want spending increases and tax increases, virtually no reputable economist thinks the U.S. should raise taxes and cut spending at the same time in the current environment. However, the Germans and Trichet, the head of the ECB, think now is the time for just such austerity moves. German taxpayers don’t want to subsidize Southern Europe. Trichet actually believes austerity measures in countries with over 20% unemployment like Spain will gain confidence as unemployment rises to 25%. You know this man needs to retire but your not sure you can go against the political flow and back your Keynesian economic advisers.
Professor Krugman has a very good explanation for the last two years. The stimulus bill needed to be $2 trillion as he suggested and not $789 billion. The increases in federal spending have been offset with spending cuts at the state and municipal level, hence the fiscal spigots have not been wide open. The federal deficit has ballooned saving many jobs in the public-sector. But because you slashed infrastructure spending in the stimulus bill there has not been little private-sector job growth. Because you oversold the stimulus bill and continued to insist it was enough for political reasons, when it clearly wasn’t, you can’t get another stimulus bill passed and therefore you pray every night the Federal Reserve will come to its senses and save your bacon by opening up the printing presses.
Paul Krugman and his cohorts think their so smart, but they know little about psychology. Keynes wrote that the state of confidence “is a matter to which practical men pay the closest and most anxious attention.” The rhetoric of a coalition of those who want to win in November have convinced the public that debt-fueled government doesn’t work. Because we have actually lost jobs since the stimulus plan was enacted only 6% of the public believes my rhetoric that it actually created jobs. People fear debt because we allowed the banks we bailed out to cut their credit card limits and jack up their interest rates to 29%. These good-hearted but simple-minded people are afraid this could happen to the U.S. Government, even though we owe everyone dollars and we can print them any time we want.
I don’t like to read economic models. I prefer to contemplate my pollsters focus groups consisting of people who started websites in the middle of no-where. They think deficit spending could bankrupt the U.S., and at a minimum it will raise their taxes. They don’t realize teachers, soldiers, policeman, and fireman are government employees. Since they do the hiring and firing and voting I value their opinion the most.
Krugman doesn’t understand the pressure I’m under. Because I was sleeping and golfing while Massachusetts was voting I no longer have the votes to do what I want. My supporters on the left would rather die than a cut a deal with the far right who would rather die than cut a deal with me. The right and the left cannot agree on whether to spend on defense or programs for poor people. No one wants to take on more debt for the other sides issues.
To justify my hesitancy to take a stand my researchers have discovered an obscure academic paper by three Harvard profs. They found that congressional districts with the most pork have more people working for the government than for the private sector versus districts with the least pork. While this proves nothing the name ‘Harvard’ allows me to sound impressive as a columnist and I agree your grandkids shouldn’t have to pay for the other sides programs.
Mr President you are unsure of what to do but you want to be re-elected. Therefore you must choose something. I see your choices as being too hot, too cold, and just right. Running up the debt to save the economy risks a run on the dollar. Adopting euro-style austerity risks turning you into Herbert Hoover. Doing a little bit of spending while promising a little bit of future austerity could be just right.
Well, Mr. President here is what I advise. First, extend unemployment benefits or your left will go ballistic. Second, offer to provide aid only to those states who cut some spending now and cut pension benefits in the future to pick-off that vote from Massachusetts you let slip through your hands. That would save some public-sector jobs now and ease some contractionary pressures without throwing the country into a fiscal-debt spiral that makes Greece look prudent.
But the main message is this: Don’t listen to Paul Krugman. Don’t borrow all the money you could dream of for less than 3% interest and spend it to revive the economy just because you can. Also, don’t go Ron/Rand Paul nuclear and end the world as we know it. Instead, trim a few programs you don’t like and spend a little more on your pet projects. Be a minimalist.
You don’t have the ability to play the economy like a fiddle like the fiddle-fool Krugman is advising. Let’s face it, while neither you nor I nor your political advisers know diddly about the economy, you should listen to us and the polls and not economists like that know-it-all Krugman. And you do have the ability to keep my taxes low by cutting Medicare and Social Security in the name of deficit reduction. Keep up the good work Mr. President, love David Brooks.
