A Stitch in Haste

Recently Paul Krugman wrote the following defense of unbridled Keynesian “stimulus” spending:

[I]f you believe that a surge in private spending would raise employment — and even the critics agree on that — it’s very hard to explain why a surge of public spending wouldn’t have the same effect.

Elsewhere, he dismissed these critics, butchering a famous quote in the process, as “niggling nabobs of negativism” (see also here).

Well, the critics, being nigglers, are responding.

Here’s my response, in a comment over at Marginal Revolution:

How about rephrasing (reniggling?) the debate this way:

… if you believe that a surge in private spending [of money one doesn't have] would [be bad] — and even the critics agree on that — it’s very hard to explain why a surge of public spending [of money one doesn't have] wouldn’t have the same effect.

I also liked this (niggling) comment:

Public spending is about increasing political power while private investing is about the efficient allocation of limited resources. Public spending is about politicians forcing the allocation of resources in a manner that free markets would not allocate resources. … Government allocation of resources has never been shown to be superior to the private sector allocation of resources.

And this one too:

The [housing] bubble put a lot of people to work building, selling, and financing. That doesn’t mean it was desirable, it was a net destroyer of wealth. Spending for it’s [sic] own sake amounts to a wealth transfer policy. Krugman is confusing activity with production. “Looking busy” is not the same thing as being productive.

But remember: we’re all “nigglers.”

Meanwhile, here’s an illustrative tidbit from today’s Krugman column:

In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.

Notice how Krugman complete sidesteps the precedent question of whether a particular public “investment” (ahem) project is a public good. Just as he completely ignores the political processes that craft such public “investment” (ahem) projects.

Spending on legitimate public goods should be undertaken regardless of any “crowding out” effect on private investment — what good is a private factory if foreign invaders or domestic looters are planning to attack it?

But spending on illegitimate public goods should not be undertaken regardless of the (supposed) lack of any “crowding out” effect on private investment. (It is not “niggling” to remind Krugman that the term “illegitimate public good” is not automatically oxymoronic.)

Which brings us full circle: It is simply retarded, Keynes notwithstanding, to suggest that there is ever “no crowding out” of private investment by public “investment” (ahem). Every dollar spent by the government is a dollar that it must first seize (i.e, “crowd out”) from some private actor, either today through taxes or tomorrow through deficits. Unmoored Keynesian extremists like Krugman have never understood this, which is why they have been wrong, again and again, for over seventy years.

As some feared, it seems that Krugman, perhaps burdened by the weight of his Nobel Prize, is increasingly just squatting in the corner with his hands over his ears, mumbling about how anyone who disagrees with Keynes — or him — is either too dishonest or too stupid to worry about. Why oh why must he suffer such nigglers?

Heavy is the head that wears the dunce cap.

Filed under: Capitalism, Taxation & Fiscal Policy