(email exchange)
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> On Mon, Dec 29, 2008 at 11:47 AM, Russell wrote:
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Fifty Herbert Hoovers
By Paul Krugman
No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession. The Obama administration will put deficit concerns on hold while it fights the economic crisis.
Good to hear that!
But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers  state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.
State and local governments cut back every down turn, exacerbating the recession.
Means Obama gets to do that much more- that’s a good thing!
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Doesn’t this reveal Krugman’s lack of understanding of monopoly power (of fiat money)by the Federal gov’t. vs. the real budget constraints of states?
Shouldn’t he increase his number to 300 million Herbert Hoovers as the private sector also cuts spending to rebuild savings?
Knapp,
Yes, he showed once again he doesn’t have a clue about reserve accounting (attributing the Fed’s ability to spend vs. the states to the fact that “investors only want to buy U.S. treasuries, not state bonds”, as if they had any choice about buying treasuries) But I’ll take what I can get – at least Krugman is advocating the right policies, even of he reasoning is backwards. That better than most, these days…
I agree Jim,
At least Krugman is pointing in the right direction. Other people are questioning the effectiveness of deficit spending, and complaining that we get maybe a 1.1 multiplier to spending.
Jim and Mike,
I just find it perplexing that someone very smart and predisposed toward ‘big govt’, like Krugman, hasn’t embraced functional finance. I’m predisposed toward small govt yet I’m catching on to the logic of FF.
The only explanation I can think of is Rational Expectations. It is so wired into the brains of Mainstream economists of all varieties that it impedes their ability to objectively assess competing theories.
If you want to see an example of Krugman’s “thinking”, check out his latest paper he linked to on his blog:
http://www.princeton.edu/~pkrugman/optimalg.pdf
I see the problem as being one of dwelling too much in a set of theoretic constraints that prevents you from actually looking at, for example, actual reserve operations of real central banks. There are so many unwarranted assumptions in that paper glided over by equations (like, for idea that “in normal circumstances, the central bank can assure full employment by setting the interest rate” On what planet has this ever happened?) that its hard to sort out. But these are all the assumptions he grew up with – it’s just how you learn to do economics. It’s gotta be hard, even for smart people like Krugman and Delong, to jettison all that nonsense…
Exactly!
I’ve been told the old generation never changes.
What happens is the next generation has different ideas that come to the forefront as the older generation dies off. Or something like that.
Totally agree:
Krugman, other academic economists (whether they are new Keynesians, old Keynesians, Monetarists, Austrians, etc. etc.) have no sense of how actual fiat currency works.
Krugman is pro big Government, but from a social redistribution perspective. He wants a big Government so you can fund lots of Government services, not because the deficit is net private savings. That’s why he keeps pushing on this “infrastructure” nonsense instead of running up a federal deficit the fastest way possible, payroll tax holiday (as suggested by warren)