In the world of economics the G20 has reversed positions and is now advocating Governments cut spending in order to save themselves from bankruptcy. This makes Paul Krugman of the New York Times very unhappy…
It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.
But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
Now I’m not saying Mr. Krugman is wrong because the political issue itself is not my concern. My issue here is the fact that he doesn’t seem to have been exposed to the most basic counter arguments (that Government Spending doesn’t create revenue or help unemployment) so his opinion isn’t worth much (and that’s why people aren’t willing to pay for it)
Follow me here: creating insight via the written word requires you address all sides of an argument. Because even if you make a persuasive argument for your own side people reading your piece will have doubts if they go somewhere else and read an equally persuasive argument from someone who disagrees with you. Only through addressing those competing arguments and giving your reader an answer to those doubts can you effectively convince that reader you are right.
So when Mr. Krugman writes something like this he’s failing his readers because he’s not addressing the most basic counter point which is that stimulus funds didn’t manage to create jobs. As shown by the famous graphic below (updated to May 2010 by the good folks at innocentbystanders.net)…
Now again my intent isn’t to take sides here. It’s more than possible that the recession was just deeper than anyone expected and if that’s true than it could be argued that the Government Stimulus did in fact create jobs.
The issue here is that Krugman didn’t even bother to address this.
If Mr. Krugman had simply skimmed memeorandum.com on Friday he’d have been exposed to this argument and would have at least known enough not to write a piece that treats “Government Spending = Jobs” as a given. The fact that he didn’t address that point places him under most liberal bloggers in terms of insights IMHO (because most liberal bloggers read conservative blogs and argue against them rather than living in a bubble)
Which again supports my point about the paywall.
Arguments against a paywall on news sites like the New York Times are built around the assumption that the content being produced by those papers is high quality. Hence people blame the paywall because it is keeping people away from high quality content that they'd normally read.
But if the quality isn't high than the whole argument falls apart because it isn’t the paywall that’s preventing people from paying it’s the shoddy quality of the content. That is my argument here.
Mr. Krugman is not good enough at making his points to be of value to anyone who doesn’t already agree with him and those that already agree with him might read him for validation but probably aren’t willing to pay for simple validation.
Addendum: Please pardon the dip into politics here but I just want to address one political issue so I don’t get a bunch of angry e-mails saying…
“How could government spending not create jobs if it’s literally the Government hiring people for new jobs? You’re an idiot”
The argument against government spending is that it worries business people and investors. So while the Government might in fact create new jobs they’ll be doing so with money they don’t have which will make business people and investors worry about the future of the economy. Those civilians than cut jobs or hold off on hiring people because of that worry which in turn negates the job growth created by government hiring.
Please note my intent here is not to argue either side of this political issue. Just to expose everyone to both sides to prove Krugman is a dope.