For the Krugman lovers out there.

[Perchoutofwater]

Krugman Agrees with Senator Bunning [Daniel Foster]

 

James Taranto has a great take-down of Dr. Krugman today. Apparently the conscience of a liberal is schizophrenic:

 

Former Enron adviser Paul Krugman takes note in his New York Times column of what he calls "the incredible gap that has opened up between the parties":

Today, Democrats and Republicans live in different universes, both intellectually and morally.

 

"What Democrats believe," he says "is what textbook economics says":

But that's not how Republicans see it. Here's what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning's position (although not joining his blockade): unemployment relief "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work."

 

Krugman scoffs: "To me, that's a bizarre point of view—but then, I don't live in Mr. Kyl's universe."

 

What does textbook economics have to say about this question? Here is a passage from a textbook called "Macroeconomics":

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.

 

So it turns out that what Krugman calls Sen. Kyl's "bizarre point of view" is, in fact, textbook economics. The authors of that textbook are Paul Krugman and Robin Wells. Miss Wells is also known as Mrs. Paul Krugman.

 

Sorry I just found this funny and thought I needed to share it.

[tosberg34]

Krugman is a moron. Good find, Perch!

[Azazello1313]

here's obama advisor larry summers with the same "bizarre" logic:

 

Unemployment insurance also extends the time a person stays off the job. [Kim] Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months. If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.

[bushwacked]

Sorry I just found this funny and thought I needed to share it.

 

Krugman comes off as a joke contradicting what he wrote in the past because of his political loyalty. I don't blame you for not taking him seriously Perch.

[CaP'N GRuNGe]

Before jumping to Have to agree here! conclusions, how about searching for the entire article referenced and check it out in context?

 

http://www.nytimes.com/2010/03/05/opinion/05krugman.html

 

Op-Ed Columnist

Senator Bunning’s Universe

By PAUL KRUGMAN

Published: March 4, 2010

 

So the Bunning blockade is over. For days, Senator Jim Bunning of Kentucky exploited Senate rules to block a one-month extension of unemployment benefits. In the end, he gave in, although not soon enough to prevent an interruption of payments to around 100,000 workers.

 

But while the blockade is over, its lessons remain. Some of those lessons involve the spectacular dysfunctionality of the Senate. What I want to focus on right now, however, is the incredible gap that has opened up between the parties. Today, Democrats and Republicans live in different universes, both intellectually and morally.

 

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

 

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

 

In Mr. Kyl’s view, then, what we really need to worry about right now — with more than five unemployed workers for every job opening, and long-term unemployment at its highest level since the Great Depression — is whether we’re reducing the incentive of the unemployed to find jobs. To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe.

And the difference between the two universes isn’t just intellectual, it’s also moral.

 

Bill Clinton famously told a suffering constituent, “I feel your pain.” But the thing is, he did and does — while many other politicians clearly don’t. Or perhaps it would be fairer to say that the parties feel the pain of different people.

 

During the debate over unemployment benefits, Senator Jeff Merkley, a Democrat of Oregon, made a plea for action on behalf of those in need. In response, Mr. Bunning blurted out an expletive. That was undignified — but not that different, in substance, from the position of leading Republicans.

 

Consider, in particular, the position that Mr. Kyl has taken on a proposed bill that would extend unemployment benefits and health insurance subsidies for the jobless for the rest of the year. Republicans will block that bill, said Mr. Kyl, unless they get a “path forward fairly soon” on the estate tax.

 

Now, the House has already passed a bill that, by exempting the assets of couples up to $7 million, would leave 99.75 percent of estates tax-free. But that doesn’t seem to be enough for Mr. Kyl; he’s willing to hold up desperately needed aid to the unemployed on behalf of the remaining 0.25 percent. That’s a very clear statement of priorities.

 

So, as I said, the parties now live in different universes, both intellectually and morally. We can ask how that happened; there, too, the parties live in different worlds. Republicans would say that it’s because Democrats have moved sharply left: a Republican National Committee fund-raising plan acquired by Politico suggests motivating donors by promising to “save the country from trending toward socialism.” I’d say that it’s because Republicans have moved hard to the right, furiously rejecting ideas they used to support. Indeed, the Obama health care plan strongly resembles past G.O.P. plans. But again, I don’t live in their universe.

 

More important, however, what are the implications of this total divergence in views?

 

The answer, of course, is that bipartisanship is now a foolish dream. How can the parties agree on policy when they have utterly different visions of how the economy works, when one party feels for the unemployed, while the other weeps over affluent victims of the “death tax”?

 

Which brings us to the central political issue right now: health care reform. If Congress enacts reform in the next few weeks — and the odds are growing that it will — it will do so without any Republican votes. Some people will decry this, insisting that President Obama should have tried harder to gain bipartisan support. But that isn’t going to happen, on health care or anything else, for years to come.

 

Someday, somehow, we as a nation will once again find ourselves living on the same planet. But for now, we aren’t. And that’s just the way it is.

 

Now if I were to have Mr. Krugman's textbook in front of me, I'd bet he was referring to a disincentive to find work during normal economic times. Our current situation, this "great recession", is beyond normal. The jobs just aren't there. And how can anyone argue that those receiving unemployment benefits will not immediately spend the funds and put them back to work in our fragile economy?

 

Yeah, Krugman is insane.

Edited March 8, 2010 by CaP'N GRuNGe

[CaP'N GRuNGe]

:crickets:

[Ursa Majoris]

Now if I were to have Mr. Krugman's textbook in front of me, I'd bet he was referring to a disincentive to find work during normal economic times. Our current situation, this "great recession", is beyond normal. The jobs just aren't there. And how can anyone argue that those receiving unemployment benefits will not immediately spend the funds and put them back to work in our fragile economy?

 

Yeah, Krugman is insane.

:morecrickets:

[Azazello1313]

here's an excerpt from the minutes of the most recent fed open market comittee meeting (which of ocurse took place in the midst of this "great recession"):

 

Though participants agreed there was considerable

slack in resource utilization, their judgments about the

degree of slack varied. The several extensions of emergency

unemployment insurance benefits appeared to

have raised the measured unemployment rate, relative

to levels recorded in past downturns, by encouraging

some who have lost their jobs to remain in the labor

force. If that effect were large—some estimates suggested

it could account for 1 percentage point or more

of the increase in the unemployment rate during this

recession—then the reported unemployment rate

might be overstating the amount of slack in resource

utilization relative to past periods of high unemployment.

 

it's not a "bizarre" notion to think that unemployment benefits add to the unemployment rate.

 

in response to the idea that paying people not to work actually get more people working productively, a parable...

 

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

 

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

 

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

 

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

 

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

 

when krugman says that textbook economics teaches that extending unemployment benefits reduces unemployment, which economics textbook is he talking about? because as the original post pointed out, krugman's own textbook teaches the opposite.

Edited March 8, 2010 by Azazello1313

[Ursa Majoris]

here's an excerpt from the minutes of the most recent fed open market comittee meeting (which of ocurse took place in the midst of this "great recession"):

 

it's not a "bizarre" notion to think that unemployment benefits add to the unemployment rate.

 

Nor is it bizarre to believe that unemployment benefits will be spent very quickly.

 

As for this excerpt "by encouraging some who have lost their jobs to remain in the labor force", what would they have these people do? Become railroad bums?

 

in response to the idea that paying people not to work actually get more people working productively, a parable...

 

when krugman says that textbook economics teaches that extending unemployment benefits reduces unemployment, which economics textbook is he talking about? because as the original post pointed out, krugman's own textbook teaches the opposite.

The parable is fine but the point is that the six francs gets spent. It does not matter where necessarily. And I think Krugman was using the word "textbook" in it's "standard" or "accepted" mode, as opposed to a specific textbook.

[Azazello1313]

Nor is it bizarre to believe that unemployment benefits will be spent very quickly.

...

The parable is fine but the point is that the six francs gets spent.

 

sure it gets spent, but I'm not sure you're really seeing what the parable is meant to illustrate.

[CaP'N GRuNGe]

So you are saying if the government didn't spend the money on unemployment benefits they'd spend it elsewhere?

 

Tax credits maybe for employers?

 

Now who is more likely, more guaranteed if you will, to take that money and "pay it forward" into the economic process? An employer with no incentive to do anything with it (assuming no strings attached here)? Or an unemployed worker who has to put food on the table for his family?

[westvirginia]

sure it gets spent, but I'm not sure you're really seeing what the parable is meant to illustrate.

 

Gee, ya think?

[Ursa Majoris]

sure it gets spent, but I'm not sure you're really seeing what the parable is meant to illustrate.

I think I get the parable just fine. In the end, the same amount of money went to one place that would have gone to another. The money didn't increase or decrease in value, nor is there any suggestion that it was lost or stopped circulating after the transaction. For all we know, the glazier may have spent it better (in the context of the economy) than the cobbler.

 

It's no different than planning to buy a TV and your car transmission blowing out. Each of us has these decisions of prioritization and unexpected expense almost daily.

 

Clearly it would not be a good thing to break things simply to spend the money to repair them. But it might well be a good thing to spend money on that which would have been built anyway.

[Ursa Majoris]

Az, WV - you must be right, 'cos Tom DeLay, bastion of truth and honor, is with you.

 

Asked whether it was bad strategy to make a budget stand on a $10 billion extension of unemployment (as opposed to, say, the Bush's $720 billion prescription drug package), Delay insisted that if the PR had been done right, Bunning would have been applauded. Helping the unemployed with federal assistance, he said, was unsound policy.

 

"You know," Delay said, "there is an argument to be made that these extensions, the unemployment benefits keeps people from going and finding jobs. In fact there are some studies that have been done that show people stay on unemployment compensation and they don't look for a job until two or three weeks before they know the benefits are going to run out.

 

Host Candy Crowley: Congressman, that's a hard sell, isn't it?

 

Delay: it's the truth.

 

Crowley: People are unemployed because they want to be?

 

Delay: well, it is the truth. and people in the real world know it. And they have friends and they know it. Sure, we ought to be helping people that are unemployed find a job, but we also have budget considerations that are incredibly important, especially now that Obama is spending monies that we don't have.

[Perchoutofwater]

sure it gets spent, but I'm not sure you're really seeing what the parable is meant to illustrate.

 

 

Gee, ya think?

 

There is no doubt he gets it and chooses to ignore it as he feels the government knows how to spend your money better than you do.

[Ursa Majoris]

There is no doubt he gets it and chooses to ignore it as he feels the government knows how to spend your money better than you do.

Ummmm, the shopowner spent it. The parable is worthless as an analogy to support your position unless the government first takes his six francs. Whichever way you look at it, the person with the money spent it on himself. No government was involved. The fact that he had to spend it on an emergency repair instead of what he originally wanted is neither here nor there. This happens to everyone.

 

If you want the parable to support you, insert a tax into it. It doesn't work without it.

[Azazello1313]

sure it gets spent, but I'm not sure you're really seeing what the parable is meant to illustrate.

 

Ummmm, the shopowner spent it. The parable is worthless as an analogy to support your position unless the government first takes his six francs. Whichever way you look at it, the person with the money spent it on himself. No government was involved. The fact that he had to spend it on an emergency repair instead of what he originally wanted is neither here nor there. This happens to everyone.

 

If you want the parable to support you, insert a tax into it. It doesn't work without it.

 

confirmed

[CaP'N GRuNGe]

Nobody answered my question. In this economy who is more likely to put money to work immediately? An unemployed worker or a business owner?

[Perchoutofwater]

Nobody answered my question. In this economy who is more likely to put money to work immediately? An unemployed worker or a business owner?

 

Which is more likely to get us out of "this economy" and be more beneficial in the long run?

[CaP'N GRuNGe]

Which is more likely to get us out of "this economy" and be more beneficial in the long run?

 

With no demand, the business owner goes down too.

[Ursa Majoris]

confirmed

It's only confirmed that I don't subscribe to what the parable is saying. It only works if people are stupid enough to see the window breaker as a public benefactor.

[westvirginia]

It's only confirmed that I don't subscribe to what the parable is saying. It only works if people are stupid enough to see the window breaker as a public benefactor.

 

Ursa, without the window breaking, there would be much more productive uses the business owner might have for that $6. Like the money being taken from others to provide for unemployment transfer payments. When the choice is taken from the owner of the $6 then the market isn't working efficiently and effectively as it should.

[Ursa Majoris]

Ursa, without the window breaking, there would be much more productive uses the business owner might have for that $6. Like the money being taken from others to provide for unemployment transfer payments. When the choice is taken from the owner of the $6 then the market isn't working efficiently and effectively as it should.

"Without the window breaking......" Windows never break.

 

Unemployment never happens.

 

The parable is as fatuous as the above two statements. I get the point - I just think it's idealistic twaddle.

[Azazello1313]

I get the point

 

then you're sure hiding it well. windows never break? unemployment never happens? I'm honestly having a hard time discerning what you think you are getting at here.

[Azazello1313]

Nobody answered my question. In this economy who is more likely to put money to work immediately? An unemployed worker or a business owner?

 

if the entire goal is to get money from the government's coffers line of credit into cash registers, then yeah I guess giving it to unemployed workers is a more direct route than giving it back to a business owner in the form of a tax break. paying them to go out and break windows is an even more direct route, with a really nice "multiplier" -- the window breakers get their paycheck and spend it, the window owners have to spend to replace their windows, which stimulates the window makers, who then hire more unemployed workers, who then go out and spend their paychecks. lots of measurable economic activity!

 

the question is, is it really creating a stronger economy? just think about it for a minute....you are arguing that the government paying people not to work creates productive jobs.