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Brooks vs. Krugman
Paul Krugman asserts the fiscal crisis in Europe was brought on by... wait for it... wait for it... NOT enough government spending.
That's seems to be Krugman's answer for everything; more, more, more government spending. When all you've got is a hammer, every problem looks like a nail.
His colleague David Brooks argues that what creates wealth and drives national prosperity are cultural habits like thrift, hard work and the willingness not to take something for nothing.
That's seems to be Krugman's answer for everything; more, more, more government spending. When all you've got is a hammer, every problem looks like a nail.
His colleague David Brooks argues that what creates wealth and drives national prosperity are cultural habits like thrift, hard work and the willingness not to take something for nothing.
Why are nations like Germany and the U.S. rich? It’s not primarily because they possess natural resources — many nations have those. It’s primarily because of habits, values and social capital.
It’s because many people in these countries, as Arthur Brooks of the American Enterprise Institute has noted, believe in a simple moral formula: effort should lead to reward as often as possible.
People who work hard and play by the rules should have a fair shot at prosperity. Money should go to people on the basis of merit and enterprise. Self-control should be rewarded while laziness and self-indulgence should not. Community institutions should nurture responsibility and fairness.
This ethos is not an immutable genetic property, which can blithely be taken for granted. It’s a precious social construct, which can be undermined and degraded.
posted by Spencerblog at
8:22 AM
25 Comments:
Spencer, it must be tiring arguing with straw men every day. What Krugman argues is that
1) the Euro crisis was not caused by borrowing and spending. The data shows - this is fact, not opinion - Spain was running a surplus on the eve of the crisis. Italy's debt was sustainable. Greece may have been profligate, but it's economy ($300 billion) is roughly the same size as Greater Miami.
Krugman also argues that 2) "This is another one of those zombie ideas that permeate our discourse; it’s part of the narrative, and no amount of evidence can kill it or even stop reporters/editors from stating it as a fact."
Furthermore, what Krugman has been arguing for is the European Central Bank to act as a "lender of last resort " to guarantee the debts of its member nations. Dean Thomas writes that "Guarantees can in principle be costless to the guarantor. Our political establishment and their followers in the media have been anxious to tell us how the government and the Fed made money on the TARP and related Fed bank bailouts. This is true. Of course we still gave enormously valuable subsidies to the beneficiaries of the bailouts."
"In short, people who describe the euro zone crisis as a story of excessive government deficits are pushing an ideological agenda that has nothing to do with reality. The story of the current deficits of the non-Greece countries is the story of the collapse of housing bubbles that threw the euro zone economies into a severe downturn. The European Central Bank (ECB) has magnified the problem by maintaining relatively tight monetary policy in order to maintain very low inflation and also explicitly asserting that it would not act as a lender of last resort to the heavily indebted countries.
Blaming government profligacy may be useful to those who want to see cuts in social spending, but it is not a story that is based in reality. It conceals the incompetence/greed of the private sector bankers who fueled the bubble. It also ignores the recklessness of the ECB of clinging to its inflation obsession even in the midst of a crisis that threatens the survival of the euro and could cause millions of additional workers to lose their job. " Dean Thomas
Lastly, "There is a logical counterpart to every reckless borrower known as a reckless lender. Lenders are supposed to know the creditworthiness of their borrowers. That is what is supposed to distinguish a successful bank from an unsuccessful bank.
To some extent the lenders can perhaps be excused in the case of Greece, since the country did outright lie about its budget situation. (Some people more familiar with the world of high finance than me insist that the lenders knew that Greece was lying.) However, the trillions of dollars of loans that fueled housing bubbles in Spain, Ireland, and elsewhere were freely made by very well compensated bankers who were supposed to have some clue as to what they were doing.
In the world where effort is linked to reward, all of these reckless lenders should be out on the street, sent to the bottom rungs of society for their incredibly destructive greed and incompetence. That has not happened, nor is Brooks calling for it to happen."
Greece MAY have been profligate? May have? Read Boomerang by Michael Lewis and you can get rid of the "may." You might even learn something about Ireland, Iceland and Germany, not to mention America's public employee pension problem.
Krugman states as "fact" that more government spending is the answer to Europe's crisis, as well as America's doldrums. Sounds like Zombie Keynesianism to me. The "stimulus" didn't stimulate. Get over it.
By the way, America was running a surplus at the end of the 90s, thanks mostly to bubbles (tech and housing) but our massive entitlement spending was still unsustainable, made more so by Bush's drug entitlement.
As for Brooks, no comnent?
"So the next time you hear someone claiming that if we don’t slash spending we’ll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we’ll turn into Europe. In fact, we’re well on our way." -Krugman
I guess that means no.
Germany has massive entitlement spending and they are being held up as the paragon of virtue in this story. Greece is a tiny part of the Euro crisis. The big plays are Spain and Italy.
The stimulus was too small, and too focused on tax cuts, and its small effects wore off too soon. It needed to be bigger to move a giant economy such as ours.
And what about Brooks? Is the culture of wall Street why they are so financially rewarded? Because they work so hard compared to everyone else?
Check out Walter Russell Mead's critique of Krugman's way of thinking. It's old. But it's good
Just a taste:
Mead writes:
Here, for example, is the solution Krugman proposes to the problems that automation and outsourcing have caused for both blue and white collar workers in the US:
"So if we want a society of broadly shared prosperity, education isn’t the answer — we’ll have to go about building that society directly. We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen."
This is blindness so brilliant it would dazzle a bat.
Read it all. Then check back.
I actually work in IT, so I have a fair understanding about how I am both creating efficiencies by automating some work, while at the same time potentially automating some jobs away. (I also have exposure to being replaced by overseas outsourcing). However, what that article fails to mentions is who is benefiting from the increased productivity created by the automation. the gains go to the top executives in the form of rising pay, and are not shared with the workers in the form of raising all pay.
So "If, as Krugman posits, demand for US workers will be falling in both manufacturing and the professions, how exactly will labor unions get higher wages for their members?" That's how. There is plenty of money in this country, it just happens to be highly concentrated in the hands of a few, more so now than in most of the 20th Century.
Maybe Germany is a good model for the US in this respect as well.
You "actually work in" WHAT?
IT - information technology. I'm the guy that finds time consuming business processes currently done by humans and automates them so that they are done by computers. The idea is that this frees up the humans to do better and more interesting work - that is, work that cannot be automated by a computer (yet) - but I know that some people do lose their positions this way if they can't do anything beyond their original tasks.
The German people certainly have many good cultural characteristics. These are what feed and sustain, it's political system of government.
Does America still have those traits in abundance?I'm afraid not.
Germany is going on the hook for a lot of European countries whose people don't share the German work ethic or any sense of shame when it comes to getting goodies from government without paying for them.
I'd like to hear more about your plan to redistribute the wealth in this country. How exactly would that work? Set limits on CEO pay? Raise the minimum wage to $50 a hour? Tax the rich at a 90 percent rate?
Let's hear it.
Hey, Danno - you didn't leave out an "i" and stick an extra "n" in your name did you?
Germany, like many countries in Europe has a growing underclass that could ultimately destablize it.
Read about it here.
The lesson: Culture and character matter. It drives economic success, not the other way around. For people and for countries.
Maybe the underclass will bring it down, maybe the overclass will.
What I'm asking is try to look at the data and fashion your ideology based on that, not the other way around.
There is plenty of evidence that unregulated banking risk by the best and brightest (read "Smartest Men in the Room" about Enron) brought us to this point, and that concentration of wealth prevents more people from sharing in the productivity gains created by automation and outsourcing.
Blaming the underclass may be ideologically satisfying, but it isn't the cause of our current predicament.
I think Tyler Cowen's piece on income inequality does a pretty good job of explaining its intricacies and how hard it can be to "fix" to the extent it needs fixing.
In any case, continued and unsustainable government spending on lavish and growing welfare states can't be the answer to what ails us.
Cowen's piece can be fround here.
Conveniently no answer to the question about "Danno's" real identity.
As Steve would say, "Reveal yourself".
Jake - Don't feed Gils paranoia.
But it's starving.
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