Do not think about, write about or deal with human behavior without determining the effects of incentives.
One of the silliest myths of politics, which puts it in line for the all-time silliest, is that “New Deal” policies ended the Great Depression. In truth massive government intervention worsened and prolonged it. If the policies were so effective, why was the Depression so long?
“Economic Policy: Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression." If he’s right, it’s only because American policymakers have been following his advice.
Hell knows no wrath like that of an economist scorned — especially one on the left of the political spectrum. Case in point: New York Times columnist and sometime economist Paul Krugman. The world is going to hell in a handbasket, Krugman suggested this week, thanks in large part to its refusal to follow his advice to the letter.
Actually, he has it exactly backward. Krugman was among those who encouraged the new Obama administration and the Democratic Congress to spend massive amounts of money early on in a kind of Keynesian frenzy to shock the moribund economy back to life.
It didn’t work. With a stimulus — a deficit, that is — of nearly 11% of GDP, our economy is barely growing, while unemployment remains shockingly close to 10% of the adult working population.
This even prompted our nation’s vice president, Joe Biden, to admit last weekend: "There’s no possibility to restore 8 million jobs lost in the Great Recession."
And he’s right — at least with current policy, which is based on massive spending, new tax hikes, trillion-dollar deficits for decades to come and tight government control of vast swaths of our nation’s economy, from banking to autos to energy.
Krugman recognizes, too, that it’s a "failure of policy."
Only problem is, he completely misdiagnoses the problem: "Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."
Inadequate spending? That’s laughable. The reason our economy hasn’t improved is because our government has spent too much, siphoning badly needed investments and savings from the highly productive private sector to feed the nonproductive, inefficient, heavily unionized government sector. It’s a recipe for stagnation.”
……
“It’s an enduring myth that the Great Depression was caused by inadequate government "stimulus," of the sort Lord Keynes and President Obama would have approved. In fact, as a study by economist Randall Holcombe shows, under President Hoover, who served from 1929 to 1933 just as the Depression got under way, real per-capita spending surged 82%. That was even greater than the 74% rise from 1933 to 1940 in FDR’s time.”
No government agency creates resources, it can only misallocate them.
Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies
August 26, 2010 at 5:00 am |
[...] The parallel between the responses to a depression of economic activity and depression in a human is compelling. First, they are remarkably ineffective. The Great [...]