Copyright 2002 thru 2009 Donald L. Luskin don-at-luskin-dot-net All rights reserved. "The Conspiracy to Keep You Poor and Stupid" and "Krugman Truth Squad" are trademarks of Donald L. Luskin www.poorandstupid.com
"The road is cleared," said Galt. "We are going back to the world." He raised his hand and over the desolate earth he traced in space the sign of the dollar.
Chronicle of the Conspiracy
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A column by Paul Krugman in Friday’s paper incorrectly identified Senator Charles Schumer as the chairman of the Senate Finance Committee. Mr. Schumer is the chairman of the Joint Economic Committee. Senator Max Baucus is the chairman of the Finance Committee.
$700 BILLION IN INVESTMENT, NOT SPENDING
Whatever one may think of the proposal for the federal government to buy up to $700 billion in mortgages, this is not correct way to think about it. A commentary in today's New York Times compares the $700 billion "bail-out" to the far lower costs of various federal expenditure programs such as Head Start and NASA, concluding with the critique that
...while the federal bureaucracy has not been able to come up with astronomical sums of money to pay for health care and other needs, it seems prepared to do just that to alleviate a financial upheaval, especially since the tremors would otherwise be felt far from the canyons of Wall Street.
The fundamental mistake is that the $700 billion would be used to invest in income-producingassets, not to fund consumption. A dollar spent in Head Start, say, or in socialized health care, is gone forever, even though its expenditure may produce a benefit for whomever receives the service it funds. But a dollar spent on a mortgage earns interest, and can eventually be sold -- perhaps even at a profit. And in the meantime, if the government's temporarily holding these assets helps unlock the US real estate and securities markets, then so much the better. To be clear, I'm not endorsing the federal government investing $700 billion in private assets. But love it or hate it, it is investment -- not consumption.
NEW YORK--The other night we attended the first-of-the-season Intelligence Squared debate. We've been going to these for a while and always find them interesting and stimulating. This week's topic was health-care policy, and one of the panelists arguing for more federal control was former Enron adviser Paul Krugman.
At one point, Krugman asked for a show of hands in order to prove a point, but it didn't turn out as he expected (see pages 43-44 of the transcript; ABC's John Donvan was the moderator):
Krugman: --and I wanted to ask, actually two questions, to the audience. First, how many Canadians, would Canadians in the room please raise your hands. [One person applauds, laughter]
Donvan: We have about seven hands going up—
Krugman: OK, not as many as I thought. OK, of those of you who are not on the panel who are Canadians, how many of you think you have a terrible health care system. [pause] One, two--
Donvan: We see—almost all of the same hands going up. [laughter]
Krugman: Bad move on my part [applause]. I've got a selected--all right, I won't try it. But I will say, that--
We never did find out what Krugman was going to say, though it appears he was alluding to a selection bias that affected the sample of Canadians in the audience. We don't usually agree with Krugman, but we have to admit, he had a point. The Canadians in the audience could not be representative of their countrymen. Just that they were in America meant that they were lucky enough to get out alive.
On the campaign trail Wednesday, Obama bemoaned "the most serious financial crisis in generations." He said the exact same words the day before...
"The most serious financial crisis in generations?"
Donald Luskin, a chief investment officer with the Menlo Park investment research firm TrendMacrolytics and an economic adviser to McCain - who tells me he has never talked to McCain - remarked that if Obama "had a little bit more experience," he would "put these things in more context." Luskin has lived through five or six recessions, and "this ain't one."
It isn't a recession because the U.S. economy has grown in both of the last two quarters. Read: It is not receding. And while Luskin sees the unemployment rate as "a little high," it is "not as high as it typically is in a recession." Yes, Luskin is concerned about inflation, now at 5.4 percent. The drop in oil prices may help...
Luskin questioned what has happened to politics, when a candidate "must pretend this is a recession or you're seen as hard-hearted." And: "What does it say when we can't be nuanced? And we can't say, 'Look, we're in a little bit of a slowdown, but the fundamentals are strong'?"
The answer, of course, is that Democrats can't win without trashing the economy. As Luskin pointed out in a piece in Sunday's Washington Post, in Obama's famed anti-Iraq war speech back in 2002, the then-Illinois state senator suggested the war was waged "to distract us from corporate scandals and a stock market that has just gone through the worst month since the Great Depression."
In fact, the stock market had four bigger one-month drops since the Great Depression, but facts don't matter. The winning candidate in 2008 may well be the man who can say the worst things about the American economy. That's how he shows he really cares.