New York Times columnist and Nobel prize winner, Paul Krugman, recently posted a review of Tim Geithner’s book, Stress Test, in which Geithner details the financial crisis and the steps the Obama Administration took to TRY to fix it. While I will not bore you with the whole Krugman screed, he observes that while the markets have recovered, the overall economy has not. He notes that output and unemployment remain sluggish, and as a result, public perception is that we are still in recession, even though it “officially” ended in June of 2009. Krugman attributes this economic failure to “mainly a large overhang of private debt, in particular household debt.”
So, where does Paul Krugman suggest Tim Geithner went wrong? Krugman subscribes to Keynesian economics (named for John Maynard Keynes), which theorizes that aggregate demand is what drives the economy, and he thinks the economic “stimulus” package was not big enough, saying:
Geithner also makes some demonstrably false statements about the public debate over stimulus. “At the time,” he declares, “$800 billion over two years was considered extraordinarily aggressive, twice as much as a group of 387 mostly left-leaning economists had just recommended in a public letter.” Um, no. A number of economists, including Columbia’s Joseph Stiglitz and myself, were warning that the package was too small; so was [Christina] Romer, internally. And that economists’ letter called for $300 to $400 billion per year. The Recovery Act never reached that level of spending; even if you include tax cuts of dubious effectiveness, it only briefly grazed that target in 2010, before rapidly fading away.
Look, I am no economist, but if personal and household debt is so damaging to economic growth, how does increasing our national debt improve the health of our economy in the long run?
Enter Rich Lowrie, former economic adviser to Herman Cain and co-founder of the organization, Put Growth First. Lowrie considers Krugman to be quite the comedy writer, and found his Geithner review to be so amusing that he was prompted to pen an open letter to Paul Krugman, himself. In it, Lowrie challenges Krugman to put his economic theory to the test in the “Put Growth First Challenge”:
Here’s the deal. I will ship you to one of Alaska’s beautiful but uninhabited islands. As the island’s only market participant, you will show us non-Ph.D.-types how exactly you can consume anything without first producing it. You may take with you only the clothes on your back, but nothing else that has already been produced.
Of course, this would all take place in front of the cameras, so that we might all enjoy the comedy hijinks of Paul Krugman as he tries to eat a fish before he actually catches it. Thankfully, this is not an episode of Naked and Afraid, as none of us wants to see Krugman in all of his “glory”, but Lowrie is confident that Mother Nature can make Krugman see the economic light, adding:
Production has to happen first, only then can we get paid, and then, and only then, may we consume. Production pulls along consumption the way an engine pulls the caboose. Just because they travel at the same speed, don’t be fooled into thinking the caboose is pushing the train. In your model, if pouring fuel in the caboose doesn’t work, you recommend pouring even more fuel in it.
Rich Lowrie is a supply-sider, and he contends that business investment is what will spur the economy, but when the government ties the hands of business through high taxes and burdensome regulations (“Hi Obamacare!”), there is no money to invest. The ignorance of some on the left is absolutely painful as they condemn “evil profit”, yet demand a $10 minimum wage. Where do they think this money is going to come from? If the government denies business the ability to be profitable, there is no money to invest in research, product development or job creation. As a result, the economy continues to sputter along, while “economists” like Paul Krugman cling to the Keynesian death spiral.
Milton Friedman, who is widely considered to be the foremost free market economist of the 20th century, asserts that the Keynes theory promoted the idea that government was the way to solve problems by putting “intellectuals” in charge. Friedman further suggested that even John Maynard Keynes, himself, believed that the demand side could be carried too far, stating:
I have always regarded it as a tragedy that he did not live another decade. He was the one man who had the standing, the personality, the force of character to persuade his disciples not to carry too far, some ideas which were good for the 1930s, but which did not apply in the post-war situation. That he might have done so, is suggested by an article he wrote just before his death; the last article he ever wrote, published after his death. In that article, he expressed strong reservations about the lengths to which some of his disciples had been carrying his ideas. If he had been able, if he had lived another decade, the post-war inflationary explosion might have been avoided.
This is part of the problem. We have pointy heads in high places, like Tim Geithner and Paul Krugman, who are trying to shoehorn a modern day economy into a tax and regulatory system that was largely created in the 1930s. Just think how much more prosperity the United States could enjoy if we set captive businesses free, so to speak, simply by updating our prehistoric tax code!
As for Krugman’s economic adventure in the Alaskan wilderness, I would like to think that Milton Friedman enjoyed a good laugh and is giving Rich Lowrie two thumbs up for that idea. Did you hear that sound? I think he is making popcorn from the great beyond.
For more information, visit putgrowthfirst.com.
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