One of the most important things I learned as a military officer was to know my adversary. As such, I have always considered it essential to read and think about what the best of the political opposition has to say, give it credit where it is due, and criticize it when it seems irrational. It is only by this study of one’s opponents that one can truly defend one’s beliefs with well-considered and rational arguments.
What better way to do this than consider and critique the words of liberal Nobel laureate, Paul Krugman, who published an op-ed yesterday in the New York Times, entitled “Deep Hole Economics“? I sometimes find Krugman to make incredibly lucid economic points. Unfortunately, he also sometimes has a tendency to unnecessarily spew too much partisan bile, especially for someone so well-educated and distinguished.
In this op-ed, I think Krugman has it right regarding monetary policy and interest rates. Yet I think his comments on a 21st century Works Progress Administration (WPA) and supposedly “harmful” spending cuts miss the mark.
Krugman’s points on monetary policy and interest rates are valid concerns. I believe action on these two items to be a key litmus test of whether the new crop of Republicans are rationalists or reactionaries. Tea party furor would dictate that the Fed pullback on its quantitative easing policy, but sound economics (both right and left) dictates that the country ought to keep its monetary policy loose, at least for now.
On interest rates, I also fear that raising them in the near-term would be a disaster, which could likely lurch the country back into recession.
However, Krugman has it wrong on both his WPA recommendation and the danger of cutting spending. Historians are still debating whether FDR’s programs aided or worsened recovery from the Great Depression. Some believe that it was World War II, not FDR’s Keynesian fiscal policies, that got the country out of its rut. I tend to agree with this explanation and think yet another government-directed stimulus would likely fail. After all, the unemployment rate is two percentage points higher than it was when the nation implemented the last government-directed stimulus.
While I would partially agree with Krugman that cutting spending in the short term would generally be a bad idea given the U.S. economy’s current state, I think it should be a duty of Congressional Republicans to make deep intermediate and long-term spending cuts particularly in entitlement programs like Social Security and Medicare. Just yesterday, Senator Graham took the politically gutsy move of recommending that there be a means-test for Social Security and an adjustment in the retirement age on Meet the Press. After all, why should a younger, poorer generation transfer its wealth to an older, wealthier one? Does Warren Buffett really need the money?
One last point is worse mentioning about Krugman’s reference to a Sarah Palin presidency in 2012. I say this with all due respect. It is simply not going to happen. Contrary to popular belief, there are plenty of conservatives who do not support Mrs. Palin.