In a column that should surprise no one in his New York Times column Paul Krugman strongly endorses Joe Biden’s economic plans:
Republicans also have a long history of claiming that progressive policies would lead to economic disaster. They’ve been wrong every time.
They’ve been wrong about tax hikes: When Clinton raised taxes in 1993, Republicans confidently predicted recession, but what actually happened was a huge boom. When California raised taxes under Jerry Brown, the right called it “economic suicideâ€; again, the economy boomed.
They’ve also been wrong about social programs. Obamacare, the G.O.P. insisted, would destroy millions of jobs. One of the dozens of attempts to repeal the Affordable Care Act was actually called the “Repealing the Job-Killing Health Care Law Act.†Yet in the six years after January 2014, when the act went into full effect, the economy added almost 15 million jobs.
And let’s not forget the flip side, the many, many times Republicans promised that cutting taxes on the rich would produce an economic miracle, promises that never came true. There’s a reason conservatives still go on and on about the Reagan boom, all those years ago; it’s the only example they have that even seems to support their economic ideology. (It doesn’t, but that’s another topic.)
But there’s a difference between saying that progressive policies are not the disaster conservatives claim and saying that Biden’s plan would actually promote growth. Why are Moody’s and Goldman Sachs so high on his proposals? Why do I share that optimism?
First, the background. Even before the coronavirus, good employment numbers could hide underlying economic weakness. For at least the past decade, we’ve been living in a world of excess savings: the amount the private sector saves persistently exceeds the amount it spends on real investments. This savings glut is reflected in low interest rates, even when the economy is strong.
Low interest rates, in turn, limit the ability of the Federal Reserve to fight downturns, which is why Jerome Powell, the Fed’s chairman, has been pleading for more fiscal stimulus.
In today’s world, then, we actually want the government to run budget deficits, because they put excess savings to use. But we also want those deficits to be productive — to boost investment, and strengthen the economy in the long run.
Let’s have another multiple choice question. What do you think?
- Krugman is right. Biden’s plan will create substantial economic growth.
- Krugman is wrong. Biden’s plan will reduce economic growth below what it otherwise might be.
- It doesn’t make any difference. The U. S. is headed for a major depression regardless of what any president does.
- It doesn’t make any difference. The U. S. is headed for an economic boom regardless of what any president does.
- Taking money out of the private sector (taxation) and spending more politically (government spending) will result in increasing income and wealth inequality.
- Other
I would question his premise that we have excess savings. I haven’t looked into this super deep but my understanding is that only a few large firms are sitting on wads of cash. Pretty much everyone else, to include American consumers, is leveraged.
Plus we are already deficit spending and will be doing a lot more of that thanks to Covid. And we don’t know the long-term effects of that yet.
Even if I didn’t know how functionally illiterate Krugman is about economics, policy, taxation, etc. ((sorry, but I just had to borrow your phrase because it really applies to him), I’d have to say B. Krugman has been correct concerning his professed field of expertise as Joe Biden has been about foreign policy.
‘I would question his premise that we have excess savings.’
This isn’t the first rodeo for that premise from him. As I recall, some years ago he publicly complained that ‘hoarders’, i.e. people who saved too much to his liking, were damaging the economic ‘recovery’ under Obama and that tax and other policies needed to be adjusted in order to flush that hoarded cash out of the bank accounts and pockets of all those greedy selfish bastards back into the economy. Effectively instituting a pay-as-you-go system for everyone (except the connected, of course, which was left unsaid) where no one would be allowed to have more than a minimum of savings because more really weren’t needed for retirement and old age because that’s what Social Security and Medicare were for.
D.
A corporate profit boom due to robotics and automation.
If this is what is meant by a K shaped recovery, corporate profits representing the top slope, individual earnings the bottom. We’re going to to have a very large cohort of unemployable people.
We can’t chain them on ships and drop them on Australia, we have to provide a living for people no longer necessary to economic growth.
But how to extract wealth from global companies who don’t even need the nation state? Or who can have nations bid for companies to locate there?
Like eating spaghetti with a spoon. Biden can raise taxes all he wants, only the poor and unconnected will pay anyway.
I’d imagine the future underemployed will resort to theft and black markets and hardly be connected to the official economy at all .
Always good to add some data. Personal savings rates were low during the aughts, but climbed from 2008 to a peak in 2013. Its OK to criticize someone but you shouldn’t just make up stuff.
https://tradingeconomics.com/united-states/personal-savings
Steve
The personal savings rate skyrocketed in the first and second quarters of 2020, cf. https://fred.stlouisfed.org/graph/fredgraph.png?g=wrh1
That was to be expected when
1) you give people money and
2) you lock down just about everything they were likely to spend it on and
3) you foment uncertainty