Paul Krugman’s latest informal fallacy (UPDATED)

Mr. Nobel talks taxation, but fails from the start:

Other things equal, public investment is a much better way to provide economic stimulus than tax cuts, for two reasons. First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.

First, there’s not only nothing wrong with saving, despite Krugman’s apparent disdain for the concept. But you might also ask yourself why the average citizen would be willing to save when 1) interest rates are back at historical lows; 2) the stock market is running on fumes; and 3) they are sitting on piles of debt they need to pay down. Then ask why Krugman fails to mention that debt repaid is now a credit line re-accessible – you really don’t think people (or businesses) will shun pulling out their plastic again, do you?

Second, public investment leaves something else behind besides value “when the stimulus is over” – items the prize winner also omits – they are commonly referred to as 1) a pile of debt your children will be responsible for, and 2) massive legacy costs your children will be responsible for. Public projects need ongoing support (which rarely materializes – just ask Jimmy Carter or the Afghan Mujahideen of the ’80s) – pumping massive amounts of money into willy-nilly temporary job creators will have significant long-term repercussions. Of course, you need not worry about what might happen after the next election, or the next round of Nobel prize voting.

I’m still trying to figure out what “other things equal” means, besides a weasiley way of saying “my medal affords me some magical interpretation of the situation you can’t possibly fathom.” I loathe the effort that may be required to succeed in that particular quest for enlightenment.

UPDATE: A more salient discussion on tax cuts as stimulus.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.