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.
Daniel Mudd wanted the loans to “optimize the business“…
Internal documents show that even late in the housing bubble, Fannie Mae was drawn to risky loans by a variety of temptations, including the desire to increase its market share and fulfill government quotas for the support of low-income borrowers.
Hmm. Just a few weeks back, Paul Krugman said (emphasis mine)…
But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.
You’d think a professor of economics (at Princeton University no less) might have some idea what he is talking about, particularly when allowed to regularly op-ed at the New York Times. Note that this wasn’t supposition – it was an attempt to relay facts well after the events.
Even though they’ve long been THE largest purchaser of mortgages, maybe the fact that Fannie Mae didn’t originate the pile of bad loans equates to “had nothing to do with”? I wish I knew the answer, but I’m no famed academic.
UPDATE: Oops…h/t to Paul Kedrosky on the Post story.
As previous noted, Paul Krugman of the New York Times tried wishing away Fannie Mae and Freddie Mac’s problems by pinning the housing crisis on sub-prime. Now the guy is contradicting himself, while claiming more informed statements are non-contradictory.
Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco.
And the better informed laughed…
Fannie and Freddie had about as much to with the “explosion of high-risk lending” as they could get away with.
Considering the GSEs touch almost half of the mortgages in America, it’s quite improbable for them not to have at least minor complicity. Nonetheless, Krugman is again explaining away…this time the glaring difference of opinion – it’s not contradictory!
Well, at least he got the S&L bit right. But I wonder who he’s going to be covering for when the liar-leveraged McMansions start falling.