Paul Krugman or Niall Ferguson? On GPS with Fareed Zakaria.?

Question

I have to say I found Niall's argument more compelling. Krugman seems interested in only postponing the inevitable which is to begin paying down the debt and balancing the budget. But then I read Ryan O'Neil's budget that Ferguson recommends and I found it utterly preposterous. It's loaded with old ideas like flat taxes, cuts of corporate income tax (a tax that's bloated with many loopholes), elimination of dividends and capital gains tax, privatization of social security. It's obvious none of these men are politicians because none of this will fly with the American public! The only decent idea is a national VAT coupled with reduction of the private income tax. This will lower conspicuous consumption, encourage saving and help nab those getting paid under the table. Since the VAT could not be evaded. I think we are just going to have to move forward with austerity and make big and painful cuts to welfare and defense spending. But I see this even to difficult since Repbublicans insist defense spending is not "discretionary" in actuality it is and dems can't make difficult cuts to social spending. Wat are your thoughts on today's show? The dollar deflation and the state of the American budget?

Answer 1

Economic and political reality make this a very difficult problem to solve. Economic indicators have been mixed and go up and down, so the extent of the recovery is hard to measure. The main indicator, employment, has not improved. Unemployment remains high, indicating the recession is continuing.



With high unemployment, it is not a good time to cut spending. But political reality is that politicians need to be seen working on deficit reduction, reducing spending. This will delay the jobs recovery. The question is, do we work towards an economic recovery that includes jobs, or do we accept 10% unemployment and work towards deficit reduction. What we see now is a mixture; government spending cuts at the same time as economic stimulus packages; these counteract each other.



All taxes are inherently unfair to someone; there is no such thing as a fair tax. Taxes are also inherently necessary. The best that could be done would be what has always been tried, a mixture of various taxes that is (hopefully) least politically unacceptable and doesn't fall too heavily on any one group. Those who propose a flat tax, while well-meaning, are actually proposing a program to eliminate the middle class. If everybody pays the same rate, and limits are included to protect the poor, then the result would be a shift in tax burden from the highest earners to the middle class. This burden on the middle class would drag them down.



I disagree with K, Paul Krugman IS an economist. He bills himself as a liberal and almost always makes conclusions that fall on the liberal side, but he does use valid economic arguments to justify his positions. Because he takes the liberal positions, many conservatives ignore his reasoning. I read his work occasionally, and I like to think that I read with an open mind. I find his arguments to be thorough and logical, at least a lot of the time. I don't agree with everything he concludes, but his method of approaching the issues shows that he has not "lost all credibility" or is "no longer an economist". Only those who don't want to hear arguments, however logical, that disagree with their own preset and biased political position would make such statements.

Answer 2

Krugman!



1. It isn't just a case a case of postponing the inevitable. Boosting the economy now, when it is still well below full employment, makes dealing with the long term problems easier later. (If nothing else, boosting employment both increases revenues and cuts costs.) Letting the economy stay depressed, or making things worse (as austerity has done so so many other countries, such as Ireland,

http://www.calculatedriskblog.com/2010/06/ireland-austerity-in-action.html

Latvia

http://news.bbc.co.uk/2/hi/8496925.stm

etc.





Krugman is well aware of both the short and long term issues:

http://www.nytimes.com/2010/06/21/opinion/21krugman.html?_r=1&partner=rssnyt&emc=rss



2. Ferguson's analysis is flawed:

http://fistfulofeuros.net/afoe/economics-and-demography/david-takes-on-goliath-and-loses-the-ferguson-krugman-exchange/

http://delong.typepad.com/sdj/2009/05/this-is-getting-damned-annoying-will-i-ever-be-allowed-to-disagree-with-paul-krugman-again-about-anything-niall-ferguson-e.html

http://www.andrewpurcell.net/?p=375



Even I can tell that Krugman's logic was far more complete and backed by understanding that Ferguson's:

http://krugman.blogs.nytimes.com/2009/05/02/liquidity-preference-loanable-funds-and-niall-ferguson-wonkish/

http://krugman.blogs.nytimes.com/2010/06/14/the-bad-logic-of-fiscal-austerity/



3. Ferguson's predictions were wrong. He argued that the bond yields showed the market was concerned about inflation and that interest rates would continue to rise

http://www.slate.com/id/2219769

That was more than a year ago. Bond yields are back down - to about 3% on the 10 year notes

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml



So even by his own logic, the markets are NOT worried inflation over the next 10 years.



4. And, as Brad Delong put it:



"If the past decade has taught me anything, it has taught me that mistakes are avoided if you follow two rules:



1. Remember that Paul Krugman is right.



2. If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1."

Answer 3

We need to somehow, some way separate politicians from public pork and projects so they are not forced to spend 90% of their time campaigning for more money for their district in order to buy votes. This is especially true for House of Reps, whose terms are only 2 years.



No modern politician of either party will ever get elected by saying NO to money being spent on their constituents. This form of buying votes must stop.



By the way , Krugman has no credibility whatsoever. He is not an economist anymore, and hasn't been for decades. He is a political hack. His "nobel prize" was awarded to him for work he did 30 years ago.