I’m not an economist

Since I'm not an economist, I can't easily judge the content of the Krugman's arguments against anti-stimulus arguments. But what makes Krugman stand head and shoulders above the rest of his fellow pundits, is that he makes arguments.

Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending. Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.

This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.

Now to be fair, we can criticize the argument in a couple of ways–first, air traffic control involves a task of coordination and it isn't clear that priming the economic pump does in the same way. It isn't just that centralized air traffic control is more efficient than a "free market" equivalent. So we might ask whether the analogy holds.

Second, we might ask whether the claim that "taxpayer are the best judges of how to spend their money" (see last paragraph here) implies that all public spending should be replaced with private spending. A more moderate position might be to argue that when it comes to something like economic stimulus this principle holds true. However, Krugman is arguing against some of the simplistic and fallacious dismissals of stimulus spending, and so aims to free the discussion for substantive arguments from economists and policy makers rather than from the ideological hacks.

By the way, what is the fallacy in the argument he is attacking? Is it a fallacy? Accident, perhaps? Seems to involve the universalization of a principle that probably holds true in many cases (better to let me choose whether to spend my money on a Squeezebox Duet rather than a Sonos System, than have the government choose for me. Maybe something like "When there's no compelling public need, it is preferable to allow citizens to choose how to spend their money than have government choose." What counts as a compelling need is a political question–in the case of the stimulus plan Krugman makes the case that the public need is stimulating the economy and government spending is just much more effective than private spending in doing that.

The "fallacy" seems to work by arguing:

1. We accept principle x.

2. Principle x entails we should not do y.

3. Therefore we should not do y.

However, principle x is either a) not accepted as stated or b) when qualified does not apply to case y.

1. It is wrong to kill.

2. If it is wrong to kill then we should not use lethal force to defend ourselves.

3. Therefore we should not use lethal force to defend ourselves.

 But, either a) it is not wrong (always to kill) or b) it is only wrong to kill without justification.

The fallacy seems to arise when the principle is taken to be persuasive because on the surface it seems true.

8 thoughts on “I’m not an economist”

  1. Krugman is missing the point entirely of the conservative argument he dismisses.  When you quote him as saying,

    “Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.”

    … he implies that the purpose of stimulus is to create jobs.  The conservative ideology against public spending and for lower taxes is that jobs created by taking taxes specifically to create jobs is just wealth redistribution.  If somebody loses their job it may be for the “public good” to create a job through public funds, but who decides who the ‘public’ is?  It looks like the ‘public’ this last time was Wall Street investment firms.  Besides, when did “secure the general welfare” come to mean literal welfare.  I should have the right to give to the needy if I so desire but compulsory altruism is an affront to individual rights.  That’s the conservative argument.

  2. That’s an interesting point, Andrew. But if the question is about the “purpose of the stimulus” then shouldn’t Goldberg and others argue that case? That is, if they reject the goal of creating 2.2 million jobs, then say that! If they reject the claim that public spending has a “multiplier” of 1.5 (or whatever it is) compared to private spending (tax-cuts) then argue that case. Or if they reject the claim that the government has no right to make decisions about the “public good” then argue against air-traffic controllers, or other programs that are equally popular and involve “redistribution.” This will only strengthen Krugman’s response I think.

    When Goldberg and many others argue:

    “The best stimulus might be to trim — or temporarily eliminate — the payroll tax. That would put money in the hands of the people who need it — and know best how to spend it. But that would be “too ideological” because it rejects the assumption that government knows best, and it would reward taxpayers, not politicians.”

    they would seem to be arguing that “stimulus” will be more effective if the public chooses where and how to spend the money than if the government engages in public spending. That isn’t an argument about redistribution–though one can be made as you have done.

    Though the rejection of the idea that the government can and should make decisions about when spending is in the public interest and when it is not, would only open the arguer to the full-force of Krugman’s analogy.

    Nevertheless, it seems to me that the redistribution argument may be consistent  with the claim that “the taxpayer knows better how to spend her money than the govt.” but granting the latter does not entail the former–and the former does not entail the latter.

  3. I realize that my response, (while explaining the opposed ideology) does not go into why job creation and public funding are good ways of ‘stimulating’ the economy even if done responsibly and devoid of corruption.

    The first thing to consider is why jobs exist.  Money is merely a go-between through which we exchange goods or services we value for other goods or services.  Jobs can therefore not effectively be created simply because there is a demand for jobs.  Jobs exist when a service is required or are created when a new product or good is introduced that into a market with both the means and desire to purchase it.  An air traffic controller exists because there is a need for such a position.  Whether that need is filled by government employees subsidized by fares on plane tickets, or hired by airports is inconsequential.  The need is there, and people are willing to pay, so the job exists.  Creating a job as a means of stimulus does nothing.  If people are willing to pay someone for that job, then the government doesn’t need to create it.  The government should only create a job when there is a need that the free market is not filling.  Creating a job to siphon money through taxes (or worse bonds) into an unneeded position redistributes wealth at a cost to the tax payer without providing them with any tangible service in return.

    This is of course a very simplistic explanation.  If you want to delve deeper, I suggest reading Human Action by Ludwig von Mises.

  4. My apologies for the tags,  I spell-checked my comment in word before I submitted it.

  5. Colin I think that’s a straightforward instance of the fallacy of accident–applying a rule that holds generally to a circumstance in which it obviously doesn’t hold.

  6. All that very well may be true. Though I don’t see how using public funds to invest in roads is creating “an unneeded position.. .. without providing any tangible service in return.” Nevermind, investing in the educational system, green technologies, or just good old Eisenhower era R&D in science and technology.

    Sure, if the the government is creating a “job” for someone (Government seat warmer rank GS 1) for which there is no “need” then the argument would be pretty compelling. But, e.g., funding a program for low-income weatherizing seems not to fit that criterion.

  7. Sure road maintenance is needed, but such positions already exist; I was referring to job creation.  In fact, the number of private roads has been on the increase recently as the government has been lacking in its maintenance of roads despite the new tolls popping up everywhere.

    But I’m digressing.  R&D is a prime example of job creation.  It’s probably one of the best jobs that the government can create, but for it to be a respectable stimulus plan three things are required: 1) The government actually spends the tax payers’ money on R&D in its stimulus plan rather than, say buying up failing businesses and 2) The government needs to be able to fund R&D at least as efficiently as private research OR equivalent private research is not being done and 3) The results of the publicly funded research is both beneficial to the public and publicly owned.

    We’ll dismiss number 1 and just assume that’s the case.  A lot of private green technology research is being done right now.  Can the government do it better?

    Number 3 is very important, because this is an area that many left-leaning individuals are shocked to learn about.  Universities have been using public funds to line their private pockets with patents on government funded R&D for decades.  Just give a quick glance into the fiasco that is genetic research and gene patenting and you’ll see what I mean.

  8. Of course Krugman alone makes arguments. Look at his name. If you re-arrange the letters, it spells: Argumank.


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