And especially not Obama, for the state of the economy — when we know it’s all the doing of a right-wing conspiracy.
When it comes to the weakness of our current economic “recovery” (a term we must use loosely given unemployment only 1% lower than at its worst), liberals are determined to blame anyone other than the Obama Administration, using arguments both false and reprehensible.
Keynesian-in-Chief Paul Krugman, in his latest conspiracy-under-every-rock article for the New York Times, argues that “rentiers” who own large quantities of U.S. government bonds (which is to say who have done Americans the favor of loaning cheap money to our government) benefit from the low interest rates that usually accompany a weak economy.
Therefore, according to Krugman, this “Pain Caucus” works to “protect the interests of creditors, no matter the cost.” One would think that a Nobel Prize-winning economist (though Nobel’s shine has lost some luster given its awards to Yasser Arafat, Al Gore, and Barack “maybe I’ll earn this one day” Obama) would know better than to offer such claptrap. Or maybe he does know better but assumes — probably correctly — that most of his readers don’t.
Let’s consider whether any among the large holders of our federal debt would actually favor persistently very low interest rates — and keep in mind that very low long-term rates generally require investor expectations of economic growth too weak to cause inflation, and perhaps weak enough to allow deflation.
• The Federal Reserve, as the largest holder of U.S. debt, has the “dual mandate” of managing inflation and encouraging employment, meaning it must focus on economic growth that would eventually cause a paper “loss” on its bonds, but one that it will probably never realize because it can hold the bonds to maturity rather than selling them.
• China and Japan are the two largest foreign holders of U.S. debt, with oil exporters (in the aggregate) coming in fourth. Exporters to the U.S. care far more about the ability to sell us their stuff, and about the value of the dollar (both for exporting and for the value of their investments) than they care about the nominal prices of the bonds they hold.
• U.S. fixed income investors would be able to invest future cash flows at higher yields if interest rates rose. Furthermore, most investors are diversified in asset classes like stocks, real estate, and commodities that often don’t correlate with bond prices.
• Banks profit primarily by lending. Persistently low interest rates signal a low demand for loans. Thus whatever they are “making” on a bond portfolio is being offset by a lack of activity in their real businesses. Most banks would gladly give up very low rates in order to see a return of customers.
Krugman’s argument is therefore based on a ridiculous assumption that the levers of power are held, directly or indirectly, by people who own bonds, nothing but bonds, and care about nothing but nominal bond prices. No professional investor or sovereign wealth fund (the investing arm of a government) is that stupid.
Paul Krugman is trying to create another “evil foreigner” or “greedy banker” bogeyman, a financial “man behind the curtain” willing to sacrifice all else for the purposes of boosting a bond portfolio while the world burns around him. It’s a pathetic paranoid argument by a man desperate to counter the nation’s rational (if overdue) turn against Keynesian economics.
Paul Krugman’s article is nonsense, but at least it ascribes a semi-benign motivation to the policy makers themselves: Politicians who don’t understand economics very well “assume that what’s good for the people you hang out with, the people who seem so impressive in meetings — hey, they’re rich, they’re smart, and they have great tailors — must be good for the economy as a whole.” Krugman at least gets this right; most members of Congress have little understanding of economics and can be manipulated, not least by Krugman himself.
It’s one thing to say politicians make poor decisions due to being uninformed or manipulated. It’s another thing entirely to claim, as Yahoo Finance’s Dan Gross does, that Republicans are “trying to do everything they can screw the economy near term so that they can retake the White House and keep their jobs.” That at least was the summary of Gross’s view by his TV partner, Henry Blodget; Gross called that description “slightly hyperbolic” but then proceeded to say that “the political incentives… for the Republicans are for things to go badly in the economy.”
He followed up by arguing that Republicans would prefer the stock market down, economic growth down, and unemployment up to help their electoral chances, concluding “it then stands to reason that if you have the ability to have a role in policy, that you would engineer policy to get that outcome.” The helpful crew at Yahoo put a subtitle on the screen during Gross’ gross remarks: “Is the GOP trying to sabotage the economy in order to win the White House?”
It’s one thing to say that better economic and employment growth would help the prospects of the incumbent party, which happens to be Democrats today. It’s another thing entirely, even in these politically cynical times, to say that the out-of-power party would intentionally harm millions of Americans in order to garner extra votes.
The logic behind Gross’ remarks is not unlike Krugman’s confusion: they both believe that weak economic performance is not due to Democrats’ big-spending policies but rather that government simply hasn’t taxed and spent enough. The wisdom of “If you find yourself in a deep hole, stop digging” is apparently lost on them.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?