Paul Krugman offered his thoughts on the economic crisis last week in the University of Iowa’s McBride Hall.
My commentary:
When Paul Krugman furrowed his brow and stroked his chin and told the audience that the Obama administration’s plan to create 3.5 million jobs is . . . here he slowed his speech, demonstrating his thoughtfulness . . . “about the right size,” he neglected to elaborate on how government creates jobs.
If government has the power to create 3.5 million jobs, what is the moral justification for stopping at 3.5 million? Why not 4 million, or 10 million? Why not 150 million, so America’s entire labor force can feed from the government trough?
The fact is that government cannot create jobs. Government can only redirect them. Taxes must destroy private sector jobs which produce goods and services people want, so that government may pay for public sector jobs, which exist for political reasons.
The stimulus will make us poorer, and when it does so, Mr. Krugman will furrow his brow and stroke his chin and tell us very thoughtfully that it probably wasn’t big enough.
He cautioned against the “temptation to dwell on the causes of the bubble,” which seems completely nonsensical to me. More tempting is subscribing to his indictment of unregulated capitalism and greedy businessmen.
In implicating capitalism, he did not mention the government bailout in 1998 of a hedge fund called Long Term Capital Management. When government subsidizes irresponsibility, the case against unregulated capitalism falls to pieces. Had government not set the precedent of rescuing their friends on Wall Street in 1998, we wouldn’t have had these problems in 2008.
Those of us who succumb to the temptation of actually caring how we got here might also note the government subsidizing of bad home loans, and the artificially low interest rate created by the Federal Reserve which cause unsustainable booms.
The boom was not “irrational exuberance,” as Mr. Krugman so dismissively puts it. It resulted from rational business decisions made in an economy our government warped to favor expansion and irresponsibility, and the problem is not a lack of regulation, but too much of it.
The hall was packed, and I didn’t get a chance to ask a question. I would have said the following: “Thank you for coming here and speaking to us. Our empire, which has a military presence in 130 of the world’s 190 countries is very expensive. Our government, which employs a sixth of America’s labor force is very expensive. The stimulus is very expensive, and the bailouts are extremely expensive. Conspicuously absent from the discussion is the notion of living within our means. Do we need to live withing our means? Or have our great economists with their deft manipulations of interest rates rendered the notion quaint and obsolete?
See Also: A Child in a Man’s Body: An Austrian Looks at the Economics of Paul Krugman
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