As published on The Policy Think Site —
Yesterday’s Krugman, Today’s Brooks
Be Still My Brain
By Jay B Gaskill
The commentariat sometimes approach reality…usually obliquely
What reality, you ask? Subsidized consumption does not cure the economic logjam caused by irrationally generous subsidies in the first place. In effect, if you pay people and institutions for being less productive[i], you get what you have paid for…and almost nothing else.
Consider Europe. The EU allowed less productive countries to hijack the credit of more productive ones. Bankruptcy, an abrupt end of easy lending and depression loom. That dangerous impasse is the predictable outcome of what some are calling a “structural” problem and of what others might call undisciplined liberalism.
Consider the USA. The federal government has subsidized less productive enterprises and programs (using taxes, fiat money and an unsustainable expansion sovereign debt) at the expense of the more productive (mostly private) sector of the economy…for decades. Bankruptcy, the abrupt end of easy lending and depression loom.
On each continent, conventional liberalism clings to an outmoded solution:
Subsidized consumption will cure all.
KRUGMAN ADMITS SOMETHING
In Sunday’s New York Times, Paul Krugman writes about Those Revolting Europeans, trying to defend his ever repeated doctrine that they (read ‘we’) just need to pour a lot more borrowed or fiat money on the problem (while accepting a “little” inflation in return); that surely, this time, the Keynesian nostrum will cure things.
But in the middle of Krugman’s piece, a bit of reality breaks through.
“One answer — an answer that makes more sense than almost anyone in Europe is willing to admit — would be to break up the euro, Europe’s common currency. Europe wouldn’t be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation.
“As a counterpoint to Ireland’s sad story, consider the case of Iceland, which was ground zero for the financial crisis but was able to respond by devaluing its currency, the krona (and also had the courage to let its banks fail and default on their debts). Sure enough, Iceland is experiencing the recovery Ireland was supposed to have, but hasn’t.”
That was a fascinating admission. What Krugman is not telling us is that, unlike Europe, Iceland had no one to bail it out. The exposed lenders were allowed to fail, and now the country is on the rebound. The Iceland example is usually cited by conservatives as a counter example to the liberal folly that seeks to cure improvident subsidies with more of the same, and rewards failure with somebody else’s money.
Failure is a good thing because it teaches prudence and presages a fresh, wiser restart.
Krugman concludes his piece with the observation that “breaking up the euro would be highly disruptive, and would also represent a huge defeat for the ‘European project”’. Truth be told, the “answer that makes more sense than almost anyone in Europe is willing to admit” is the same kind of answer that almost any conventional liberal, Krugman included, stubbornly refuses to admit. Why? …because it “would also represent a huge defeat for the liberal project” to which Krugman and others, in spite of the accumulating evidence, have all tethered their rafts.
DAVID BROOKS ALMOST GETS IT
The Following day, David Brooks writes in the New York Times. In The Structural Revolution
(May 7, 2012), he points out that-
“…structural problems have retarded growth and wages for decades. Consumers tried to compensate by borrowing more. Politicians tried to compensate by reducing the tax bill, increasing deficit spending, ensuring easy credit for homebuyers and by helping workers shift out of the hypercompetitive, globalized part of the economy and into the less productive and more sheltered parts of the economy — mostly into health care, government and education.
“But you can only mask structural problems for so long. The whole thing has gone kablooey. The current model, in which we try to compensate for structural economic weakness with tax cuts and an unsustainable welfare state, simply cannot last. The old model is broken. The jig is up.
“President Obama is too minimalist. He doesn’t seem to believe America’s structural problems are that big, making his reform ideas small. Mitt Romney and Representative Paul Ryan understand the size of the structural problems, but their reform plans are constrained by the Republican Party’s single-minded devotion to tax cuts.”
The ever civil Mr. Brooks is to be cut some slack for his kindness to the present administration (for “minimalist” above, I’d substitute “clueless”). But I would appreciate a bit more bright line clarity. When any society choses to go the extra thousand miles to selectively burden its productive members in order to generally benefit its less productive ones, a painful breaking point always is reached. That point is now. We are witnessing the crackup of the postmodern liberal experiment. The current crop of liberals-in-charge have achieved the seemingly impossible: the alienation of working Americans (those who still can and those who still want to) from those politicians who pretend to still care about an honest day’s work as a value in and of itself.
For every structural dysfunction, there is an underlying moral lapse. I’m still waiting for that part of the conversation to reach the commentariat.
Copyright © 2012 by Jay B Gaskill, Attorney at Law
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Published on The Policy Think Site, the Bot 2 Dot Blog, and other linked blogs and sites.
[i] I am using the traditional definition of “productive” as it relates to those activities and services that make a profit by filling a market demand. The recent scandals relating to federal subsidies for failing (or less than economically viable) solar companies, represent the subsidization of the “less productive”. The use of public funds to bail out such enterprises, post-failure, is one more form of subsidization of non-productivity. Risky investments need to be allowed to fail as well as succeed; they are not a wise (nor a particularly moral) use of public resources.