The Obama-Keynes Mystery
In his The New York Times column, The Obama-Keynes Mystery, Paul Krugman starts with the following:
I’m not alone in marveling at the extent to which Obama has thrown his rhetorical weight behind anti-Keynesian economics; Ryan Avent is equally amazed, as are many others. And now he’s endorsing the structural unemployment story too.
To those defending Obama on the grounds that he’s saying what he has to politically, I have two answers. First, words matter — as people who rallied around Obama in the first place because of his eloquence should know. Yes, he has to make compromises on policy grounds — but that doesn’t mean he has to adopt the right’s rhetoric and arguments. The effect of his intellectual capitulation is that we now have only one side in the national argument.
Second, since Obama keeps talking nonsense about economics, at what point do we stop giving him credit for actually knowing better? Maybe at some point we have to accept that he believes what he’s saying.
I have been attributing this mystery to the fact that Obama spent time as a professor at the University of Chicago. My conjecture has been that the pernicious influence of Milton Friedman has lasted long after his demise. Friedman did build a department of like minded economists around him while he was there. Many of them are probably still there and exerting their influence.
I have just found an article, A Dark Age of macroeconomics (wonkish), by Krugman, himself, that takes a shot at some of the work that is still going on at the University of Chicago.
Obama was not in the economics department at the university, but he did pick his key economic advisors from there. I was going to do some research to see where his advisor, Austan Goolsbee, stands. All I had to do was look at a December, 2010 post of mine on this blog, White House White Board: Tax Cuts, Unemployment Insurance & Jobs.
If Goolsbee as an adviser to the President came up with this justification on his own, then he is not serving the President or the country very well. I have heard that the influence of Milton Friedman at the University of Chicago School of Economics is waning, but I think I see some of the taint of Friedman in what Goolsbee is saying.
Obama has continually ignored advice from economists not in tune with the Milton Friedman doctrine.
Even renowned Keynesian economists such as Paul Samuelson have admitted to having been bamboozled by Milton Friedman for a time. If these kinds of economists could succumb, even for a time, how can we fault Obama? Obama needs an intervention from some good, modern-day economists who understand the way Friedman fooled the world of economics for a time. The names Krugman, Stiglitz, Kuttner, Romer, Tyson, Reich, Galbraith, DeLong readily come to mind.
In the Krugman article, More On Friedman/Japan, he explains some of the bamboozling that Friedman did.
And this also calls very much into question Friedman’s famous claim that the Fed could easily have prevented the Depression, which gradually got transmuted into the claim that the Fed caused the Depression. Yes, M2 fell — but why should we believe that the Fed had any more control over M2 in the 30s than the BOJ had over M2 more recently?
In the online discussion that followed this article, I made the following comment in response to another comment explaining the importance of public investment.
Dave Baltimore said, “private investment has always followed public investment.”
I am afraid that this time might be different. In his book “Aftershock…”, Robert Reich tells of a part of Keynesian economics that was not taught to me in the early 60’s when I had a few college courses in economics.
The missing part was that the wealth could not be so heavily concentrated the way it is now for Keynesian stimulus to produce a follow-on self-sustaining recovery.
In the 60’s it probably was thought to not be necessary to cover this aspect, because at that time nobody could conceive of returning to wealth concentration that has occurred since the 1980s.
With the current wealth concentration, the money spent by the government on stimulus projects will go so predominantly to the rich that not enough purchasing power will be put in the hands of the middle class to stimulate private investment.
One take-away I got from Reich’s book is that even if public investment managed to achieve full employment, the middle-class would still not be getting a big enough share to buy the goods the economy produced so that full employment could continue after the public investment was scaled back.