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“If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months,”–Paul Krugman, discussing an alternate means of economic stimulus.
“I guess the big danger to such massive defense spending is that we might end up as a military city-state perpetually at war with aliens.”–“Gordon Freeman”, as portrayed by Ross Scott, in episode 16 of his hilarious series Freeman’s Mind. (He’s not talking about Krugman at all, yet it seemed an appropriate quote.)



P.M. Prescott had a good post responding to my post about militaristic Keynesianism. He made some good points, in particular, about the slightly dystopian shape such a stimulus method might take.

There’s no doubt in my mind that it’s a sub-optimal way of achieving a Keynesian stimulus; and it’s even possible it could be more trouble than it’s worth, as military build-ups themselves sometimes lead to wars. Even if that were averted, we run the risk of becoming a militaristic, Spartan–or worse, decadent Roman–society if vastly more military spending were pursued.

Obviously, it’s much less painful to just pay for increased benefits to the poor, and some infrastructure projects. But, as Krugman and Prescott both rightly show, the more fantastic and dire scenarios are a more politically realistic means. That’s rather depressing.

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Last week, Paul Krugman had a couple of very good posts on his blog about how Republicans are capable of understanding Keynesianism when and only when it is applied to defense spending.  As he puts it:

“If only we could convince Republicans that solar power or mass transit were complete wastes, but that they would upset some foreign power — the French, that’s it! — a big stimulus program might sail through.”

It seems to me there is a corollary: if this is what the Republicans support, why not make defense spending the core of a stimulus package? Spend a ton of money–say, a trillion dollars–on building military stuff. It would garner much more Republican support than the real stimulus, I bet.
Of course, this idea is repellent to many Liberals, including myself. I’m one of those radicals who think we should spend more on education and the Arts and less on weapons. But, as President Obama is fond of saying, “we must not make the perfect the enemy of the good.” If that is the only sort of economic stimulus present politics allow, why not go for it? 

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Pundits have been using the word “populist” a lot in connection with the recent “Occupy Wall Street” protest. This Atlantic article by Derek Thompson asks: “What Should a Populist Movement Ask of Washington?” Well, here’s my answer to his question.

Perhaps the most famous populist in U.S. history, William Jennings Bryan, wanted monetary stimulus to combat the depression that existed at the time. In Bryan’s time, the “fiscal hawks” we are familiar with in Congress had the authority to also be “hawkish” on monetary policy. Today, however, the Federal Reserve exists, and it provides a stimulative monetary policy.

But we still have fiscal hawks. Read Paul Krugman‘s commentary for an expert explanation of the problem, but the short version, as I understand it, is that the Conservatives are restricting growth by opposing fiscal expansion.

So, what Populists of today should ask for is almost the same thing the Populists of yore asked for: economic stimulus. Only they must ask for it from fiscal policymakers, not monetary policy makers.

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According to this article, party balloon suppliers are facing a shortage of the key input helium.

I have only an amateurish understanding of anything related to science, but I do remember learning that helium is the second most common element in the universe. So, if we’re really running out of it, and this shortage is not merely an artificial one, it seems to me that the remedy would involve travel to other parts of the universe–maybe just within the solar system, but it would still mean quite a bit of work. On the other hand, it might spur on the creation of an interstellar economy. That would be cool. Although I doubt party balloons will sufficiently justify the costs of it.

(Also, the word shortage is confusing because it has two meanings: the everyday usage of “not much of the stuff”, and the economist’s usage, which means a failure of supply and demand to equilibrate properly, usually due to some issue with the price mechanism. The point is, in the economic sense, you could have almost zero quantity of the good and high demand and still not have a shortage, if the market is operating efficiently.)

And once again, I remind you that my knowledge of science is purely from things I happen to read and things I vaguely recall from school. If anyone with actual knowledge in relevant fields reads this, feel free to comment.

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People frequently cite “uncertainty” as a cause of our economic troubles. It’s especially common to hear people on the news say this. And I suspect most people don’t give it much thought.

There is and always shall be uncertainty. As Yoda said: “Always in motion is the future.” There was uncertainty in the 1990s when the economy was booming. So I don’t think something as vague as that is causing the problems we face today.

People usually speak about the economy in vague terms or else in outright metaphor. (eg. “Get the economy back on track”. What track?) Obviously, it’s difficult to describe such a complex subject accurately and succinctly, but people have to be careful about being too vague, lest discussion of the subject lose all relationship to reality.

Well, actually, according to Paul Krugman, it already has. Oh, well.

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On BBC World News America, I saw an interesting piece about “BerkShares”, a local currency being used in Massachusetts. You can read the Wikipedia article about it here.

It is an interesting concept, but I think it’s also somewhat disturbing, because in the early years of the United States, a great deal of pain resulted from such “local currencies”, which meant inflation and difficulties engaging in trade among the States. And even before the Revolution, it was usual for each colony to issue its own currency.

The Constitution forbids the States from issuing their own currency, but since this is not a State but rather private persons in one region, I think it’s probably allowed under the Constitution. It may even prove to be a good idea for them. However, it does suggest a certain drifting apart of the one region from the whole; an issue which the Founders, in their day, worked very hard to remedy. Not that there’s any danger of such currencies posing a major alternative to the U.S. Dollar anytime soon, of course.

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Yesterday, I read a bizarre article in the WSJ by Stephen Moore. He asked the question “why do Americans hate economics”, and answered it thus: “Because too often economic theories defy common sense.”

Now, this is certainly true. Some economic ideas are counterintuitive. But, Moore concludes that this is the fault of macroeconomists, specifically Keynesians, who are misleading people with their crazy, counterintuitive ideas. He then goes on to discuss various controversial economic phenomena such as “crowding out“, “Ricardian equivalence” and other ideas that most Keynesians have easy responses to.

Perhaps the most egregious line is the association of Henry Wallace’s 1930s-era agricultural price support program with mainstream Keynesianism. Really, though, the whole article is full of half-truths and insinuations.

But never mind the specifics just now; what I want to focus on is the fact that Moore appears to assume that things which are counterintuitive must therefore be untrue. Well, there are lots of confusing concepts in other sciences. For example, is light a particle or a wave? According to this logic, it’s neither. It’s a big glow-y thing, because that’s what common sense tells us.

It’s possible that a whole branch of economics is mistaken. There are many examples in history of a whole scientific field being deluded and unwilling to listen to the correct explanation. Ignaz Semmelweis was considered a kook by his medical colleagues because he thought doctors ought to wash their hands. It can happen. I’m just saying that the burden of proof rests with Moore’s side in this argument, and I don’t get his assumption that something that doesn’t make immediate sense to the layman is automatically wrong.

UPDATE: Paul Krugman, Noah Smith and David Glasner all have good responses to the Moore article. I like it when smarter people than me agree with me.

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Andrew Leonard of Salon discusses why a Tea Partier is advocating Keynesianism. If anything, he goes too easy on the guy.

I can’t say I’m surprised. Back in February 2010, I wrote:

“As near as I can tell, the optimal strategy according to [the Tea Party] would be ‘militaristic Keynesianism,’ which would mean cutting taxes, and increasing government spending by vastly increasing expenditures on the military (to further National Security) while making cuts elsewhere.”

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I was going to do some research on it and then post about my take on the debt ceiling deal. (Though this still pretty much holds.) Then my power went out for three hours and now my internet connection is slowed down. So, I don’t have time to make any  really important points.

All I’ll say is that it seems to me that Obama was given a choice between hurting the economy very seriously and hurting the economy even worse than that. He made the best choice he could.

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These videos (here’s the original) amaze me. To be able to set those economic theories into rhyme–fairly good rhyme–and still have it be coherent is a feat I would have thought none but W.S. Gilbert could achieve.

Admittedly, the videos are a little biased in Hayek’s favor, but still, they are well done.