It is unclear where President Barack Obama will lead the United States of America – besides $825 billion or so [1]deeper in debt if he approves the House Democrats’ stimulus package.
But what is clear is the direction liberal New York Times columnist Paul Krugman wants Obama to take: toward an FDR expansion of government. Within days of Obama’s electoral victory Krugman wrote a column titled: “Franklin Delano Obama.”
Although he has no official advisory role, Krugman himself has said he will be influential in shaping policy. In a Dec. 6 interview, Krugman said “I probably can have as much influence, [2] as say on the shape of this upcoming economic stimulus package from where I am as I could if I were, you know, the third-ranking member of the Obama economics team.”
Krugman even wrote a 3,000-plus word letter to President Obama telling him what he “must do” [3] in the pages of Rolling Stone magazine Jan. 14. In it, Krugman urged Obama to temporarily “nationalize” banks, ignore budget deficits, and calculated that roughly $800 billion of government spending would be needed:
“You probably have to spend $800 billion a year to achieve a full economic recovery. Anything less than $500 billion a year will be much too little to produce an economic turnaround,” Krugman said. That was a $200 billion increase from Krugman’s own Nov. 14 “back-of-the-envelope” calculation of how “huge” the package should be.
In November, Krugman wondered if Obama’s people would “dare” to propose a package of that scale ($600 billion). Obama’s $775 billion proposal topped that. Yet the columnist recently criticized the current House Democrats’ stimulus proposal of $825 billion as not being enough to save the economy. He hasn’t said how much higher the stimulus package should be.
Don Luskin, chief investment officer for Trend Macrolytics LLC, is a vocal critic of Krugman who has called him “
BMI sent questions to Krugman but had not received a response by the time this story was published.
Proponent of ‘Good [Big] Government’
Krugman is a well-known twice weekly columnist for The New York Times and a Nobel Prize winner. He’s also an unabashed liberal who has adamantly opposed tax cuts, advocated “guaranteed” health care for all, and avid proponent of a new New Deal.
In his book, “Conscience of a Liberal,” [5] Krugman wrote that the new [Democrat] majority should “pursue and unabashedly liberal program of expanding the social safety net and reducing inequality – a new New Deal. The starting point for that program, the twenty-first century equivalent of Social Security, should be universal health care, something every other advanced country already has.”
Since Election Day 2008, nearly half of Krugman’s Times columns – 8 out of 17 – have mentioned the New Deal architect and 7 of those also mentioned Obama. On top of that Krugman has devoted three columns just in January to promoting an enormous New Deal-esque stimulus package without referencing FDR. As Krugman said in his Nov. 10 Times column, “Everything old is New Deal again. Reagan is out. FDR is in.”
According to Krugman’s Dec. 26 column, titled “Barack Be Good,” Obama needs to be a “goo-goo” or a “good-government” type like FDR, who expanded government in order to rescue the economy from the throes of the Depression. Krugman denigrated economists such as Lee E. Ohanian of UCLA Department of Economics, who found that FDR’s New Deal policies actually prolonged and worsened the Great Depression [6] by seven years.
Krugman blasted economists like Ohanian, saying on Nov. 10 “there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse.” Who knew that UCLA was a bastion of “right-wing” thought?
Ohanian’s findings didn’t matter to Krugman since he said the “definitive” study on the New Deal was from E. Cary Brown, which validated Krugman’s view that stimulus didn’t work because it wasn’t big enough.
“The Obama administration, on the other hand, will find itself in a position very much like that facing the New Deal in the 1930s,” Krugman wrote. “[T]he incoming administration must greatly expand the role of government to rescue an ailing economy.”
Like Krugman, many in the news media have compared Obama to the 32nd president, Franklin Delano Roosevelt. Time magazine even superimposed Obama’s face onto a photograph of FDR for its Nov. 24 cover. The photo illustration accompanied a call for a new, New Deal.
The media’s Depression-era, FDR rhetoric continued right through inauguration day. Fox Business Network’s Alexis Glick quoted FDR’s famous phrase, “There is nothing to fear except fear itself,” during the channel’s inauguration coverage Jan. 20.
For all of Obama’s self-declared links to President Abraham Lincoln, he has embraced the FDR comparison. The Jan. 18 concert at the Lincoln Memorial included clips of FDR’s 1932 inaugural address. During a Jan. 18 interview with CNBC Chief Washington correspondent John Harwood the comparison was made again.
Harwood called Obama “fascinating” because “his story and message contain echoes of all three of those extraordinary leaders Kennedy, Reagan, Roosevelt, not to mention the unifying themes of Abraham Lincoln.”
Supply-siders and free market economists would criticize the comparison and argue that reliance on government and a new New Deal would be something to fear.
Robert Higgs, a senior fellow at the free market Independent Institute, told CNSNews.com Dec. 9 that “I think there’s a very high probability that this kind of proposal will actually make matters worse.” [7]
Not Enough Like FDR
Lately, Obama hasn’t been enough like FDR to suit Krugman, who has used three columns since Jan. 9 to criticize the new president’s economic stimulus package – not from a free-market perspective of course, but from the left. Krugman claims that the hundreds of billions of dollars simply won’t be enough.
“Mr. Obama needs to make his plan bigger,” Krugman warned on Jan. 12. Particularly Krugman complained that money should not be “squandered on ineffective tax cuts” and pushed for “an early start on the insurance subsidies – probably running at $100 billion or more per year – that will be essential if we’re going to achieve universal health care.”
Krugman’s criticism came with a dire warning, that without a massive government spending initiative a second Depression is around the corner. His Jan. 5 column “Fighting Off Depression” asked “Will we in fact do what’s necessary to prevent Great Depression II?”
Obama was open to suggestions and responded to Krugman’s criticism in a Jan. 10 press conference saying, “If Paul Krugman has a good idea, in terms of how to spend money efficiently and effectively to jump-start the economy, then we’re going to do it.” [8]
But there are other criticisms of Obama’s (and Krugman’s) plan for how to fix the economy. Ohanian told CNSNews.com that he disagrees with an expansion of government.
“It may well be a good idea to invest in infrastructure, but what people sort of forget about federal jobs is that essentially the government’s going out and hiring people, but households are paying that bill through higher taxes,” Ohanian said.
“On net, will it really increase employment?” he asked of Obama’s plan. “I don’t expect it will very much.”
“I disagree that this can be the foundation of promoting long-run economic growth,” said Ohanian.