Closet Keynesian

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Recently on a post, Frank Schaeffer cited the renown Economist Paul Krugman as a critic of Obama. I don't recall reading Krugman criticising Obama in any op-ed as of late and am not sure how to take the journalist's writing because he is on President Obama's side, yet he's incorrectly juxtaposing Krugman with Mitt Romney, a candidate for the G.O.P. Nomination, as critics of the President. In fact, Schaeffer acknowledges Krugman's work, yet he claims that, 

Both [Krugman and Romney] have often loudly predicted that he [Obama] made the economy worse and was putting America on the wrong economic path. Both are being proved wrong by the economic comeback we are in.

What is odd about Schaeffer's argument is that both Krugman and Romney have diametrically opposing views on the economy, so Schaeffer's post comes off as bipolar or indecisive because rather than choose one side he either chooses both or rejects them both. In fact, it is easy to see the contrasts between Krugman and Romney in the latter's 2008 op-ed wherein Romney states,

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

What is clear from former Governor Romey's op-ed is that he is clearly opposing a government bailout. Moreover, the Governor is exaggerating about what government intervention will do to General Motors (GM) because, according to him, GM will inevitably go bankrupt because of its high overhead costs and its competition from abroad. Near the end of that post Romney says that managed bankruptcy will fix GM's problem because it will shed unproductive plants and firing people will improve efficiency.

In a post, Krugman questions austerity in a Socratic manner,

How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further?

The reason that Krugman questions austerity is because he believes that government intervention saves jobs because it provides economic stimulus to businesses that helps prevent huge job losses. In the same post, the famous Economist points out that because of austerity Europe is slowly recovering from the recession, thus, cementing the point that austerity slows capital growth rates. Near the end of the post, Krugman reminisces to a statement that he made in, yet, another post a few years ago, that is, 

Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

Krugman argues that economists rejected signs that, at the time, mainstream economics is too trusting on rational choices by individuals when in fact economic recessions result from irrational decisions. On a more recent post, he also pointed out that Romney does not truly believe that Keynesian economics is incorrect, rather, Krugman says that Romney is pandering to Republicans for their votes. The Economist's words are,

Speaking in Michigan, Mr. Romney was asked about deficit reduction, and he absent-mindedly said something completely reasonable: “If you just cut, if all you’re thinking about doing is cutting spending, as you cut spending you’ll slow down the economy.” A-ha. So he believes that cutting government spending hurts growth, other things equal.

Most telling is what Romney's words imply because the words evoke that he will say anything to win his party's endorsement, but Krugman points out that if he is willing to change his economic views how will he deal when he surrounds himself with people to work on matters like a nuclear Iran. Another highlight in the post is that Republican Party hates Keynesian economics because it posits that individuals cannot be trusted to make the best decisions. Interestingly enough, Krugman traces the history of economic theory from the early 1900's until now and says that in order to avoid any huge recession economists need to accept the fact that people make irrational decisions.

Plenty of 2012 G.O.P Presidential Debates hinted what Keynesian economics is, but are vague about its specifics. Keynesian economics is simply an economic theory that seeks to explain why the Great Depression happened and introduced what economists later came to call 'saltwater economists.' In addition, Keynes, the author after which the theory is named, deviated from Neoclassical theory--a theory that idolised the mathematical beauty of rationally, complicated formulae--and who posited that the government should help offset economic recession.

What ultimately happened in the United States is that economic philosophies polarized academics within two different philosophies where one believes that government intervention is required during recession and the other argues that the government should not get involved in the economy. Some of the consequences of austerity are seen with the European P.I.I.G.S nations that are going through recessions that the G.O.P uses to scare voters to vote for their party, however, Europe is an example of what austerity will do to the United States. In short, U.S Politician need only to look across the pond to see the future of economic austerity.

To conclude, Schaeffer's claim that both Krugman and Romney are both critics of President is premature and inaccurate given what Krugman writes in his blog. In addition, Romney's current stance on the economy (austerity) also make Schaeffer's claim seem silly because comparing two radically different views is like comparing apple to oranges. Finally, what is most impressive about Schaeffer is that he was a Republican for most of his life and this is a sign that there is hope even among the irrational.