1.30.2011

Talking Paul and Paul - Krugman and Ryan

A friend recently suggested on Facebook that "krugman takes ryan to school" in his latest NYT column.

Highly skeptical, I thought I would take a look at Krugman's claims that Congressman Paul Ryan, in his GOP response to the SOTU, was wrong to use European nations as a harbinger of the consequences of government's failure to live within its means.

Off the bat, Ryan was right to use Greece as an example.  Krugman admits that.  It leaves the columnist two possible chances, Ireland and Great Britain, to show that Ryan was saying something "dubious" - or else his entire column is revealed as just another bitchy hit piece.

Let's look at Ireland.  Krugman gets it wrong.  Or at least he doesn't get it entirely right.  He says that seeking a balanced budget in Ireland via austerity measures at this point is besides the point, that the lesson from Ireland is: "that balanced budgets won’t protect you from crisis if you don’t effectively regulate your banks."  He notes, though, that Ireland chose to bail out its banks: "public debt exploded because the government ended up taking over bank debts."

The real lesson should be this: shooting for a balanced Irish budget moving forward makes sense given that the government needs to ensure its own continuation.  A balanced budget (or a sizable surplus) puts a nation in a comparatively better position to deal with catastrophe - the 06-07 surplus in Ireland no doubt staved off an even worse crisis than the one that has unfolded for the country.  Additionally, given the uncertain and enduring nature of the current economic downturn, and given that Ireland's currency does not enjoy the still-sort-of-unique position of the U.S. dollar, it doesn't make sense for the country to engage in a massive, speculative, Krugmanesque, deficit-building, pump priming exercise.  It's just not clear that it would work. 

And if you want to rein in banks, then create a paradigm where there's an ironclad assurance that the government WILL NOT bail out banks.  Regulations like those Krugman supports don't actually get to that harsh reality.  Ireland didn't make that expectation clear enough to banks, the banks acted accordingly, and it ended up eating the risks taken.  Force banks to carry their own risk-taking exclusively on their own backs from the outset, especially in smaller nations like Ireland and Iceland.  That tough medicine prescription is something closer to what I know of Ryan's positions - even though Ryan did vote for the initial financial institutions bailout in the fall of 2008.

Let's look, too, at Krugman's assertion that Ryan got England wrong.  For one, Krugman focuses in very narrowly in order to paint Ryan's implications as erroneous.  He looks at the numbers for one quarter and demands that they show a sudden bonanza of private sector growth to offset cuts in government staffing: "But there’s certainly no sign of the surging private-sector confidence that was supposed to offset the direct effects of eliminating half-a-million government jobs."  Additionally, he labels Cameron's "sharp turn toward fiscal austerity" as "a choice, not a response to market pressure."

In the first case, Krugman demands an immediate return to balance that will actually take some time.  In the second case, he zooms in on a few trees and says they were actually healthy - ignoring the overarching view that the forest of British government was sick, unsustainable, and riddled with accumulated deadwood policies that all but guaranteed crisis sooner or later, even if there was no technical debt crisis at the moment.  It was a choice, but one that had to be made soon to avoid great crisis.  Moreover, Cameron noted at Davos that despite the pain, austerity is working and the country's credit rating, for one, has been saved.



And remember, besides Greece, Ireland, and Britain, Paul Ryan also mentioned the problems faced by "other nations in Europe."  While Ryan didn't mention them by name, Krugman, as he slams Ryan for creating a convenient European fantasyland, doesn't address the debt-related crises faced in the past year by European nations like Portugal, Spain, and Hungary.

Finally, Krugman asks at one point -  "did you know that adults in their prime working years are more likely to be employed in Europe than they are in the United States?"  Without even quibbling with that language (I have all sorts of questions), I'll simply note that there are, in many cases, legal reasons for that, which in turn delineate the divergent values and principles in many European societies and U.S. society.

Overall, Krugman didn't really manage to land an actual blow in the entire course of his column.