Krugman and the 50 Hoovers

UPDATE: Krugman keeps piling on the verifiable historical falsehoods. It may interest you to note that I prepared a version of this chart the day before his most recent column, that’s how predictably wrong he is:

All of this is depressingly familiar to anyone who has studied economic policy in the 1930s. Once again a Democratic president has pushed through job-creation policies that will mitigate the slump but aren’t aggressive enough to produce a full recovery. Once again much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.

Where, one wonders, is this “budget retrenchment” of which he speaks. It was only Federal spending that declined in 1937 and 1938, as Krugman even notes in describing 1937 as “the year that F.D.R. gave in to the deficit and inflation hawks”,so to point the finger at the state and local governments who were doing precisely the opposite of that Democratic president is bizarre. Krugman is playing a dishonest game, implicitly referencing the two-year decline in local spending with regards to events three years later. And state spending never declined, so Krugman’s 50 Hoovers theme is not only demonstrably wrong on two levels, as can be seen in the three charts below.

Now, it must be admitted that Krugman could, theoretically, have made a case by utilizing spending as a percent of GDP. However, he doesn’t dare because that would show Herbert Hoover to have been significantly more aggressive in his use of expansionary fiscal policy than FDR and that would explode far more than Krugman’s argument for a third fiscal stimulus package in three years.

Our favorite Nobel prizewinner wrote the following back in December:

But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

Very well, let’s look at the action of Herbert Hoover and compare his four years in office to the previous four years using constant 2000 dollars in order to correct for inflation/deflation. I don’t know about you, but I sure don’t see any spending being slashed.

While the deflation of what Milton Friedman called The Great Contraction often confuses the economic analysis of those who fail to account for it, Krugman doesn’t even have that excuse as a potential fall-back position. Federal spending not only increased in real terms and as a percentage of GDP, but increased in nominal terms as well.

Now, Krugman may well be right in that the state governments will be forced to slash spending as the economy continues to contract. However, this does not change the fact that this was not the historical behavior of either Herbert Hoover or the state governments, and likely has nothing to do with economic ideology. It is nothing more than the deficit-spending of the recent past limiting their range of options.

Mailvox: better sooner than later

JB wonders what to do next:

I’ve been reading your blog ever since I finished The Irrational Atheist and I am currently participating in your Voxiversity III study. I have a question for you concerning college education.

I earned my B.S. degree in Molecular biology and worked some at a local community college teaching some basic math courses. I then applied to a PhD program in Biomedical Science and was accepted. I’ve been in this graduate program for a year now, but I have realized that I am not cut out for research and the whole degree just seems like a waste of 5-6 years (the official time for completion). I have read your statements in the past concerning the “paper-selling institutions” and the problems with college educations, and I am inclined to agree with you at this point. My problem is that I am now about to be leaving a program (which is essentially my job) and beginning a job search during a rather poor economic state (I have three weeks to find full-time work) and having very few marketable skills. Since you have investigated this more than I have, what can a guy like me do to find work? It has become clear that my B.S. degree is really quite meaningless, so I feel as though my job options are very limited. I am married and I need to maintain a certain level of income, so my situation needs resolution quickly. At this point, I’ve asked everybody I know for advice and all that they have come up with is simply “stay in the PhD program”, even though I would like to hear some alternatives.

First, I should like to commend JB on at least attempting to think for himself in the face of what is likely significant social pressure. Second, I would urge him to keep in mind that a pursuing an education is not “essentially a job”, it is not a job of any kind except to the extent that one is financially compensated for pursuing it. Given the many complaints I’ve read about the sweatshop income provided to graudate students, it seems hard to imagine that one could not do better working in consumer retail, if nothing else.

The three-week time frame complicates things, of course, but the first thing that I would do is find some sort of income-producing job no matter what it is. I have seen lawyers take jobs selling computers at big box retail outlets and MBAs take jobs at department stores; at least in the case of the former it worked out extraordinarily well, so JB should not be too proud to work low-status labor. That’s just to generate a positive income flow and send a signal to the next employer that one is willing to do whatever it takes to get the job done.

The second step is to identify the employment areas that are undermanned in JB’s area. I would look at technical service areas like plumbing and automotive mechanics that see constant demand regardless of the economic situation. Talk to people, find out where the shortages are, then go speak with the owners of those firms. Employers like smart worker with personal initiative, so that fact that he doesn’t know anything but is willing to learn will be a bonus. He might consider looking to see if he can combine work as a trainee and office assistant; every business needs someone to handle the paperwork and that’s something that even a molecular biologist should be able to handle.

The most important thing to understand is that “staying in the PhD program” is not working. Unless he’s got an unusually sweet deal, it’s cost compounded by debt, not income. Nor is it an “investment”, investments have expected ROI which there’s virtually no chance that anyone has actually bothered to compute in this case. And, because of the oversupply of PhDs, JB doesn’t have any guarantee of a job at the end of the process anyhow. It’s a gamble, and an expensive one with low odds at that.

I don’t know if JB’s wife is likely to pose an additional complication or not. Is social status more important than financial stability to her? On the one hand, it might be a perceived come-down to be married to an assistant pig-keeper rather than Dr. Molecular Biologist. On the other, she might prefer not to live her life trying to claw her way out of debt during a major debt-deflation cycle. So, that may be a consideration too, since divorce imposes more financial costs than a sub-optimal career.

Done, sort of

After what in retrospect looks like a ludicrously short period of time, the first draft of the new book is now in to the publisher. I’ll be sending out chapters to proofreaders tomorrow, in case you volunteered and were wondering why I hadn’t sent you anything yet. There’s still the whole editing process to go through yet, to say nothing of the various appendices, but it’s still nice to feel as if one of the major milestones is in the rear view mirror.

UPDATE – of course, this exchange of emails may not bode so well for its mass appeal:

At the cajoling of DC, I’m writing to you about the post “laughing at myself.” We were talking about it last night, and DC said that it went well above his understanding of economics. I said, “Oh yeah. I read the first sentence and looked at the chart and tried again… looked at the chart, decided math was hard and went to look at kittens.” When DC started breathing again after laughing himself silly, he told me to email that you and that it was a new level of economic geekdom that we just didn’t get.

I have no idea who this broad is or what she’s talking about. I’m assuming she’s some crazy woman with a bunch of cats. I can tell you for certain that I often encourage people to do things. Sometimes I even persuade. But I have never, ever cajoled anyone. (I’m not even sure what that means but it sounds dirty.) Also, I find your boring, laborious, snooze-fest posts on economics down-right inspiring. As a good sycophant, when I start to nod off while trying to finish one, I assume it must be because I’m stupid and my priorities are wrong. It’s just a reminder that I’m not yet perfect and I need to work harder at being like you.

Clearly I need some better sycophants. Or at least some smarter ones. And contra the notion that the new book will be a complete snoozefest, I think I can probably guarantee it will be the only one of its kind containing a quote about collecting morning dew in human skulls during the post-apocalypse.