Paul Krugman, the Self-Contradicting Economist

...the belief that lower wages would raise overall employment rests on a fallacy of composition. In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary.

Stanford University economist Paul Krugman, however, said raising the minimum wage and lowering barriers to union organization would carry a trade-off --- increased unemployment.

Close the weak banks and impose serious capital requirements on the strong ones...You see, it may sound hard-hearted, but you cannot keep unsound financial institutions operating simply because they provide jobs. There can be a huge amount of damage a bad bank can create. There is a cruelty to our market system, but that cruelty cannot be eliminated. The alternative is fraught with danger, that of carrying on with the weak banks.

Letting Lehman fail-letting the market work, as some people said-basically brought the entire world capital market down.

Many on Wall Street are clamoring for a bailout -- for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust -- it would be saving bad actors from the consequences of their misdeeds... Say no to bailouts - but let's help borrowers work things out.

The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right thing to do - and it was done fairly well, too... So Fannie and Freddie had to be rescued...

It turns out that there's a strong correlation between budget deficits and interest rates - namely, when deficits are high, interest rates are low ... On reflection, it's obvious why...

But we're looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ''When the government reduces saving by running a budget deficit, the interest rate rises.'' 

It's a very good deal for those close to retirement who will never see the taxes that will have to be levied to pay it (the national debt), but it's a very bad deal for people early in their careers. A 30-year old, if she understood it, should be pretty upset, because when she hits peak earnings at age 50, she will be paying for spending now through higher taxes then." -- Paul Krugman, an economist at the Massachusetts Institute of Technology, commenting on the national debt climbing to the $2 trillion mark.

And tarnished credibility, along with a much-increased debt, is a problem that Mr. Bush will pass along to other Congresses, other presidents and other generations.

How, then, did America pay down its debt? Actually, it didn't... But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally... Which brings me to a question a number of people have raised: maybe we can pay the interest, but what about repaying the principal? ...But why would we have to do that? Again, the lesson of the 1950s - or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels - is that you need to stabilize debt, not pay it off; economic growth will do the rest.

Dear Alan Greenspan:

...Moreover, since you advocate accrual accounting, you obviously realize that the ratio of debt to G.D.P. is a highly misleading number.

I think they're missing the point - if even Italy can handle debt/GDP ratios of 100 percent, we should be able to do it too.

The fact is, all these promises are silly: Administrations don't cause recession and recoveries--if anyone is in charge of the business cycle, it's the nonpartisan technocrats at the Federal Reserve. 

Mr. Obama could have done the same - with, I'd argue, considerably more justice. He could have pointed out, repeatedly, that the continuing troubles of America's economy are the result of a financial crisis that developed under the Bush administration, and was at least in part the result of the Bush administration's refusal to regulate the banks.

So by all means, let's have a vigorous national debate about reforming Social Security; it can't be sustained in its present form. 

But the privatizers won't take yes for an answer when it comes to the sustainability of Social Security... Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?

The outlines of a plan that would sustain Social Security without destroying it are clear: Allow the system to invest some of its surplus in private assets, and close the system's modest long-run financial shortfall by making minor adjustments to benefits and rescinding part of the recent tax cut. 

A few weeks ago I tried to explain the logic of Bush-style Social Security privatization... you should borrow a lot of money, buy stocks and hope for capital gains... So people are expected to take a loan from the government and use it to buy stocks, and if that turns out to have been a mistake -- well, too bad...Do you believe that we should replace America's most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program's finances?

None of this says that privatizing Social Security is necessarily a bad idea.

Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse. 

The actions of labor unions can have effects similar to those of minimum wages, leading to structural unemployment.

Once upon a time, back when America had a strong middle class, it also had a strong union movement. These two facts were connected. 

Lecture: Paul Krugman rankles many when he refuses to blame this nation's woes on the global economy.

Yes, thousands of Americans have lost jobs in some industrial sectors, Krugman says. But global competition isn't to blame... "A lot of what people say about these issues is just dead wrong and silly," Krugman says.

The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.

That means that, while I believe in free trade and have no sympathy with the sort of liberalism that wants to centralize economic decision-making in Washington (cases in point: Jimmy Carter's energy planners and Bill Clinton's health planners)...

True "socialized medicine" would undoubtedly cost less, and a straightforward extension of Medicare-type coverage to all Americans would probably be cheaper than a Swiss-style system. That's why I and others believe that a true public option competing with private insurers is extremely important: otherwise, rising costs could all too easily undermine the whole effort.

''Nothing Government has done -- for good or evil -- seems to have mattered,'' concluded Paul Krugman, an economist at Stanford University. Given the size of the American economy and the difficulty of altering its course, ''it's like using a water pistol to shoot an elephant.'' 

What saved us? The answer, basically, is big government.