Friday, January 11, 2008

Why Stop There?

PGL at Angry Bear, reacting to the previous post, asks why stop with criticizing Governor Romney for his pandering? It's a reasonable question, but it has the standard economic answer--diminishing marginal returns to blogging about other people's mistakes.

Thinking a bit more about it, candidates deserve less slack when they make statements that are at odds with the personas they project in the campaign. Governor Romney campaigns specifically on his experience in the private sector and its contribution to economic growth. When he panders based on moving government resources to the aid of one particular constituency, that should be identified for what it is.

PGL then takes Governor Huckabee to task for, in the context of a question about lagging economic growth, advocating energy independence without acknowledging that any path to energy independence (e.g., a carbon tax) will reduce economic well-being in the near term. PGL is absolutely right. It's another answer that doesn't add up. But lots of people say silly things about energy independence, and this one didn't grab my attention.

McCain's answer to the question was better (some reasonably straight talk about the jobs not coming back and the need for retraining opportunities). Giuliani's was awful. Thompson's answer defended Giuliani's awful answer. Ron Paul's was probably the best. Read the whole transcript here--this is the first question to each candidate. What I liked about Paul's answer was that, in the course of his rambling answer, he said:

The recession has been predictable. We just don't know exactly when it will come.

If you do the wrong thing, it's going to last for a long time. The boom period comes when they just pour out easy credit and it teaches people to do the wrong things. There's a lot of malinvestment, debt that goes in the wrong direction, consumers who do the wrong things, and businessmen who do the wrong thing.

So we have to attack this and understand the importance of Austrian theory of the business cycle. If you don't, we're going to continue to do this and the longer you delay the recession, the worse the recession is, and we've delayed a serious recession for a long time.

The housing market's already in depression and a lot of people are hurt and the standing of living in this country is going down. Look at what's happening to the dollar.

And what is being offered by the Federal Reserve and Treasury and everybody in Washington? Lower interest rates. Well, lower interest rates is the problem. Artificially low interest rates is the artificial stimulus which causes the bubble, which allows the inevitable recession to come.

So what we need to do is deal with monetary policy and not pretend that artificial stimulus by more spending is going to help. That won't do you one bit of good.
It isn't perfect, but it's pretty good. To be clear, more government spending will mechanically prop up the rate of GDP growth. As PGL notes, given the way we do budgeting in this country, that means our kids will be paying (through a higher government debt burden) for our desire to avoid a slowdown in GDP growth. Why are we entitled to their money to clean up our housing mess?

4 comments:

Anonymous said...

I'm not sure that we should assume from his less than detailed answer that Huckabee was talking only about carbon tax or cap-and-trade systems as the only steps available. I think PGL makes that assumption prematurely as do you for saying that PGL is absolutely right.

In his most recent book, Huckabee mentions, albeit briefly, lifting drilling restrictions in places like Alaska and the continental shelf as steps that could be taken towards energy independence. Do those steps have the same theoretical costs as carbon taxes and/or cap-and-trade? I'm thinking in terms of imposing deadweight loss on the energy markets.

Andrew Samwick said...

That's a reasonable point to make--there are some steps that could be taken which would increase domestic supply without additional short-term financial costs.

We should acknowledge, though, that Huckabee shouldn't be saying "energy independence." On the current point, we don't have enough fossil fuels to be tapped at low cost to become energy independent. On the larger point, we don't need energy independence--there is no reason we shouldn't trade with, say, Canada for its natural gas supplies.

Anonymous said...

Thanks for taking the time to reply. As part of the larger issue, I would have to agree with both of your follow-up critiques. They are reasonable criticisms of the answer he did give.

Anon @ 1PM

Anonymous said...

Correct. Huckabee is not arguing for energy independence from oil as much as from mideast suppliers of oil.