CNBC’s Quick uses Clinton to aim at Krugman, but shoots herself in the foot

By William K. Black
(Crossposted at Benzinga.com)

Becky Quick is a television co-host of a business entertainment program on CNBC.  She has written a column stating that Paul Krugman’s “claim that there is no fiscal crisis isn’t just laughable, it’s downright dangerous.”  She argues that the “only problem” with Krugman’s conclusion was:  “It is hard to find anyone who actually agrees with him.”  She is furious that Krugman concluded that the Bowles-Simpson austerity plan is “a really bad plan.”

Quick makes no effort to support her claim that she cannot find “anyone” who agrees that austerity as a response to a Great Recession is “a really bad plan.”  Quick’s claim is revealing about CNBC’s crippling pathologies.  She, one of CNBC’s most prominent hosts, has systematically excluded herself from obtaining any understanding of economics, from discussions with the vast majority of macroeconomists, and from any study of the European experience with austerity.  Her column exemplifies her systematic exclusion of macroeconomists who believe that austerity would be “really bad.”  Her column does not cite any economists other than Krugman.  How can one write a column about macroeconomics that attacks the conclusion (but none of the reasoning) of a macroeconomist who is a Nobel Laureate, and assert that no one agrees with the his views?  Here’s a hint for Quick’s consideration – one does not receive a Nobel Prize if no one in your field agrees with your scholarship.

Any macroeconomist in the world could have explained to Quick why Krugman concluded that austerity in response to our Great Recession would be “a really bad plan.”  In a severe recession private sector demand is already deeply inadequate to produce full employment and strong economic growth.  Cutting public sector demand (which is what austerity programs that cut public spending do) or further cutting private sector demand (which is what (net) tax increases can do) leads to increased unemployment, a weak recovery or even a return to recession, and can lead to an increased deficit.

One of the facts that Quick does not appear to understand is that a nation cannot simply choose to eliminate a budget deficit by raising taxes, cutting public spending, or doing both simultaneously.  Austerity in response to a Great Recession is a pro-cyclical policy that can make the recession and the deficit worse.  The U.S. has long deliberately created “automatic stabilizers” that produce counter-cyclical effects.  The automatic stabilizers have made recessions less severe and have made the recoveries from recession prompter and more effective.  Krugman, in opposing a pro-cyclical policy like Bowles-Simpson’s austerity program, is expressing a view that lies in the center of core macroeconomic principles that the field overwhelmingly supports.  Krugman’s criticism of pro-cyclical austerity policies in these circumstances has overwhelming empirical support.  The European Union’s embrace of austerity has thrown the Eurozone back into a gratuitous recession and Greece and Spain into Great Depression levels of unemployment.  It has not produced balanced budgets.  Even bastions of theoclassical economics like the International Monetary Fund (IMF) have warned that austerity makes recessions worse and can increase rather than shrink budget deficits.

Clinton’s “damning retort to Krugman”

Quick rests her assertion that austerity would be desirable on her idiosyncratic view that Bowles-Simpson’s austerity is a thing of “beauty.”  She asserts that its “beauty” arises from causing all Americans to suffer – gratuitously – thereby “unify[ing] the country.”

“As President Clinton notes, nearly every constituency will find some part of it hard to swallow. But the beauty of the [Bowles-Simpson austerity] plan is that it attempts to unify the country through shared sacrifice that is also grounded in some form of fiscal reality. And there’s nothing ‘really bad’ about that.”

Her only effort to support the desirability of austerity, citing Clinton’s ode to “shared sacrifice,” fails to meet even minimum conditions of logic.  First, causing some citizens to suffer is a bad thing, not a good thing.  Second, causing everyone to suffer is a very bad thing.  Third, one should not cause such suffering unless doing so is essential to achieve some vital purpose and will be successful in achieving that purpose.  Fourth, austerity as a response to a Great Recession demonstrates “fiscal [un]reality.”  Fifth, labeling what austerity produces a “shared sacrifice” is attaching a deliberately romantic phrase to an ugly reality that warrants a label with the opposite connotation.  The sacrifices that austerity will force on working class Americans will include losing their jobs and homes, seeing their families become homeless, losing their health insurance, losing their ability to send their kids to college, and having their food stamps and unemployment insurance cut by austerity.   The top one percent’s sacrifice will consist of having their savings – ranging from tens to hundreds of millions of dollars in investments – reduced by tens of thousands of dollars.  You know – shared sacrifice – where all the real sacrifices are by non-wealthy Americans.  Sixth, the claim that this form of faux shared sacrifice will “unify the country” is preposterous.

It is bad enough that the Quicks of the world are pushing a self-destructive fiscal dogma that has caused millions of people (including millions of children and grandchildren) to lose their jobs and homes and thousands to lose their lives.  It is obscene that the proponents of this vicious policy pretend to virtue.  They pretend to be the guardians of our children and grandchildren – while throwing millions of them out of their homes and hurling millions into poverty and hunger as a result of austerity policies that Quick’s column admits “slow the economy, cut jobs, and increase deficits.”  Lying to the victims of austerity by claiming that their “shared sacrifice” is essential to improve the economy when it will actually “slow the economy, cut jobs, and increase deficits” is a reprehensive action.  Calling austerity “grounded” in “fiscal reality” when you cite favorably the conclusion that it will “slow the economy, cut jobs, and increase deficits” is either a brilliant demonstration of ironic humor or conscious CNBC-class(less) cynicism.   I prefer to believe that Quick is a natural humorist of heroic proportions who on a daily basis demonstrates the absurdity, depravity, and grave dangers of modern finance.

The logic chain discussed above brings us back to the fundamental macroeconomic issues that Krugman gave completely conventional answers to when he concluded that adopting austerity in response to the Great Recession was “a really bad plan.”  It is not desirable, much less essential, to adopt pro-cyclical policies that make the recession worse.  A plan that helps people, rather than causing them to suffer, is a very good (counter-cyclical) policy in response to a Great Recession.  Unemployment insurance payments to those who lose their jobs in a Great Recession reduce suffering and speed economic recovery.  Counter-cyclical programs produce a “win-win” rather than the “lose-lose” produced by austerity.  Quick asserts that Bowles-Simpson’s primary virtue is “shared sacrifice” – a classic lose-lose.  Unfortunately, austerity actually produces a “lose-lose-lose.”  The cuts in public services, at the time when those services are most needed, harm recipients.  The increased taxes harm taxpayers.  The combined effects make the recession worse – hurting everyone.  If the recession becomes sufficiently severe due to the austerity program the budget deficit can increase rather than decrease.

Quick relies on Bill Clinton as her expert, but the written statement that Clinton gave Quick supports Krugman’s position.  Here is the full text of Clinton’s statement provided by Quick.

“While everyone can find things to disagree with in the recommendations of the Simpson-Bowles commission, I believe it got some big things right: The debt will become a much bigger problem when normal economic growth returns and causes interest rates to rise; passing a credible 10-year plan now will keep the government’s borrowing costs much lower than they will be without one; it’s important not to impose austerity now before a growth trend is clearly established, because as the austerity policies in the eurozone and the U.S. show, that will slow the economy, cut jobs, and increase deficits; and any credible deficit-reduction plan requires three things — spending reductions, revenue increases, and economic growth.”

Clinton agrees with Krugman’s opposition to “austerity now” and he supports Krugman’s rationale for opposing it.  Clinton cites the EU’s disastrous experience with austerity and concludes that if it were adopted in the U.S. it would “slow the economy, cut jobs, and increase deficits” – the classic lose-lose-lose.  Quick describes Clinton’s statement as a “damning retort to Krugman.”  Quick has an idiosyncratic definition of “damning” (or a gift for irony).  Clinton’s statement damns Krugman with fulsome praise.

Quick also knows that Krugman believed that Bowles-Simpson was a bad plan because it was not a real plan.  It fails to identify a large portion of its spending costs.  It does not seek to cause equal suffering.  The working and middle classes do most of the suffering.  Quick knows Krugman’s views because he told her why the Bowles-Simpson plan was a bad plan when she interviewed him on her program.

The remainder of Quick’s rant about debt, deficits, and the safety nets relies entirely on adjectives and the use of large numbers.  Quick misses the key analytical point that the size of the debt or deficit numbers is not the key – the question is whether “austerity now” will harm economic growth.  Clinton agrees with Krugman that it will.  Indeed, Clinton warns that “austerity now” would increase the deficit – making those large numbers that terrify Quick larger.

Quick also gets entitlements wrong.  She asserts that “the longer we wait to discuss the real problems in entitlement programs and enact changes like this, the more draconian the fix will need to be.”  The opposite is true, for the reasons Clinton explains.  “Austerity now” would slow growth, cost us jobs, and increase the deficit.  It would intensify any difficulties in funding entitlements.

It is ironic that Clinton’s statement refutes Quick’s final denunciation of Krugman, contained in the next sentence of her column.  “That’s why Krugman’s claim that there is no fiscal crisis isn’t just laughable, it’s downright dangerous.”  Quick’s false premise, rejected by Clinton, is that we need “austerity now” because “the longer we wait” the “more draconian” the austerity required.  Clinton agrees with Krugman that “austerity now” would cause our economy to fall into recession.  Governor Romney agreed with Krugman’s position in his May 23, 2012 interview with Mark Halperin in Time magazine.

Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office?  Why not do it more quickly?

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.”

Contrary to Quick’s assertion that no one agrees with Krugman, it turns out that Clinton, Obama, and Romney, plus the IMF, agree with Krugman (and most economists) that it is essential that we “wait” “longer” before we even consider austerity.  It turns out the policy that they all agree is “dangerous” is Quick’s desired policy of “austerity now.”  Quick’s understanding of economics and Krugman’s views is so tenuous that she failed to recognize that her claim that Clinton’s statement exposed Krugman as a deranged and dangerous academic ignorant of economics was blown out of the water by Clinton’s statement.  Clinton’s statement is a paean to Krugman’s opposition to “austerity now.”

It is important for the world to learn that Quick thinks that Krugman is unique in opposing “austerity now” and that her CNBC co-host, Joe Kernen, believes that Krugman must be a fictional “unicorn” because he cannot conceive that an economist could oppose “austerity now.”  Economists have long realized that the preferences we “reveal” by our actions (and inactions) are far more reliable demonstrations of our true preferences than are statements we make about our preferences.  Instead of “revealed preferences,” Quick’s column demonstrates “revealed ignorance.”  Her embarrassing attempt to embarrass Krugman by using a Clinton statement that endorses Krugman’s opposition to “austerity now” reveals how effectively CNBC excludes any real knowledge of economics, economists, and Europe from the content of its business entertainment programs and from their hosts.

Quick’s column is a self-inflicted wound designed as payback for Krugman’s evisceration of  Quick and Kernen on their July 11, 2012 program.  Krugman repeatedly corrected their factual errors.  Kernen “welcomed” Krugman with this greeting:

“‘I was excited when you were coming in because I view you almost like a unicorn, almost, that you really exist in real life,’” Kernen said.  ‘I’m confounded when I read your pieces.’”

Krugman’s comment on the experience of being on Quick’s show was that he had to correct “one zombie idea after another.”  He concluded:  “People getting their news from sources like that are probably getting terrible advice about any kind of investment that depends on macroeconomics.”

Quick and Kernen, are the Stephen Colberts of business entertainment, except that they are incapable of intentional irony.  Here is Kernen’s attempt at humor, in response to a question posed by CNBC.

Question: Will the White House change hands?

Kernen: Yes, and it will be occupied by someone born in the United States.”

I have not read such a sophisticated Birther joke in minutes.  Kernen wrote: Your Teacher Said What?!: Defending Our Kids from the Liberal Assault on Capitalism (2011).  The sequel will cover the Popes’ assault on capitalism and the Gospels’ assault on the wealthy (Matthew 19:24; Mark 10:25; Luke 18:25).  (The book’s subtitle is:  “And the Camel you rode in on: who wants to go through the eye of a needle anyway?”)

The third volume will decry Jesus’ assault on the Temple moneychangers and vendors (denouncing them for turning a “house of prayer” into a “den of thieves) and his leadership of the anarchistic Occupy the Temple movement (Matthew 21:12-13).

Quick and Kernen will then co-author:  The Joy of Serving Mammon.  This volume will develop themes Quick first explored in her April 5, 2011 column entitled: Fed should focus on inflation, not jobs.

That column begins with a two-sentence summary of her argument.

“Ben Bernanke and the Federal Reserve have the authority to curb unemployment. Here’s why they shouldn’t.”

The main text of her column begins:

“‘No one can serve two masters.’ So says Jesus in the Bible. And so say a growing number of critics concerned that the Federal Reserve is being stretched thin by the two mandates with which it is charged.”

Quick not only looks angelic, she knows the Gospels and believes we should follow Jesus’ lessons even in the most esoteric financial context (how to run a central bank).  Specifically, she invokes Matthew 6:24.

“No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.”

She concludes that the Fed should have its statutory authority to follow policies to maximize employment consistent with price stability eliminated and should be concerned solely with preventing inflation.

What depths of theology she plumbs!  We should not be surprised that her instinctive genius for unintentional self-parody extends to theology.  In case the point is not obvious, she asks us to interpret a Gospel in which Jesus warns us not to serve money (mammon) because if we do we will despise God and his teachings.  Those teachings suffuse the Gospels and call on us to live lives dedicated to helping those in need.  Quick applies that teaching to urge us to remove the Fed’s requirement to serve those in need (the unemployed) and serve solely the interests of money.  She urges us to make the Fed serve the “den of thieves” who love mammon and despise God and his shameful concern for the moochers.  If God loves the 47%, he makes them “victims” and denies them the “self-respect” that can only come from taking “personal responsibility.”

Using a Gospel verse dedicated to warning us that we become the enemy of God when we disregard the unemployed and love mammon as your lead rationale for disregarding the unemployed and serving mammon is an act of exquisite irony worthy of Colbert.  The only question is whether Quick is too subtle for her audience.  The audience for her columns is a group that loves mammon so unreservedly that it subscribes to a magazine entitled “Fortune.”  The audience for her televised business entertainment program’s greatest joy comes from listening from sermons by Saint Santelli – the patron saint of Mammon who thunders at the perfidious poor and celebrates the Gospel of Greed.

Quick’s claim that the Fed’s central problem was its undue concern for the poor is an idea of comic genius.  Her set up for the joke is also wondrous.  She bemoans the fact that the Fed has a statutory duty to prevent unemployment.  Quick contrasts the Fed unfavorably to the European Central Bank (ECB).  In a surrender to Berlin’s demands, the ECB’s sole mission is preventing inflation.  At the time Quick wrote her column it had become clear that the ECB and the EU’s combined austerity policies were causing a gratuitous recession throughout the Eurozone and a Great Depression in Spain and Greece.  The ECB had already been forced to expand its mandate to serve as a lender in order to prevent the financial collapse of the EU.  By recommending the ECB failed model rather than the Fed model Quick was providing economic advice that was so bad that its political equivalent would be advising a newly independent nation to use the Articles of Confederation as their template rather than the U.S. constitution.

Quick’s set up for her “let’s ape the ECB” joke was also clever because it showed that the Fed has long been controlled by dogmatic leaders who violated their statutory duty to seek to minimize unemployment.

“What the Fed took away from those difficult years is the fundamental knowledge that — dual mandate or not — the goal of low unemployment had to take a backseat to the goal of fighting inflation. Price stability was understood to be the most important job of the central bank, with the belief that all other aspects of a strong economy would flow from that.”

Quick calls the Fed’s decision to deliberately misinterpret its statutory duty the product of “fundamental knowledge” – but the reality is that it was the product of primitive dogma.  The Fed was devoted, for decades, to annually sacrificing millions of workers’ jobs on the altar of Mammon under the delusional belief that doing so was essential to placate the inflation gods and prevent them from causing Weimar on the Potomac.  This was the era of the “Phillips curve” and the premise was that full employment must be avoided because it led inevitably to inflation and economic ruin.  Except that it did not.  Nations, including the U.S., have repeatedly shown that they can have high employment and avoid serious inflation.

My reading of years of FOMC minutes of meetings held during the run up to the ongoing crisis showed that the members of the FOMC overwhelmingly realized that there was no need to sacrifice the jobs of millions of people annually in order to avoid serious inflation.  Full employment produces robust economic growth, reduces poverty and inequality, and pushes national budgets towards surplus by greatly increasing tax revenues and materially reducing social service expenditures.

Quick’s ode to the Fed deciding secretly, based on their dogma’s false claim to “fundamental knowledge” that it was essential to sacrifice millions of jobs annually, to ignore its legal duty displays a wonderfully cavalier approach to the rule of law.  Why should the Fed, the high priests of the cult devoted to serving Mammon, follow the rules of man or God?  Proving her ironic gifts, Quick cites Mammon’s fallen Angel, the Maestro who began his worship of Mammon when he joined the cult of Ayn, to criticize the Fed’s decision to stop making millions of the unemployed their burnt offerings.

“It’s a prioritization that Greenspan believes in to this day.  ”A necessary condition for long-term unemployment is low inflation,” Greenspan said recently on Squawk Box. ‘If the Fed does its job and stabilizes the inflation rate, that’s the maximum that the central bank can do.’”

Why should the Fed ignore its statutory mandate when inflation is low and tens of millions are unemployed?  Who would rely in 2011, without any display of irony, on Greenspan for advice on how to run the Fed?  Quick displays comic genius.  Her dead pan(dering) delivery of odes to the Greenspans of the world is iconic.  There is nothing like celebrating the greatest failures of finance by pretending that they are your heroes to demonstrate how farcical finance has become.

Quick then returns to her ode to the Fed’s long-standing policy of refusing to honor its statutory mandate to seek full employment and its callous and gratuitous sacrifice of workers’ jobs.

“But now even sitting Fed officials worry that this once-unassailable directive [to ignore the statutory mandate to seek full employment] could be forgotten. ‘This crisis has been so large, and it’s taking such a long time to come out of this recession,’ frets James Bullard, the president of the St. Louis Federal Reserve Bank, ‘that it’s upset some of the consensus that was formed in the ’80s, ’90s, and 2000s.’

Think that’s an overreaction? Maybe. But Dan Thornton, a researcher at the St. Louis Fed, found a subtle but concerning trend analyzing policy statements from the Fed’s Open Market Committee, which sets monetary policy for the nation. He looked at statements all the way back to 1979, and found no reference to the objective of maximum employment anywhere — until Sept. 21, 2010.”

What awesome irony lies hidden in the apparent stupidity and moral obtuseness of this passage.  Quick complains that the Fed has “forgotten” not the law but its conspiracy to ignore the law.  Why has the Fed engaged in the sin of having “forgotten” to ignore massive unemployment?  The Fed Governors are worried that the severity of the Great Recession is causing grave harm to our economy and suffering to our people.  Quick quotes Thornton, the St. Louis Fed’s president, who is “worr[ied]” because the Fed is so worried by the Great Recession that it has begun to consider committing the high crime of obeying the law.

Among the temples devoted to the veneration of Mammon, the St. Louis Fed is the most ultra-orthodox.  They enter a state of religious ecstasy when they celebrate the sacrifice of workers’ jobs on their “Austrian” altar.  Their devotion to their Austrian economics dogmas is so complete that they never care what damage they cause to our nation and never learn, because error is impossible when one’s theology consists of a single commandment: worship “free markets” because they are self-correcting and infallible. The St. Louis Fed provides many of the zealots who seek to destroy effective regulation and supervision and help produce the criminogenic environments that cause the epidemics of accounting control fraud that drive our financial crises.

Quick ends by documenting that the Fed Governors and the FRB presidents violated their statutory mandate for three decades when meeting as the FOMC.  Not one of the FOMC policy statements even paid lip service to complying with the law.  Quick’s joke is picturing these decades of the Fed senselessly costing millions of Americans their jobs because they ignored their statutory duty and were economically illiterate as the good old days.  She pretends to pine for the days when the Fed’s variant on Joshua 24:15 was “as for me and my house, we will serve Mammon.”

What policy did she want the Fed to follow in 2011 when she wrote this column?  She wanted the Fed to raise interest rates to prevent inflation.  During a weak recovery from the Great Recession her worry was that we would worry about unemployment and fail to raise interest rates.  She wrote to warn us that the Fed was failing to throw the nation back into the Great Recession.  Yes, you now understand her comedy routine:  she is pretending that it is outrageous that the Fed had finally begun to comply with the law requiring it to aid full employment and that the result of its following its statutory mandate is that, unlike the ECB and Eurozone, the U.S. has not been thrown back into a gratuitous second recession.

 

Quick’s Riff on Policy by Interpolation

 Quick also wrote a column (“As America’s deficit crisis looms, fiscal Hawks and Doves need to make peace”) in September 2010 satirizing the dispute between the deficit hawks and doves.   (UMKC economists form a third alternative – the owls.)  As with her column about the Fed, she assumes the guise of a deficit hawk, warning, repeatedly, that severe inflation and incredibly high interest rates are just around the corner – as the opposite occurs (as the doves and owls predicted).  She begins her column by warning that our budget deficits are increasing our national debt and creating “a bleak future for America.”

“Our national debt as a percentage of the economy is more than 61%, breaching the 60% line for only the second time in the nation’s history. (The last time was during World War II.) In 10 years, the Congressional Budget Office estimates, we will be spending more on interest payments to service that debt than we will for all nondefense discretionary spending, which includes education and infrastructure. And that’s assuming interest rates don’t go up from where they are now, at virtually zero.

It doesn’t take a Ph.D. in mathematics to realize that those numbers add up to a bleak future for America. And yet despite this mounting evidence of a looming budget crisis, we as a nation just can’t seem to focus on tackling the issue.”

Quick’s humor varies from subtle irony to pratfalls.  Consider her parenthetical – the last time we “breach[ed] the 60% line” “was during World War II.”  There is, of course, no “line.”  Nothing happens when the debt exceeds 60% of GDP.  As late as 1955, debt was 57.2% of GDP.

But, like Professor Hill in “The Music Man” Quick is satirizing the ability of charlatans to gin up a “moral panic” over even innocuous events (such as a pool hall in River City, Iowa).  Her parenthetical provides the broad wink.  The last time our debt exceeded 60% of GDP was actually 1952, seven years after the war ended.  The obvious questions about the debt in 1941-55 include:

  1. Did the debt create “a bleak future for America?”
  2. Did something magic happen when the debt exceeded 60% of GDP?
  3. Would we have been better off if we had not increased the debt as a percentage of GDP during that period?
  4. And if we expand the time period, did we improve the economy when FDR listened to his economic advisors and tried to balance the budget in 1937 during what had been a strong recovery from the Great Depression?

The answer to each question is “no.”

Running very large deficits in response to the Great Depression and World War II was the best possible response to both crises.  The effort to balance the budget in 1937 was a disaster – hurling the U.S. back into the teeth of what became the second phase of the Great Depression.  Nothing magic happened when the debt exceeded 60% of GDP.  So, if this time period is our only experience with higher debt-to-GDP ratios that allows us to evaluate the effects of such debt levels on the “future of America” the answer is that it predicts an exceptionally bright, rather than “bleak” future.

One presumes that Quick is aware that the U.S., during the period it ran relatively large deficits during and after World War II, came roaring out of the Great Depression, defeated the fascists in Europe and Asia, achieved full employment, began providing a safety net for the elderly, sparked a miraculous European economic recovery, brought college education to the middle-classes, created tens of millions of housing units to house the millions of newly formed families, began building the interstate highway system, and began an unprecedented era of American economic dominance.  She is also presumably aware that the economic growth reduced the debt as a percentage of GDP and that all of this was done without any period of inflation that proved destructive to economic growth.  This is why one hopes that she wrote this column as a satire.  She cites our most recent historical experience with debt exceeding 60% of GDP – a success of epic proportions while endorsing the deficit hawks’ claim that this experience proves we are inescapably headed to disaster.

I particularly enjoyed her riff on mathematics – “It doesn’t take a Ph.D. in mathematics to realize that those numbers add up to a bleak future for America.”  This foreshadows nicely Bill Clinton’s iconic emphasis on “arithmetic” in his convention speech on behalf of Obama.  Actually, Clinton and Quick are wrong about arithmetic, and their error has a great deal to do with thinking that nations are just like households when it comes to budgets and that arithmetic is all one needs to evaluate what will happen as a result of a national government’s fiscal policies.  An individual household’s budget decisions do not affect the overall economy.  That is not true of a national budget, which embeds the nation’s fiscal policy.  A nation’s fiscal policy can have a dramatic effect on the overall economy.  This means that the interaction of fiscal policy and the economy is not a matter of simple arithmetic the way a household budget is.  Instead, it is a dynamic, inter-active relationship.  Higher forms of mathematics that are part of a Ph.D. student’s studies are essential to produce the simulations that are used to forecast the effect of fiscal policy on the economy.

Contrast a household’s budget with that of a national government.  If my household raises its income by $10,000 (after taxes) and we do not increase our spending then it is a simple matter of arithmetic.  Our household’s net worth will go up by $10,000.  If we borrow $50,000 and use the proceeds to buy a car, then our debt goes up by $50,000.  It is a simple matter of arithmetic.  But when a national government changes (net) taxes during a Great Recession one cannot predict the budgetary effect through simple arithmetic.  A (net) tax increase may further reduce already inadequate private sector demand, which can cause the recession to deepen, further reducing tax revenues and increasing expenses for programs such as unemployment payments and food stamps.  Cutting governmental programs will reduce public sector demand and can cause the recession to worsen.  Taxes affect the spending decisions of scores of millions of households and changes in government spending affect the spending decisions of tens of millions of households.  Arithmetic works great for most static relationships but fiscal policy is inherently a dynamic relationship.  (Deficits also are completely different for a household than a national government with a sovereign currency, but that is a broader discussion and this column is already lengthy.)  Clinton’s written statement to Quick shows that he knows that a fiscal policy of “austerity now” would produce a perverse dynamic effect that would “slow the economy, cut jobs, and increase deficits.”

Quick’s column on the deficit hawks and doves has a hero and a villain.

“[M]ost [politicians] are far too concerned about their own political fortunes in the next few months to worry about troubles that won’t squash us for several years to come. That’s why you don’t often hear Washington types proposing specific plans that would require public sacrifice to control those deficits.

One of the rare exceptions to that rule is Paul Ryan (R-Wis.), the ranking member of the House Budget Committee, who earlier this year rolled out his proposal for wrestling with our budget deficit. His plan includes things like creating a flat tax with two rates for individuals and reforming Social Security benefits for those age 54 and younger.

As you might imagine, it’s the type of plan that creates enemies because it would inflict pain on many constituencies. One of those enemies is New York Times columnist Paul Krugman, who attacked Ryan with a column headlined THE FLIMFLAM MAN. Krugman calls Ryan’s plan ‘a fraud that makes no useful contribution to the debate toward America’s future.’ It seems a harsh rebuke for one of the few politicians actually willing to offer a proposal on such a huge problem.”

No surprise that Quick, playing the role of a deficit hawk would make Ryan her hero and Krugman her villain.  One of the modern proofs of the existence of God is that Fox News proved the correctness of Krugman’s explanation of why Ryan was a fiscal “fraud.”  The Fox reporter asked Ryan to rebut charges that he had no real plan by setting out the tax deductions he would eliminate or cap.  Ryan failed to provide any deductions he intended to cut claiming that it would “take too long” to identify any of deductions because it involved “math.”

Priceless!

Quick misses two additional reasons why Krugman opposes the Ryan “plan.”  Its version of “shared sacrifice” is that the middle class and below will sacrifice and the wealthiest Americans will be made even wealthier.  The third basis for opposing the Ryan plan is that he describes it as an austerity plan.  That would be immensely destructive for the reasons explained by Clinton to Quick.

But the primary reason I include a discussion of this column by Quick is her comedic proposal for how policy disputes should be resolved – interpolation.

“It’s easier to understand — if not excuse — Krugman’s lack of civility when you consider that in the rarefied circles where budget deficits are actually debated, there are two camps: Those who believe that the only way to cut the deficit is by jacking up taxes, and those who think the only solution is to slash public spending. Krugman, obviously, comes from the former camp, which is looking to spend more federal money to bail out a sputtering economy.

Now, I’m not pretending to be any sort of an expert in these matters. And unlike Krugman, I did not win the Nobel Prize for economics. But common sense seems to dictate that both camps have a point, and that they may need to meet somewhere closer to the middle.”

Nearly every sentence of these two paragraphs is composed of howlers.  The co-host of the CNBC program best known for Saint Santelli’s rants against the poor and rudeness to Obama pretends to be shocked that Krugman has exposed Ryan’s “plan” as a “fraud.”  On CNBC, it is not “civil” to call a conservative fraud a fraud.

There are not “two camps” when it comes to deficits and the deficit hawks and doves do not divide along the lines Quick draws.  The doves believe that “austerity now” would be disastrous and split about how to deal with the so-called “structural” deficits once the economy recovers.  Krugman and Clinton do not believe that we should be “jacking up [net] taxes” now.  (Some of the doves believe that we should end the Bush tax cuts for the wealthy but cut other taxes.)  The deficit hawks (typically) support “austerity now.”  They split on whether to try to do this primarily through budget cuts or tax increases.  The deficit owls see the doves and hawks using deficits as their excuse to unravel the safety net an action that we view as unnecessary and harmful.

My focus is on Quick’s claim that “common sense seems to dictate that both camps have a point, and that they may need to meet somewhere closer to the middle.”  Her rationale for policy by interpolation exemplifies the fake symmetry school of thought.  Her “common sense” informs her that all policy positions that she defines as “hav[ing] a point” should be treated as equally valid.  We should choose our policies by interpolating between the two positions.  It’s a fabulous riff because it exemplifies why the ultra-right strategy of adopting ultra-extreme policy positions has been so successful with the media.  We could choose the position of the expert who had proven repeatedly correct who was expressing a policy view supported by theory and experience or we could choose the position of a faux wonk with a fraudulent “plan” that would “slow the economy, cut jobs, and increase deficits.”  Quick, rather than research the question and decide who was correct, calls for us to interpolate between their positions.

Quick’s interpolation theory of public policy is significantly insane.  What should our policy be towards gays?  Some people believe we should execute them and some people believe we should ensure equal rights.  Let’s “meet somewhere closer to the middle” and just imprison gays.  Some people believe we should kick Muslim Americans out of the country and ban Muslims from coming to America and some people believe we should follow the First Amendment.  Let’s interpolate and just put them in camps the way we did Japanese-Americans.  Let’s interpolate our position on rape, contraceptives, IVF, and abortion.  Common sense tells us that the answer must lie somewhere closer to the middle of the views of Todd Akin, Joe Walsh, and Richard Mourdock.  The right has figured out the optimal game theoretic strategy to influence the media when it operates through interpolation – move your position as far to the right as possible, which redefines the “middle” as your original, extremely conservative position.

The bible has a significantly different take on how to decide policy disputes.

Elijah went before the people and said, “How long will you waver between two opinions?  If the LORD is God, follow him; but if Baal is God, follow him.”

1 Kings 18:21.

Quick and Kernen’s special talent is generating a non-stop stream of unintentional self-parody.  Unlike Colbert, they don’t need a staff of professional comic writers.  Quick and Kernen write and improvise their own jokes, sometimes book-length.  Krugman was simply being cruel and demonstrating his inability to identify ingenious irony when he complained that Quick and Kernen’s continual comic creativity consisted of a ceaseless cascade of “zombie ideas.”

Quick’s instinct to hit back at Krugman is understandable.  Relying on a statement by Clinton to discredit Krugman on an issue of macroeconomic theory was inherently a foray into the theatre of the absurd.  Her reliance on a Clinton statement that supports Krugman’s views and refutes the views she expressed in her column moved that column into the category of brilliant, albeit unintentional, self-parody.  Her zombie columns prove the truth of Krugman’s description of the CNBC hosts as purveyors of “one zombie idea after another.”  We all need to urge Krugman to be open to the improvisational genius it takes for Quick and Kernen to demonstrate on a daily basis the lunacy of the world of finance and the dogmas that create that lunacy.

 

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

Follow him on Twitter: @williamkblack

26 Responses to CNBC’s Quick uses Clinton to aim at Krugman, but shoots herself in the foot

  1. John O'Connell

    Simpson-Bowles, Obama, Romney, Clinton, and even Krugman all advocate the same thing: balance the budget after the economy gets back to a more normal path of growth. None of them are advocating “austerity now”, while still in recession. Yet, they are all still wrong, as readers of NEP well know.

    If no economists agree with this strategy, how is it that all the politicians like it? (I don’t buy the idea that they are the 1%, and that if they can harm the 99% even more than they harm themselves, they will be happier. I subscribe to the idea that one should not attribute malice when simple incompetence is a sufficient explanation.)

    I think there are economists at the IMF and World Bank who have consistently imposed conditions of “austerity now”, similar to what is going on in Europe today, for decades.

    I hope someday there will be unanimity among economists that MMT is right. It’s not today.

    • “None of them are advocating “austerity now”, while still in recession.”

      How do you figure? Obama has said repeatedly that addressing the “fiscal cliff” is his first priority. I can only assume that Mitt thinks the same, if it even makes sense to assess any statements from these two chameleons. Krugman, probably yes. Clinton, who really cares?

      • John O'Connell

        “addressing the fiscal cliff” means AVOIDING austerity now. The fiscal cliff, if allowed to happen, would sequester $1T of spending and raise income tax rates to Clinton levels, before the Bush tax cuts. That’s the austerity they all want to avoid, not advocate.

        • That is your interpretation of the plan, sure, but no one has said as much. There will be no agreement on a debt deal if taxes stay the same and spending doesn’t go down.. that would be known as ‘kicking the can down the road”. Maybe they will put off the decision for another year, but right now all the rhetoric I hear from both sides, as well as the corporate CEO’s (the owners of our country), is how to cut our spending “responsibly”. If you look at the deal that was almost agreed to last summer, you see Medicare, SS, education, etc., all on the chopping block.

          • John O'Connell

            Not sure what “plan” you’re referring to. The fiscal cliff is not a plan, it’s already enacted into law. The $1T sequester and tax rate changes are certain, and will happen if Congress does not act. (But don’t worry, they will act.)

            If you mean a “plan” to do something different in 2013, I’ve heard of no specifics. Neither side has said to simply defer it all for another year, but I think something very similar to that is the most likely outcome. Probably with another commission to study it while we wait. (I’m assuming there will not be a one-party Congress and Executive such as in 2008-9, in which case that one party will probably dictate their solution without compromise.)

            Anyway, all the plans that have been revealed are based on 10 years. Obama says he will reduce the deficits by $4T over 10 years. But it’s not $400B a year for 10 years. If you look at the timelines, it all happens after he leaves office. For the first several years, deficits stay the same, and then at the end they drop dramatically. (That’s what the CEOs mean by “responsibly” cutting the deficit. Not now. Manana.) Romney’s plan is similar with respect to the timeline, except that in reality his tax cuts would increase the deficit starting out, which is a Good Thing.

            The benefit cuts (e.g., Ryan’s plan, or Simpson-Bowles, and all the others) in SS and Medicare don’t even start to take effect for at least 10 years. Nobody is proposing to cut them in 2013, except for the reduced payments to physicians that are in Obamacare and will be reversed. Those programs are not causing any anxiety in the current year’s budget, their “problem” is one of “unfunded liabilities” far in the future.

            • http://www.cbpp.org/cms/index.cfm?fa=view&id=3844
              Bowles-Simpson
              Looking at tables 3,4,7 we see immediate cuts in spending and entitlements starting next year.

              http://crfb.org/document/analysis-presidents-fy-2013-budget
              Obama Budget
              Figure 1 shows immediate decreased spending/increased revenues starting next year.

              Haven’t looked at Sir Mitt’s yet, but I imagine it would be the same or worse. What am I missing here?

              • John O'Connell

                Well, from your first link:

                “Enacted spending cuts. Finally, when Bowles and Simpson crafted their plan, the most recent year for which policymakers had enacted full-year appropriations was 2010, and the Congressional Budget Office (CBO) baseline for discretionary funding reflected the 2010 levels, adjusted for inflation in future years. Since then, policymakers have enacted large cuts in discretionary programs; indeed, they have enacted 70 percent of the discretionary savings that Bowles-Simpson called for. Under the caps on discretionary funding in last year’s Budget Control Act (BCA), discretionary spending will be $1.5 trillion lower over 2013-2022 than under CBO’s 2010 baseline. Including the associated interest savings, the total budget savings reach $1.7 trillion.”

                Congress has enacted $1.5T of spending cuts already, and yet spending has increased. It is certainly not $1.5T less than before, nor even $150B per year less than before.
                It is higher than before.

                But how is this possible? Because the “cuts” are the difference between some “baseline” plan, which is a plan for constantly increasing spending, and some new proposal, which is also for constantly increasing spending.

                Spending in 2013 will be higher than 2012, if the fiscal cliff is avoided.

                The 2nd link contains similar comparisons, indicating smaller spending increases than the straw man increases. From Obama’s own web site http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf

                2011 spending: 3603B
                2012 spending: 3796B
                2013 spending: 3803B

                And that’s with real cuts to defense discretionary spending, from $530.5B in 2012 to $525.4B in 2013.

            • Apparently the site doesn’t let me reply any further to the lower posts, so I have to respond here. This discussion highlights one of the problems I continually face with educating myself essentially through the internet – the disappointing lack of interactivity between users. I sense there is a great deal I’d like to discuss more with you on the topic but it becomes too difficult to have a back-and-forth through a comments section, and paying to go back to school is just too damn expensive :)

              The main point here is whether the government is taking more money out of the economy at the end of the day than it did the previous year. The deficit numbers, whether through tax revenues or the spending side, are clearly going down in all of the links here, including yours (Table S.1)… whether in dollars terms or as a % of GDP. And not by small amounts either. You chose to highlight the dollar numbers on the spending side, but if you look on a % of GDP basis, that number is going down substantially starting next year.

  2. The Nobel prize that Krugman received in 2008 for his work on international trade didn’t have anything to do with the current situation. You probably shouldn’t pay any attention to his opinions on rodeo or geriatric medicine, either. It might have been more well-deserved than Obama’s peace prize, though.

  3. First, great and entertaining article. Thanks, Professor Black. (Loved the Bible quotes since the Religious Right claims the Bible is their authority but are mostly ignorant of it it seems.)

    The debt will become a much bigger problem when normal economic growth returns and causes interest rates to rise; Bill Clinton

    That’s irrelevant, Mr. Clinton, since the US Federal Government, being monetarily sovereign, has no need to borrow and indeed should not borrow since such borrowing is “corporate welfare” (Professor Bill Mitchell’s words). Instead, all future deficits (and “deficts” by the monetary sovereign should be the norm, not the exception) should be financed with pure money creation and the current National Debt paid off as it comes due the same way.

  4. I think you could’ve saved yourself some time here, Bill, and simply wrote: “Reminder: CNBC is still a mainstream, corporate-owned television channel”.

  5. Does the Fed have any control over economic growth or inflation?

  6. Becky Quick is typical of so many people in this country who still cling to the out-dated and pompous self-righteousness of Neo-Liberal “theology.” These are intellectually lazy people who fail to understand the prudency and morality involved of continuously reviewing the self-righteousness of their belief systems. It’s been going on for a very long time, for example, Galileo and Pope Urban VIII.

    • The self-righteousness is uncalled for given the fact that the banks are a government enforced/backed counterfeiting cartel and that only the Federal Government has the power to undo the damage that cartel has caused. Indeed, it has a responsibility to do so.

  7. Although the post here addresses specifically an article in Forbes, you get the same misguided nonsense from Ms Quick and many others 24/7 at the CNBC Prof Black mentions some of this here…

    I perhaps could see this one-sided non-stop nonsense from CNBC back when they were owned by GE, a huge financial and industrial multi-national conglomerate; but why this nonsense is allowed to continue under the ownership of COMCAST escapes me…

    I see no reason why COMCAST, a US media content and service provider, would want to continue to support this type of a one-sided, false, sophomoric broadcast onslaught from the CNBC; which is SUPPOSED to stand for “CONSUMER News and Business Channel”… CONSUMER? Ha!

    It’s time for COMCAST to go in there and clean house, re-establish some true journalistic standards in what has denigrated into a one-sided, anarcho-capitalist, anarcho-libertarian, Wall Street apologist, “School of Jack Welch” propaganda machine… rsp,

  8. Nice work. By the way, “fulsome” doesn’t mean what you think it does.

    • John O'Connell

      Oh? What do you think it means?

      1
      a: characterized by abundance : copious
      b: generous in amount, extent, or spirit <the passengers were fulsome in praise of the plane's crew

  9. CNBC becomes more like Fox everyday. Quick is only the tip of the CNBC deficit hawk iceburg. Remember they are owned by GE, a financial institution.

  10. I don’t think Quick talks to any real economists. So, the “no one” in her case is even less meaningful than usual. Chuck Todd, Jim Cramer, and other MSNBC talking heads are “no ones” who don’t count when it comes to macroeconomics.

    Nice piece. Lots of laughs. Would fit in well with a book-length piece on the scandalous state of economic “analysis” and analysts one finds on the MSM. These people are all throwbacks to the Gordon Gekko school of economics.

  11. and that’s why I don’t watch CNBC. You have to be pretty poorly informed to watch it and not throw the remote at the screen.

    As for Krugman, I don’t get all the hate and maybe it is because I read him since 2008 just about everyday on his blog and watch his talks and interviews online and listen to his radio interviews…well everything Krugman. I also read a lot of the criticism from other economists and competing views and there have been quite a few views that were tested and were flat out wrong. Fama, Cochrane, Tritchet…guys of that economic persuasion have been flat out wrong the last 4 years. That much is obvious to me. Austerity? look at every country that tried it, Inflation? where is it?, Invisible bond vigilantes? can you see them? Stimulus? well, putting political spin aside the data is clear that it worked. Instead of attacking Krugman people should be saying “that bearded old guy is right…let’s ask his opinion next time we need to make a policy decision and get behind him because we have been wrong on some pretty major things the last 4 years.”

    That’s why I read Krugman and I think the man is a genius, I don’t think he is perfect but he definitely has more tight screws in his brain and a lot of people with a podium and a microphone.

  12. Pingback: William K. Black: The Great Betrayal — and the Cynicism of Calling It a Grand Bargain | Political Ration

  13. Brutal. A surgical disemboweling. Someone tweet this article to Quick.

  14. Pingback: Obama’s Grand Bargain Could Be Our Waterloo | the wolfess peon's blog