Live from Freedomfest in Las Vegas, a debate between Paul Krugman and Steve Moore. The official title is, “How can we restore the American Dream?” which, no doubt, will enter into the issue of economic management and Keynesian theory. We shall see. This is a live blog.
First question, why are we struggling?
K: Worst financial crisis – cut public spending too soon. Lots of wealth created but not much trickling down. Income inequality is a problem.
M: Agrees with K over the level of intervention. Bailouts were a mistake. Stimulus did not create jobs. Obamacare a mistake. Lots of problems. We had a Keynesian experiment that did not work. Reagan v Obama; Reagan turned out well. Obama thought the govt was the solution.
K: Problem for Reagan was inflation. Obama problem was a slowdown in activity. Different problem. If that’s your best answer, you have no answer. Stimulus v austerity you can see a strong positive correlation between spending and growth. The Obama stimulus was not huge; about 2% of GDP at its max. Wasn’t enough. Needed more as often stated.
M: Economists on the left used the Keynesian playbook, and it happened and it did not make a dent in our unemployment. Would more have been better. No one believes that. Reagan was also dealing with a recession. Tax cuts led to a recovery. Obama policies did not work according even to their own estimates.
K: Obama’s predictions was not my prediction. Aftermath of financial crisis is always slow. There is only a few times we need govt intervention. The Reagan policy was one when you did not need one. In 2008-09 we did.
Q: Is the private sector being stifled by excessive regulation?
K: Obamacare is a hybrid. Working quite well. Would like to have a single-payer system. Private companies are the conduit. Bad process. Has turned out to be cheaper than expected. Not blowing a hole in the budget. Repealing Obamacare would lead to a blow out in the budget.
M: Education and healthcare are govt dominated and that is where the costs have risen the most. Third party payments drive up costs. Premiums are blowing out. What about the tax on medical devices?
K: Healthcare costs rise because of innovation. Therefore costs go up. Everywhere else has lower costs where there are national health care. Govt intervention is more efficient than private. Third party payments are a problem.
M: Competition missing.
K: No one goes comparison shopping after a heart attack.
Q: Labour participation rate is low – minimum wage laws. Should they go up?
K: A place I have changed my views. Raising the minimum wage a lot will cost jobs. However, cannot find evidence that higher minimum wages cost jobs. Happy with $15 per hour and if no impact then up to $20.
M: Mostly about kids who are being locked out. Sinister trend. How bout a teenage minimum wage?
K: No evidence that I can see. Re teenagers – I’m willing to think about it but I am against over-complexity of the legislation.
Q: Red State v Blue State job creation.
M: Red State have more free market policies and more employment growth. Lower taxes in red states. Less regulation.
K: Red State employment growth better than in Blue State. What determines who grows faster? Warm winters! Air conditioning is changing employment patterns. The one policy that makes the difference is land use policy. Restrictive land use policies raise housing costs. The factors that matter are:
. land use policy
Regulation doesn’t matter as much.
M: What about the policies?
K: People like to live where they can buy houses.
M: What about Greece?
K: Advocate of a strong social safety net. Not a big government guy. Govts do a terrible job with the steel industry or the post office.
Q: Favourite economist: Smith, Keynes or Marx?
K: No brief for Marx. Favourite economists Smith AND Keynes. Must sometimes protect the public interest through regulation. With Keynes understand why economies go off.
M: JEL article on The Age of Milton Friedman. My problem is that we live in the Age of Keynes. When have they ever worked?
Q: Welfare Reform Act. Should we attempt to lower welfare.
K: Dispute the premiss. No upward trend in welfare dependancy until the GFC. Then the worst slump and the safety net programs. Alleviated some of the worst suffering. We are not creating a welfare class. You may want to believe it but it’s not true.
M: Post 1996 Welfare Reform Act number of people on welfare fell.
K: Not hardline against welfare reform. Now we have no system for providing income. I think of this as fairly trivial. Food stamps and Medicaid both work and don’t see much need of change.
Q: What three policies would you advocate to restore the American dream? How about privatisation of social security and education.
K: 1) Land use restrictions need to be reduced. Cheaper housing needed.
2) Program to promote equality. Born into a lower class family will reduce future income.
3) Empowering workers, with minimum wage at the start. Increase the bargaining power of unions.
M: Need to help the middle class. And unions contaminate everything they touch.
1) Voucher to every child in the country to promote advantage.
2) Ownership of their own companies.
3) 16-17% flat tax rate.
End discussion. Questions from the floor.
Q: Why health care costs going up and benefits going down?
K: Obamacare has been a lifesaver for certain people. Some people are paying more, but overwhelmingly the effect has been positive.
M: Republicans will change the system. Need more choice.
Q: Debt and deficits
K: Debt levels and growth high correlation, but what is the causation? Debt levels should not be a preoccupation. High debt without one’s own currency is a problem. We are many many percentage points away from a maximum load and it is falling.
M: Depends on what you buy with the debt. Should use debt to finance lower taxes. Low interest rates is what is keeping the country going.
K: The private sector was deleveridging. The lack of spending is why we have a recession. If everyone is cutting back to retain income where will the demand come from? The deficits saved the world from a great depression. Compared with what happens in your ordinary financial crisis, the GFC was not bad.
M: Obama recovery was the worst post-war recovery.