Yes, you don't get it.
is always frustrating. His heart is in the right place, but his brain isn't fully connected.
Consider the extended version of the “magneto trouble” metaphor I use in my recent book. Keynes argued that the Great Depression could be thought of as a failure in the car’s electrical system; so let’s think of it as a situation where your car won’t run because it has a dead battery — that is, you could get it running again with a fairly trivial and easy intervention: just buy a new battery, which costs only a tiny fraction of the expense of a new car.
In saying this I am not denying that there may be other problems with the car, perhaps even big ones. Maybe it needs new brakes, or a new transmission, and these had better be dealt with soon.
Still, what sense can it possibly make to say that therefore you shouldn’t start by replacing that dead battery?
I really don’t get it.
Exactly, city boy. You don't get it.
As Polistra has pointed out before,
Krugman only uses half of the Keynes idea.Keynes thought gov't should be like a dam, storing water in wet times and releasing it for use in dry times. Using the electrical flow
analogy, the treasury is the battery. When the car [country] is running, the generator [productive activity] charges the battery. The battery [treasury] then holds a charge so you can start the car [country] when it has been stopped or stalled.
In other writings, Krugman seems to understand the idea, but he has not practiced
both sides of Keynes. In good times a genuine Keynesian should be pushing hard
for heavy taxes on the rich; should be constantly telling the rulers that they will be DEAD if they don't store up money. When bad times come, a genuine Keynesian shouldn't be pushing for stimulus; he should be saying "I told you so. It's too late now."
Krugman wants to replace the battery [the treasury] so it can provide a charge to get the country going now that it's stalled. But that won't work.
I once got marooned in the Okla Panhandle because I was trying to run a truck by Krugman's rule. The old company-owned '55 Ford flatbed (like this
) had a good battery, but its generator burned out shortly after I left Ponca with a full load and a trailer. I was able to nurse it from Ponca into Dodge City with several external charges. Delivered the stuff that was needed in Dodge, and took the truck to a Ford dealer. They didn't have a generator for such an oldie, so I bought a new battery (as Krugman recommends!) and a charger, and started back home to Ponca with stops at gas stations every hundred miles. Around Laverne the new
battery decisively failed because it wasn't getting a steady charge. I had to call the boss to fetch me. He wasn't happy.
Thus proving Krugman wrong.
Returning to the economic version: I was trying to run a country without a manufacturing sector. Instead of charging the treasury from taxes, I was borrowing from other countries. The method sort of worked for a while, enabling me to limp along slowly. Finally the treasury went decisively bankrupt and the country came to a complete halt. Sounds familiar, doesn't it?
= = = = =
Fussy irrelevant tech sidenote: Both Keynes and Krugman are misusing the word magneto.
Generators and magnetos are different ways of producing current. Early cars didn't have starters or batteries or a real electric system. Lights were oil or acetylene lamps, and you cranked
the engine to start it. A magneto gave short pulses of current at the right moment for each spark plug, and the spark coil turned those pulses into high-voltage pulses. Cadillac introduced full electric systems in 1913, with a generator supplying a steady voltage, electric lights, and a battery to store charge for the next start. Everyone else followed suit immediately because cranking was wildly inconvenient and a constant source of injury.