Thursday, July 12, 2012
  Yes, you don't get it.

Krugman 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.
 


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