Monday, February 4, 2008

just go vote tomorrow. unless you're stupid.

If Mrs. Clinton gets the Democratic nomination, there is some chance — nobody knows how big — that we’ll get universal health care in the next administration. If Mr. Obama gets the nomination, it just won’t happen.

-- Paul Krugman, NYT


  1. Great reason to vote Obama on the Democratic side.

    As an aside, Paul Krugman is probably the most egregious sophist in the realm of economic commentary. He has repeatedly committed some of the most basic fallacies of economics while at the New York Times. Here is one of the worst.

  2. Wow - nothing personal Vijay, but I couldn't disagree with you more - b/f becoming an op-ed columnist for the NYT - PK was a preeminent (& largely nonpartisan) academic economist (esp. w/ regard to int'l trade).

    His track-record is remarkable (e.g., 03/02/ opinion/02krugman. html?hp - no spaces).

    His analysis (further developed in his blog) is multi-layered & statistically based.

    ...well, the fact that you read PK, Neha, further reinforces my high regard for both of you.

    I look forward to your analysis of Super Tuesday

  3. to dive a bit deeper into this, you should see rob reich's thoughts, and especially look at the comments in this recent post on his blog. people providing some good thoughts on different sides (though i think these are democrat sides, and there may be little discussion of vijay's concerns).

  4. really interesting posts, omar, thanks for pointing them out!

    I have to respectfully disagree with Reich -- I think mandates reflect a broader attitude towards government provided basic services, and I prefer the attitude of "everyone has to have this. we'll make it work" rather than "this doesn't work right now, so we will leave a lot of people out, and maybe later we can get it to work." healthcare is a mess in our country, and it will take some hardship to get it to the right place (single payer!).

    Also, Reich's message of "can't we all just get along?" is not timed well -- this is the primary! we have to pick someone, and healthcare seems as good an issue as any. The fact of the matter is that the candidates stances on issues are very close. But I do hope that once Clinton gets the nomination, the rest of the democratic party will take up Reich's message of unity and rally behind her :)

  5. hmm. ok vijay, i'll give you krugman's first point in that blog post. The new office buildings part is classic broken window. But I think his second paragraph has merit -- 9/11 opened the coffers in terms of public spending, meaning that this government money was now out in the economy instead of locked up earning interest. My economics knowledge is nowhere near as high as yours -- but that is good for the economy, isn't it? 9/11 encouraged spending. Not moving spending from one place to another, but choosing to spend instead of save.

    btw, i don't like to think of 9/11 being good for the economy, and broadly, i'm not sure that it was. I'm merely responding to that isolated point in jon's blog post.

    also, this is NOT an argument that the government should bail out the subprime idiots.

  6. Thanks Vijay for kicking it off - & Omar & Neha for such insightful comments.

    I 100% agree w/ Neha's take on Reich's message (though I voted for Obama) & hope the Dems will, in fact, unite behind health-care, in addition to Iraq, as defining "wedge" issues in the general election.

    As an aside, do any of you remember Bill Clinton's mantra from the '92 race v. Bush '41? "Change v. more of the same; It's the economy, stupid; & Don't forget about health-care!" Interesting, huh?

    On a separate note: just re: subprime, I see it as, first & foremost, directly correlated to non-disclosure (re: borrowers), non-transparency (re: investors in mortgage-backed securities) & non-regulation (re: banks).

  7. Firstly (and most importantly) I love your blog and your writing, so you'll forgive the occasional cynical political observation.

    An important thing to realize is the Government doesn't have a savings account. What they have (since 1913) is the ability to print money to service debts and to pay for various welfare programs they have created.

    Thus it's not correct to say that they took money that would otherwise have been lying dormant in a bank account and spent that money. Rather, they printed more money, inflating the money supply, by holding interest rates artificially lower than the market rate of interest.

    One natural consequence of printing more money is that it discourages savings. Those that have dollars in the bank lose the value of their money over time due to inflation and so are forced to either spend or invest. Another consequence is that the currency itself, which is being debased, loses its value relative to other currencies, and relative to real commodities (such as oil and food).

    This is precisely what has happened during the last 4-5 years. Our currency has lost almost 50% of its value relative to other world currencies, and the price of real goods and services have skyrocketed. This is particularly devastating to the poor and middle-class who have had their purchasing power smashed.

    Initially there is a period where the market (and population) is fooled into thinking they're in a period of economic expansion because of the increasing supply of money. The increased supply of money causes agents in the market to malinvest, thinking that money is easier to obtain that it would otherwise be without a central bank. Ultimately, the malinvestment becomes so egregious that no further expansion of the monetary supply can sustain further investment. The nominal values of the malinvested assets then begin to collapse leading to a recession, and perhaps a depression depending on how egregiously the supply of money was expanded.

    What we have seen in the US in the last 5 or so years is the largest credit expansion in history. We are just at the beginning of witnessing the inevitable attendant credit contraction.

    Few economists were willing to acknowledge this would occur even 9 months ago, despite that the fact that it is an entirely predictable outcome of the business cycle.

    The bottom line is that government's encouraging spending and investment by debasing the currency and inflating the money supply is never a good thing. It leads to large credit bubbles whose popping causes hugely negative effects on the economy, and especially on the poor and middle class.

    Unfortunately neither Democrats nor Republicans (save Ron Paul) have anything to say about monetary policy. Rather they take the symptoms (such predatory lending) and claim them to be the cause of the malaise.

  8. I recommend reading my post on healthcare and free markets.

    What Vijay is alluding to is that people often confuse money and wealth. Paul Graham has a good essay called "How to Make Wealth" that does a good job explaining the difference.

    In How to give everyone healthcare and get rid of the income tax, I discuss how a huge portion of the nation's resources are diverted from what the people want (e.g. healthcare, education) to what the government wants (e.g. a powerful military empire, corporate welfare for their cronies). Money obscures the issue. Money can't give people healthcare. If it could, the government could get everybody healthcare by running the printing presses. We know intuitively that doesn't work. Healthcare isn't provided by money, it's provided by doctors, nurses, hospitals, technicians, medical engineers, pharmaceutical companies, etc., Until the government has a printing press that can create skilled healthcare professionals and all the supporting infrastructure, the government will never be able to provide people with healthcare. All the government can do is take healthcare away from one group to give it to another. That's basically what they do in Canada and those NY Times article I cite in my post show how well that is working out.

    Our healthcare system in this country is absolutely terrible, but it's because we don't have a free market for healthcare and because huge amounts of the nation's wealth are diverted from it. The best way for everybody to get quality healthcare is to destroy the jobs of all those people who work for the military and the military industrial complex and all those accountants and tax lawyers who work for the IRS and corporate America. Of course we need national defense, but we don't need to have a military that is much bigger than the rest of the world's militaries combined and we don't need an extremely complicated tax code whose main purpose seems to be creating jobs for hundreds of thousands of tax professionals. Does this really benefit society? No. Once those jobs no longer exist, there will be millions of intelligent people entering the labor market and billions of dollars of capital that can be reallocated. And where will it go? I suspect it will go where the free market wants it. And people want and need healthcare.

    Next, we need to get rid of the regulations and government bureaucracy that make the healthcare business so inefficient. Healthcare is over-regulated and it's no surprise that the costs rise every year. The computer industry is completely unregulated and the costs drop every year. That's the free market. There is an incredible amount of profit to be made for companies that can innovate and provide higher quality products at lower prices. The bad businesses go bankrupt. The good ones make huge profits. This is the virtuous cycle of the free market. One must wonder why this doesn't happen in healthcare? One must ask why don't our smartest students want to be doctors anymore?

    The main beneficiaries of Hillary's healthcare plan won't be healthcare consumers. It will be the HMOs and pharmaceutical companies that are currently salivating at the thought of all this new government spending. I predict that if her plan is carried to fruition, we will eventually have a two-tiered healthcare system, like we have with public schools and private schools. Most people will have to go to the substandard public healthcare system and the wealthiest people will go to the private system. If you want to see what government healthcare looks like, look no further than VA hopsitals and the Indian Health Service.