Landsburg, Krugman, and the Equimariginal Principle: The Recap

by Don Boudreaux on September 3, 2011

in Economics

Steve at his best.

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W.E. Heasley September 3, 2011 at 8:09 am

“I want to be crystal clear here about the locus of the disagreement: Krugman says that under no assumptions does it make sense to cut expenditures without raising taxes. I said that under some assumptions it makes perfect sense —- for example, it makes perfect sense under the assumption that some expenditures are very wasteful. That’s the main issue. This was not an argument about the validity of the assumptions, but about what follows from them.” – Steve Landsburg

Upon further review, one needs to examine this excerpt more closely: “Krugman says that under no assumptions does it make sense to cut expenditures without raising taxes.” An implicit assumption regarding expenditures exists [beyond the waste argument] in that Krugman and his ilk constantly frame current expenditures as necessary, required, needed. Stated alternatively, they begin the debate from the point that current government expenditure are necessarily at their current level, are required to be at their current level, and are needed at their current level.

What constitutes necessary, required, needed expenditures? Believe Robert Nozick argued quite successfully in the book Anarchy, State, and Utopia that what is necessary, required, needed is that which forms a limited government [police, fire, the rule of law, and defense]. What Krugman and his ilk attempt to do is frame the argument that government intervention and engagement beyond limited government is implicitly necessary, required, needed.

“Why” does Krugman make the implicit assumption that and engagement beyond limited government is implicitly necessary, required, needed? Its likely an economic opinion created by Keynes:

“Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”

Keynes believed that economists (and others) could best contribute to the
improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country. – Milton Friedman from the essay John Maynard Keynes, republished in the 1997 spring edition of the Richmond Federal Reserve Economic Quarterly., pages 20 and 21.

Jim September 3, 2011 at 5:08 pm

“An implicit assumption regarding expenditures exists [beyond the waste argument] in that Krugman and his ilk constantly frame current expenditures as necessary, required, needed. Stated alternatively, they begin the debate from the point that current government expenditure are necessarily at their current level, are required to be at their current level, and are needed at their current level.

This assumption is at the heart of Mr. Krugman’s derisive post.

Coincidentally, I was at my apartment building today and ended up talking to two tenants, a Peruvian (26 years ago) and a Mexican (10 years ago). They both told me the country is getting corrupt just like their old countries; too much interference.

They knew nothing of the Tea Party movement, but lambasted unemployment and became very animated when discussing the legal and bureaucratic mess involved in licensing, zoning, divorce, social services, etc. They view these expensive constructs and the bank bail-outs as outright corruption, and think USA is becoming just like the Latin American countries they left.

Obama and Krugman are losing the guy on the ground who sees the inevitable and daily implication of big government; more hand outs to ‘accredited’ middle men by people who just want to be left alone. If you told those guys that the world was a class struggle, they’d laugh in your face, or worse.

Pom-Pom September 6, 2011 at 12:03 am

W.E.H> “‘Why’ does Krugman make the implicit assumption that and engagement beyond limited government is implicitly necessary, required, needed?”

I used to read him. As best I can tell, he never said, never bothered, but I was looking for it. Ultimately I decided he was a superficial thinker.

JS September 3, 2011 at 9:26 am

I don’t think Steve was at his best. Merely by arguing the topic on their terms, he lends credibility to the foundation, or worldview, upon which it is based. Someone at their best would trash Krugman’s ideas using an entirely different approach.

If I am correct in my interpretation of this, Steve Lansburg entered a debate agreeing with some assumptions that weren’t true when he agreed in his point #1 that cost – benefit analysis of governent spending can be used as justification for it, or at least for how money spent should be allocated. He agreed to its usage as a method.

First, before I make my main point, it is impossible to do a real cost benefit analysis for most of government spending. Fictional, yes, real, no. They simply can not measure those factors. Societal benefits can’t be measured and there are so many indirect costs to society, known in accounting terminology as ‘opportunity costs’, outside of simply keeping track of ‘government expenses, that occur when resources are diverted that the whole concept of the cost benefit approach is a joke. But, it is far from a joke when it’s employed for the purposes of which it was designed- political deception.

But an even more egregious error is to think of a cost-benefit method that does not include a comparative analysis of how efficient it could be done in the private sector versus through the state. Now, someone might say that it is impossible to make that comparison. What they mean is that it’s okay for the government to make up fictional numbers, but not for private interests to do the same. Even if we agree that it’s impossible to make the comparison, then the issue should die without state action being directed toward it.

The linked article are of the type that I quit reading halfway through. Agreeing to some flawed assumptions that favor your opponent is akin to getting off on the wrong foot, and it’s painful to watch even if you agree with much of what a writer is saying.

SweetLiberty September 3, 2011 at 10:52 am

I didn’t come away from Steve’s piece thinking he was arguing the topic on their terms, because for him, the topic is: “Is there any reasonable worldview under which Cantor’s position makes sense?”

Steve is not advocating for or against government spending here, but recognizing that given the current real expenditures government makes, it is highly possible that reducing spending in areas readily identifiable as wasteful can have relatively greater positive benefits in another. This is Cantor’s position which Krugman originally disagreed, and which Steve exposed as fallacious.

Perhaps you are right that you can never truly measure the cost-benefit expenditures of government, but my instinct tells me that there is a relative measurement which most reasonable people could agree on (such as eliminating bridges to nowhere).

dave September 3, 2011 at 9:50 am

fire isnt one of the proper functions of government. Though it may be very important to have firefighters, its not on the list. if you aren’t careful you’ll go from fire to roads (for the fire engines of course,) and it will quickly get out of hand. Otherwise, nice!

khodge September 3, 2011 at 3:50 pm

I agree 100% with Krugman and his readers: how dare Landsburg use examples to clarify economic concepts??

DG Lesvic September 3, 2011 at 7:00 pm

I’d rather leave all those disaster victims out on a limb than wade through all that hyperlogic again.

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