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Battle of the parties

By Caroline Kimbro
web posted December 1, 2014

In a recent essay "Triumph of the Wrong," Paul Krugman takes a swing at Republican congress members and their ideas. Ignoring any rules of politeness or self-control, he bashes Republicans, past and present, while standing firmly on his own righteousness. Although he speaks as an authority on topics such as healthcare and economic policy, many of his statements are not economically or statistically sound.

Watch out, Mr. Krugman, two can play this game.

In his article, Krugman claims that despite Republicans' predictions, insurance prices are lower due to Obamacare and enrollment in the ACA program is high. According to many sources, even if enrollment in the program is high, those enrolled aren't any better off. One U.S. News article points out particular disadvantages that younger Americans are subject to under the ACA: The Manhattan Institute reported that the average 27-year-old man in Arkansas needed around $54 a month to cover health insurance, but under Obamacare the cheapest coverage he can get will be around $181 (price taken from the White House website). Under Obamacare, insurance prices are extremely high for the younger population, in order to help pay for the older population's needs. In addition, many hidden fees and regulations are added to the flat fee of insurance in the ACA. As Dr. Chenault, who is dealing with the effects of the policy, puts it: "…the greatest complaint we hear from our members is about the extraordinary expense of complying with the reporting requirements." 

Aside from healthcare, Mr. Krugman lists principles and policies that Republicans have stood by throughout the years that he believes to have been disproved. For example, he accuses the right side of wrong assumptions when it comes to deficit spending: "Predictions that deficit spending would lead to soaring interest rates, that easy money would lead to runaway inflation and debase the dollar, have been wrong again and again." Although he is correct in saying that interest rates did not always rise drastically when the government spent more than it had, the reason for this was often the Fed's monetary policy which it used to balance interest rates. Simple economic principles do indicate that deficit spending should raise interest rates: the government has to finance its extra spending somehow, and usually this happens through the sale of bonds, treasury bonds, or borrowing money. If it sells bonds, it takes liquid money out of the economy and replaces it with bonds (tied up money). Likewise, if it borrows money from the Fed, it again takes money out of the economy.  Both of these routes lead to less money in the economy, thus there is less money available to be borrowed and the price of loans (interest rates) rises. Treasury bonds, on the other, hand, have high liquidity and so do not raise interest rates in the same way as the other methods of gaining money. 

Even if interest rates don't rise due to deficit spending, an economy shouldn't be dependent on extravagant government purchases in the long run- the U.S. has to find other ways to keep its economy healthy. Yes, deficit spending can be helpful to boost an economy's growth, but the budget has to balance at some point or it will spiral down, leading to more debt.

In their textbook, Principles of Economics, Ruffin and Gregory list "monitoring government consumption" as one of the key factors for economic success and growth. They agree with most politicians that spending on education and public defense is necessary, but encourage cuts in spending of other kinds.

Mr. Krugman points out his opinions on the "striking inability of many on the right to admit error," while I would argue that many of the Republican's opinions have not yet been disproven. America has long claimed the largest economy in the world, but most Americans would agree that it still has a long way to go. This, in and of itself, should be evidence that the moves made by democrats over the past years have not been overwhelmingly successful. Mr. Krugman may count the Republican victory as unfortunate, but maybe the Republicans do deserve a chance to be heard and to put their economic and political ideas into practice. ESR

© 2014. This is Caroline Kimbro's first contribution to Enter Stage Right.

 

 

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