Truth be told, Paul Krugman is wrong.

Krugman posted a new article (it’s more of a random thought) on his blog which he calls “Why Libertarianism Doesn’t Work, Part N”

He offers an argument which I have heard from many liberal minds, and he falls into the same trap of disproving himself by trying to prove his views correction, let’s dissect:

Krugman says:

Thinking about BP and the Gulf: in this old interview, Milton Friedman says that there’s no need for product safety regulation, because corporations know that if they do harm they’ll be sued.

Interviewer: So tort law takes care of a lot of this ..

Friedman: Absolutely, absolutely.

Meanwhile, in the real world:

In the wake of last month’s catastrophic Gulf Coast oil spill, Sen. Lisa Murkowski blocked a bill that would have raised the maximum liability for oil companies after a spill from a paltry $75 million to $10 billion. The Republican lawmaker said the bill, introduced by Sen. Robert Menendez (D-NJ), would have unfairly hurt smaller oil companies by raising the costs of oil production. The legislation is “not where we need to be right now” she said.

And don’t say that we just need better politicians. If libertarianism requires incorruptible politicians to work, it’s not serious.

Ah, but Paul, you missed an important part of your argument. That $75 Million existed before the oil spill, thus when doing a cost/benefit analysis of safety measures, BP undoubtedly put the $75 Million into an equation and weighed the (relatively low) risk of such a large oil spill. So the company said something such as: “well, we could spend a few million on these safety measures on all of our rigs…but the government has us covered if we exceed $75 Million, so really it’s not even worth the money since our risk is already limited.” It’s kind of like “too big to fail,” when your risk is limited by a third party, you take more risk . It happens in insurance all the time; for example, you already hit your deductible, so you go ahead and start spending money almost without limit. Or you have a low deductible and take more risks, we’ve all seen episodes where people with no insurance are extremely careful. The bottom line is when you know you aren’t going to see the costs you’re going to take more risks, the same can be applied to health insurance…which is one of the reason why “insurance” itself is the problem with high costs.

Anyhow, by making this statement on how “corruption” has led to the price ceiling, he misses starts to diminish his own argument. Isn’t such a price ceiling against libertarianism? (Yes) Likewise, isn’t the lack of a fast clean up not an unintended consequence of these rather “progressive” measures? The idea of libertarianism is to limit the power of government, and if the government has limited power then its corruption (which is inevitable) has a limited impact. The oil spill was a private sector failure, but it was led by a government failure.

I wasn’t exactly sure how the Obama budget was going to pan out with the economy, but thanks to Paul Krugman that has all be laid to rest. I fully understand now with this classic economic analysis that is darn near flawless.

Paul Krugman, a Nobel winning economists, has found himself as the new voice of Keynesianism; a form of economics which supports the idea that government spending indeed helps to lead to economic prosperity. Krugman supposedly has a track record of predicting economic crisis while maintaining his Keynesian mantra. He is a staunch supporter of government spending and has even said on February 2, 2008, that:

“One thing I’ve written about a number of times, but becomes especially worth emphasizing now that John McCain is the presumptive Republican nominee, is the myth of runaway federal spending under the Bush administration… But one thing he thinks he knows is that the Bush administration has been spending like a drunken sailor. Has it?

Consider the actual record of spending. Never mind dollar figures, which grow because of inflation, population growth, and other normal factors. A better guide is spending as a percentage of GDP. And this has increased, from 18.5% in fiscal 2001 to 20% in fiscal 2007.”

He then went on to state on February 19th, 2008, that:

Bush is right about something

Hate to say this, but he’s right when he says

I think actually the spending in the war might help with jobs…because we’re buying equipment, and people are working. I think this economy is down because we built too many houses and the economy’s adjusting.

In fact, I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts.

Of course, we could have gotten just as much or more stimulus by spending $10 billion a month on actually useful stuff– think how much domestic infrastructure could have been built or repaired for the cost of this miserable war. But the war was what we got.

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