Krugman: waste is good? by mattsteinglass
April 15, 2009, 9:44 am
Filed under: Crime, Economics, Vietnam

Paul Krugman noted yesterday that with stimulus spending, coming in “under budget” isn’t a plus — it’s a minus, because the aim is to get as much money into the economy as possible, as fast as possible.

Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.

I’ve been waiting for the moment where I have a conservative-ish disagreement with the liberal orthodoxy in this time of crisis, and this seems to be it. Wasting money on government programs is bad, not just because it’s wrong to spend people’s tax dollars in ways that don’t maximize the return, but because in the long run it damages the effectiveness of government. If you want to destroy a government agency, or a regional government tout court, walk in, hand them a bunch of money and tell them you don’t care how they spend it. Within a couple of years of that, you’ll have a government agency that is no longer capable of performing its mission when it has to. And this isn’t just true of government; it’s true of any kind of organization when it’s made unaccountable.

Here in Vietnam, for instance, part of the government’s response to the economic crisis has been to hand out small end-of-year bonuses to the poor. Here’s what happened, according to my friend Martha Ann Overland in TIME:

In some cases, fees were deducted or the gifts were taxed to the point there was little left, according to local police. Families in Quang Binh province complained that they were required to sign receipts acknowledging they had received the handouts, but some villagers say more than 90% of the funds were siphoned off by petty bureaucrats. In the province of Quang Ngai, dozens say they were forced to donate to a so-called rural traffic fund. Other destitute villagers reported they had to contribute to a fund for the poor.

In principle, the fact that the money was stolen by officials doesn’t affect it as stimulus — they’ll spend it too, right? But that’s not the point. Corruption, like waste, is bad in part because it sabotages public confidence, which is one of the things the government is trying to build in recessionary times. And it’s also a problem because when government agencies can get money for doing unproductive things, they stop doing productive things. Ask yourself: if you were a business owner, would you invest in one of the districts where the money was stolen? Or would you invest in one of the districts where the money went to its rightful recipient?


3 Comments so far
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I don’t think you understood Krugman’s point at all. What a strange tangential post.

Comment by Ty Lookwell

I don’t disagree with your point. But let’s just take a step back for a second and realize that money and budgets have little to do with competency. The last 8 years are a testament to that. Nearly every single federal agency was a failure — not because of too much spending, but because the agencies were managed by incompetent, unqualified, lazy partisan hacks. The result was utter failure across the board from EPA, FEMA, FDA, CPSC, SEC, the entire Justice Department — all of them failed to appropriately execute their reason for existence. Maybe one man can’t change the world, but one man can certainly destroy it.

Comment by eric

Ty, obviously I understood Krugman’s point. He ended his post by saying that if we’re not spending the money fast enough, it’s time for more projects. And that is the correct stance. The business about not caring whether the money is wasted because the point is simply to spend it in order to get money into the economy ignores the long-term effect ON GOVERNMENT of such an attitude. That is my point.

Comment by mattsteinglass

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