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Those wacky economists! An economics joke, drawn to my attention by my friend Jesse Forgione:
Krugman and Bernanke are walking down the street and see a pile of dog shit. Bernanke says “I’ll give you twenty thousand dollars to eat that pile of shit.” Krugman does it, gets paid, and they keep walking. After a while they see another pile of shit on the road. Seeing an opportunity for revenge, Krugman says “Tell you what, I’ll give YOU twenty grand to eat that pile of shit.” Bernanke does it, Krugman gives him back the money, and they keep walking. After a while Bernanke says “I’m feeling pretty sick. We both ate shit and neither of us is any richer.” Krugman answers “You’re missing the bigger picture. We’ve increased GDP by forty thousand dollars and created two jobs.”
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I’ve always thought this joke missed the point. For each of them, the revealed preference is that making the other guy eat a turd is worth more positive value than actually eating a turd is negative value. Both of them won, and while Krugman completely misses the point(as ever), a sane economist would call this an efficient(if gross) market.
I do not believe the point of the joke is to claim that this is not an efficient market or that each has not followed his revealed preference, so I don’t think the joke misses the point. The point is rather to satirize dubious claims about the economic equivalent of taking a bucket of water from one side of a swimming pool and pouring it out on the other in an attempt to raise the water level.
Fucking hilarious. I love it.
Alsadius, the joke highlights the nonsense of “creating jobs” vs doing something productive, and the nonsense of how GDP is calculated simply by pulling cash out of one tub and stuffing it into another without any real consideration of actual productivity. After all, that’s at the root of the “government creating jobs” garbage we hear about. Governments don’t create jobs, they kill them by pulling resources out of the private sector and stuffing it into the most inefficient system known to man, gov bureaucracy.
What about the dog? Shouldn’t he get a bone for being the only producer in that story?
I’ve always liked that joke. But Perry’s two cartoons are priceless.
Agreed on Perry’s cartoons. LOLOL!
(I love the sly smirk on that charming little brat’s face. She’s gonna grow up to be a Dragon Lady, mark my words!)
A good post from Perry M.
Yes – this is the way that Keynesian “economists” think.
They really believe that government spending is good for economy.
It is nuts – but they believe in deficit spending.
And a good illustration from Perry de H.
Yes – that is the “logic” of the position of the Keynesians.
And, since P. Straffa, the Marxists have adopted a lot of this as well (Karl Marx himself mocked monetary cranks – he had read enough Ricardo to know that creating more money and spending it does NOT help the economy).
At least the modern Marxists pretend to believe the Keynesian stuff.
I suspect that they do not really believe it.
They, the Marxists, want the West to follow Keynesian economic policies – because they know they will lead to destruction.
Paul,
Other than misallocation of resources (bubbles) the only destruction it leads to is to ruin the value of money.
That can be reset.
What is not lost is the plants and infrastructure built with “free money”. Sometimes it is actually useful (the dot com boom).
As Democrats they won’t get the joke.
To echo a favourite Tim Worstall complaint, isn’t creating jobs merely creating costs (in this case for each other).
To be fair to both the subjects of the joke, I am pretty certain they would in reality be fully aware of the difference in creating jobs and creating value – but for many of those who believe their expertise actually validate their statist economic views (neither is an out and out socialist in the way those who tend to cite them often are), the creation of jobs is indeed an end to itself – I’ve even seen claims that it is the person working in the factory who creates wealth through their work…
I’m not sure at all about that. See Paul Krugman’s famous claim that an alien invasion destroying much of our infrastructure could improve our economy. I believe you are giving the man far too much credit.
Perry,
I think that would be a case of him believing infrastructure spending is value, which is a socialistic belief I would accord to him. Remember, very few people are so Keynsian to believe that digging and then filling in holes is a worthwhile economic occupation, including almost no serious economists (and indeed, it may not be believed by many joke economists). But if you believe that government can make a positive economic impact (a wierd view in light of the evidence, but still) then you have to rationalise it, then claiming infrastructure spending is the same as investment is a way of doing this. I am not sure some infrastructure is not investment (if I invest with my neighbours in funding high-speed broadband so we can all run our own businesses from home, that might well be a case), but not rebuilding what is already there.
I suspect this fallacy is based on the evidence after major wars, when rebuilding infrastructure does improve economies. But generally not beyond the point they were at, and any further effect is likely to be relaxation of wartime conditions that stifle innovation – principally government control of the economy, amusingly.
MSimon, isn’t it possible that infrastructure is also a misallocuation of resources? For example, the bridge to nowhere.
“Other than that, how was the play, Mrs. Lincoln?”
It is absolutely possible. China is filled with empty cities.
Dom
August 7, 2015 at 12:54 pm
Well yes. Most of the recent bubbles have been total misallocation. But occasionally through sheer luck it all turns out not quite as bad as expected.
I wish we had more tech bubbles. If the money is to go mostly to waste we might as well raise our capacity with it as opposed to plssing it away on hookers, booze, and blow. Fundamental knowledge is never a wasting resource. F=ma and E=IR are still useful.
MSimon, isn’t it possible that infrastructure is also a misallocuation of resources? For example, the bridge to nowhere.
Once upon a time ago there was a on ramp to nowhere here in Minneapolis. During the construction of I-35W an on ramp to what was intended to be I-235 had actually been graded but that highway project was cancelled. But as part of a completely unnecessary prject the on ramp was removed.
Public spending in action.
MSimon:
Excessively easy access to capital — caused by subsidies, artificially low interest rates, or any other mechanism — causes capital to be diverted from useful development even in the industry it purports to help. The portion of growth that’s left after a bubble bursts is the useful part and, by definition, it was never part of the bubble in the first place. The useful part of the growth happens despite the bubble, not because of it.
Paul, yup, and politicians love Keynes if they can get away with it because “stimulus” involves them spending “money”, even if it’s counterfeit, and whether they admit it or not, constituents love politicians spending money on pet issues.
MSimon says, “But occasionally through sheer luck it all turns out not quite as bad as expected.”
That’s only because the “experts” don’t now what they’re doing before or after.
Jordan said, “It is absolutely possible. China is filled with empty cities.”
Actual inhabited Bangkok is on the street/slum level. Many if not most those amazing skyscrapers are abandoned.
…But of course the lights still come on.
*”To be fair to both the subjects of the joke, I am pretty certain they would in reality be fully aware of the difference in creating jobs and creating value”*
Then, in all fairness, we have to call Obama a mountebank when he talks about “creating jobs” while ignoring the fact that full time jobs are being replaced with part time jobs, and the ever-increasing shrinkage of the labor force renders the unemployment stats useless for any useful comparison.
Watchman wrote,
Krugman is not a serious economist. He’s a soulless tool of the worst order.
Watchman wrote:
Phrased like that, people understand, but people bring up Luddite Fallacies to me all the time, and that’s a basic misunderstanding of already existing jobs vs ultimate productivity. There’s a reason Donald Trump (running for american president) vilifies American free trade with China and Japan, and that’s because a certain segment of the population actually think that Protectionism “saves jobs” and is “good for America”. I’m wondering what percentage of the American public actually understand that by placing a tariff on imported cars, they’re causing the price of domestic cars to increase as well?
Bloody few I imagine.
Just noticed that the photo posted by Perry deH misspelled “Keynesian”. Heh.
I’ve seen a previous version of the joke that poked fun at capitalism, not at Keynesianism. (Take the last line away, and don’t name-drop, basically). That was the one I was making more fun of.
Alsadius, I have no doubt you’re correct, but that joke wouldn’t make much sense since production is not merely the central thing in capitalism, it’s the only thing. If I don’t make a better smartphone, I lose market share. If I lose market share, I lose my ass. End of story.
Nicholas, the dog is being exploited, lol.
MSimon, If I’m going to “waste” resources, hookers and booze is a pretty good way to go about it. ‘Preferably in Thailand of course.
I forgot another place were insane monetary forces have done some good. Cheap money enabled the fracking boom in the US. It has totally altered the oil markets for the next 10 to 40 years.
And the alteration is not just in gross supply/demand factors. If the price of oil goes up enough to make a well profitable, frackers can put in a well in months. It used to take years. Thus the oil market used to oscillate heavily due to delays. With the delays reduced the oscillations will also be reduced.
Other than efficiency increases oil prices should stay relatively steady for quite a while. Oil will become a fixed cost in so far as its price remains steady. We are trying to find out what that new level is – the place where supply and demand match.
And I just learned a new word – refracking. It means rejuvenating an already in place well to increase output. That may have something to do with reports of increased outputs of oil from the US despite a reduction in the number of drilling rigs.
I have seen estimates of long term oil prices at $70 to $90 a bbl. I think $50 to $70 a bbl will be closer to the mark. And I’m more inclined to $50 than $70.
Talking of fallacies:
Do Marxists maintain that the surplus value extracted from labour is a percentage of the value of labour, or an absolute amount, regardless of wage, or does it vary, and if so, how?
If it is a fixed percentage, the greatest exploitation on Earth is probably of workers such as paid Formula 1 World Champion drivers with their multi-million dollar annual salaries. One of them on, say, $25,000,000 a year is more exploited than 1,000 workers on $24,000 pa.
Or do today’s Marxists just rant if asked too much for details about the menus of the restaurants of the future?
And Keynesianism is simply a perpetual motion machine, but one that speeds itself up.
Sometimes government spending is productive: good roads promote commerce by reducing the cost of transportation, for instance; and in muted defense of Keynes I believe that’s the sort of deficit spending he had in mind.
But that reasoning has long since been perverted into spending for the sake of buying votes, or even (as is the case with the joke) for increasing the velocity of money in order to make things look better than they are.
The trick with borrowing from the future is to remember that it has to be paid back with the improved earnings of the future that the borrowing financed. Our politicians have not only chosen to ignore that, but that it has to be paid back at all. And politically-connected economists have prostituted themselves to excuse them.
“I’ve always thought this joke missed the point.”
The point is that there is bad GDP increase and a good GDP increase. Not all GDP increases are equal.
No, the point is that the method of calculating GDP is worthless (or, stated differently, that the number thrown around as “GDP” is essentially meaningless).
Also that.