You've got to pity Paul Krugman. The Princeton University economics professor and New York Times columnist just can't get over the fact that his candidate -- Al Gore -- lost the 2000 presidential election. George Bush is president. Most Americans -- 79 percent in fact -- approve of the job he is doing. Post Sept. 11 many Democrats admitted publicly that they were glad Bush, not Gore, was president.
Yet twice weekly, with a repetitiveness that is an embarrassment even to liberals, Krugman bashes the Bush tax cut, the Bush plan to privatize Social Security, the Bush energy plan.
He had the audacity to accuse the administration of using the Sept. 11 tragedy to promote its plan to drill in the Arctic National Wildlife Refuge when the only one guilty of political opportunism was Krugman himself.
Krugman would have preferred that the US economy never recover. That way he could hope that the next Democratic administration might throw him a bone, bestowing some appointment on him following the 2004 election.
Deprived of his scapegoat -- the Bush tax cut as an economy killer -- Krugman has seized on the Middle East crisis to darken his, and hopefully our, economic outlook.
In his Tuesday New York Times column, "The third oil crisis?" (see page 13 in today's edition of the Taipei Times), Krugman begins with a false statement that "oil prices have risen about US$10 per barrel since the situation in the Middle East began deteriorating." While the determination of when the situation began deteriorating is subjective in nature -- was it 19 months ago when the second intifada began, or was it the suicide bombing in a Netanya hotel on the first night of Passover on March 28? -- Krugman's numbers are inaccurate. But hey, what's a 100 percent error among political sympathizers? As it happens, oil prices are lower now than they were either in September 2000 or on March 28 of this year. Crude oil prices began rising in January, coincident with the improvement in industrial output. At best, the rise from about US$23 in early March to US$28 last week can be tied to concern about a disruption in the oil supply from the Middle East.
Krugman's point, once he dispenses with his standard chiding of the US for its lack of energy conservation, is that a third oil embargo could put a drag on US purchasing power. For those of us of a lesser intelligence than the professor, Krugman fails to explain why the 1979 oil crisis was inflationary and today's would not be.
On Tuesday Saudi Arabia said that it would increase output to offset Iraq's decision to halt oil exports for 30 days. So any theorizing about an oil shock may be an academic exercise -- one that academics like Krugman should get right. After quantifying the US$10 rise in crude oil prices as a US$70 billion tax increase on consumers (maybe the government should cut taxes by an equivalent amount), Krugman demonstrates a total lack of understanding of basic microeconomics, which won't necessarily disqualify him from an appointment to the Federal Reserve Board since policy makers share his view.
"The Fed can't respond with another big round of interest rate cuts: since it has already reduced rates from 6.5 to 1.75 percent, it doesn't have much ammunition left," Krugman wrote.
Are interest-rate cuts the appropriate policy response? The lesson of the two 1970s oil shocks was that the Federal Reserve can't offset the decrease in oil supply with an increase in the money supply. In fact, for the Fed to cut rates in the face of a rise in oil prices resulting from reduced supply would be a perfect recipe for stagflation.
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