Free Markets, Free People

Krugman – wow, just "wow".

I really don’t know how to actually characterize my reaction to this nonsense from Paul Krugman except to say if you thought he was in bizarro land before, check this out. The irony is he calls others stupid and invokes "Economics 101" when it’s clear … well you take a look. Here he’s talking about the proposed $50 billion "stimulus" focused on infrastructure. And he begins to pontificate:

Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time — and you’ll hear again now — that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.

Why is this claim stupid? Because Econ 101 tells us that there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market.

I had a friend who would accuse people like Krugman of being like a goose and waking up in a new world everyday. Apparently in today’s new world Krugman has forgotten that we just spent most of a trillion borrowed dollars on infrastructure stimulus. And then there was TARP, cash for clunkers, home buyers tax credit, mortgage payment relief and unending unemployment benefits. But it’s all too small now and it’s the fault of the usual suspects.

What Krugman doesn’t want you to remember, of course is his own recommendation on the size of the stimulus package:

All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.

In fact, the administration added 30% to his number and now, suddenly, it’s all too small. Not only that, it failed miserably.  And, when you add it all up, it’s about 3 trillion in spending for “public goods” over two years added to the federal debt. 

Result? 14.9 Americans unemployed, the economy in a shambles and consumers afraid to spend.  And Krugman, in his new world today, demands more spending and has the temerity to call those opposing it stupid and his approach “econ 101”.

To add to the Krugman madness, we have him essentially pining for the good old days of spending like we did during WWII.   Despite the fact that it all but destroyed the world and did destroy about 80 million lives, that’s the level of spending he now thinks is needed. 

From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.

Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.

This is possibly the most blinkered and absurd bit of revisionist history I’ve read in a long time. There’s a "rest of the story" that makes this so much word salad that Krugman obviously studiously ignores in order to attempt this absurd plea to what, spend the equivalent of 30 trillion in deficit dollars (or to drive home the point that 3 trillion isn’t nearly enough)?

Victor Davis Hanson handily disassembles Krugman’s “work” and shows it up for the dishonesty that it is:

As WWII ended and the clean-up began, there was an enormous amount of pent-up global demand for goods. Given the wreckage in Europe, Japan, and Russia and the underdevelopment of India, Asia, and South America, we were about the only ones with the industrial and commercial wherewithal to supply the world rebound — often receiving cheap oil, gas, minerals, and interest in exchange, which supplemented our own vast supplies of comparatively cheap and easily recoverable resources. Nor should we forget the psychological element: Americans, after winning two wars, were enormously confident about their newfound international stature and influence.

At home, four years of consumer deprivation during the war and the weak demography of the 1930s had combined to create huge demand, all while society was increasingly leaving the farm for good and becoming suburbanized. The result was that in the late 1940s and 1950s, the birth rate soared and consumers enthusiastically made first-time purchases of washers, dryers, fridges, cars, etc. Thus, the American economy grew by leaps and bounds.

Today’s situation is not comparable: We are in hock to foreign creditors for trillions and have not been a net creditor since the 1980s. A China, Brazil, South Korea, Taiwan, or India is as or more likely to supply recovering demand for food, steel, or electronics. One can read Krugman-like arguments in Greek newspapers today — that only more massive borrowing can stimulate Greek demand, provide jobs, and grow Greece out of its recession. As if present-day deficits and aggregate debt with soon-to-be-rising interest payments don’t really matter.

It is always an indication that you probably shouldn’t pay much attention to a certain economist when it takes an expert in history to tell the economist his business.

But then that’s to be expected if you wake up in a new world everyday as it appears Paul Krugman does.

~McQ

[ad] Empty ad slot (#1)!

26 Responses to Krugman – wow, just "wow".

  • we just spent most of a trillion borrowed dollars on infrastructure stimulus

    I just saw that actual infrastructure (bridges, roads, etc) spending in the “stimulus” has been just 3%

    • lots of wasteful spending and lots of give aways to the biggest special interest group in the united states of america “the labor unions”

  • Wait, you mean that the stimulus didn’t really go to the “shovel ready” projects that they were supposed to? Oh, so the solution to massive spending that didn’t even go to its intended target due to politics and corruption is more borrowing and spending to compensate for the stolen money (to be distributed by the same crooks who mis-used and stole the original pot of money). Great idea, NEO. I think that you may be able to apply for Romero’s job, or as an aide to Pelosi.

    • It wasn’t so much corruption as it was disinformation.  They sold this “stimulus” much the same way Clinton tried to sell his “stimulus” that wasn’t … by promising it held solutions for everything including a rainy day.

      • “Misinformation”? Yeah and overspending is just a “revenue shortfall”. The Korean war was a “police action”. Roger Clemens simply “Misremembered”, Bill Clinton just didn’t know what “is” is and my friend’s pregnant girlfriend just “forgot” to take her birth control. Putting lipstick on a pig … well, it just makes it look like “krugger-nuts”

        • Don’t get me wrong.  I don’t like to toss around words like “lie” and “corruption” too often because it belittles the value of those words when there is nothing left to describe an event.
          I thought if there was to be a “stimulus” last year, it should have concentrated on actual infrastructure (bridges, roads, etc) since these jobs would be done by construction labor that is now idle due to the bursting of the “housing bubble”.
          That said, that obviously isn’t what Congress passed.   It was sold to the American people as something else .. through disinformation.  But the administration of this “stimulus” hasn’t been shown to any great degree to be “corrupt” … they are doing what Congress passed (with the normal amount of waste, fraud and abuse that goes with any government program).

          • The “normal amount of fraud, waste and abuse” as you put it, is still corruption even if it is the “norm”. You can’t separate that reality from the intention when government spends money or extends its authority. I (and QandO and many others) have been screaming this for as long as I can remember and we have been pleading with people who believe in the “intentions” of this administration and congress to consider the reality of what will happen and people do not listen – but are appalled at the outcome.
            The sad fact of the matter is that unless you voted libertarian (or for the supremely rare indep dem or repub with integrity and intelligence), you are getting what you deserve – low unemployment and prosperity, quickly eroding civil liberties, two unending foreign wars and numerous foreign entanglements and the inability to partake in just about an voluntary associations or activities without government oversight or regulation.

      • And just because I tell you that eating candy will cure cancer doesn’t mean that it failed because I “misinformed” you. The medicine is wrong, regardless of what I say while giving it.  In the end, you still have cancer and now you’re probably diabetic too.

  • Paul will be known from here on out as “Krugger-nuts” as he is as useless and delusional as Ben Stiller’s character in Tropic Thunder. (and to be taken just as serious)

  • And Time magazine has an article telling how great the last stimulus was and still is.
    “How the Stimulus Is Changing America”
    http://www.time.com/time/nation/article/0,8599,2013683,00.html
     
    As for Krugman, he lost all objectivity long ago.
    But I’m just a bitter clinger and probably a racist for disagreeing with The Won.

    • The Won. Cool.

    • On a too-small stimulus, this isn’t what Democrats or most Keynesian economists told us at the time. Even Paul Krugman, who now denies intellectual paternity for this economy, wrote on November 14, 2008 that “My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.” The White House raised him by 33% two months later, but now we’re told that wasn’t enough.

  • McQ: As I recall, only ~60% of the stimulus has been spent and not much, as neo notes, on infrastructure. http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html#

    I thought that the stimulus would give the US economy enough of a sugar rush to get the Dems through the midterm elections but even that has failed. I imagine that the Dem leadership expected that to work too.

    A friend of mine who follows economics closely says that the Obama administration would like to borrow more/spend more, but any further money spent would tangibly and immediately hurt the economy as the “bond vigilantes” sell off bonds to force higher yields.

    • If it had actually been “enough of a sugar rush” the effects would have been more broad based, but paying the bills for teachers and cops that states can’t afford, certainly isn’t a “sugar rush.
      In their eagerness to make their friends happy, they forgot to at least please some of the other folks.
      The “stimulus” was the economic equivalent of “singing to the choir.”

      • Except that giving the states money to pay for an unbalanced budget does nothing to address the lack of funds to pay for the budget deficit next year. So, in essence you are right, it is not a sugar rush. It is more like getting drunk on borrowing and spending and the stimulus is the doctor giving you a whiskey shot the next morning to put off the headache until later. The headache is still coming, because the problem has not been solved.

  • I just had to know …

    The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 Paul Krugman
    Prize motivation: “for his analysis of trade patterns and location of economic activity”
    The Asia Times recently called him the Mick Jagger of political/economic punditry.”

    LOL … I think he is out of his league.

  • “An when you add it all up it’s about $3 trillion in spending for public goods over two years…”

    Let’s see. If my math is right that’s about $10,000 per man woman and child or $40.000 for a family of four.

    Ya, Krugman is probably right. We’re too stupid to know what to do with all that money.

    This guy should be committed.

  • Krugman is SUCH a STOOOOOOOOOOOOoooooooPID liar!
    The lie exists in the notion that “government provides must-haves” without admitting that those actual “must-haves” are few and quite inexpensive.  The rest is not only non-essential, but can be provided MUCH more efficiently by the market, and is unconstitutional as a rule.

  • Paul Krugman is the poster child for what happens to a man who sells his soul for an ideologue.  No more are there ever to be any logic from the man.  No more are there to be any sense from the man.  We should all bow our heads and take a moment of silence in remembrence of this man’s honor.

    /sarc

    What a Friggin’ Tool!!!!

  • Would it be fair to boil Krugman’s argument down to “we need to engage in a few more wars“?

    • … or is it tied to the “last use of nuclear weapons in anger” ?
      Fidel Castro says in a confrontation between the US and Iran, “Men think they can control themselves but Obama could overreact and a gradual escalation could become a nuclear war.”  Nuking our way to prosperity.
      Nixon went to China.  Reagan went to Reykjavik.  Obama to Nuclear Insanity.

  • But…but…but what about the massive recession in 1946 when the war ended?
    Umm…wasn’t any? Massive deregulation and rollbacks of the 1930s ended up in an economic BOOM!
    http://www.cato.org/pubs/policy_report/v32n3/cpr32n3-1.pdf

    (Or here for an html version)

    http://www.cato.org/pubs/policy_report/v32n3/cpr32n3-1.html – 39k
    /excerpt

    THE DEPRESSION OF 1946
    Historically minded readers may be saying, “There was a Depression in 1946? I never heard about that.” You never heard of it because it never happened. However, the “Depression of 1946″ may be one of the most widely predicted events that never happened in American history. As the war was winding down, leading Keynesian economists of the day argued, as Alvin Hansen did, that “the government cannot just disband the Army, close down munitions factories, stop building ships, and remove all economic controls.” After all, the belief was that the only thing that finally ended the Great Depression of the 1930s was the dramatic increase in government involvement in the economy. In fact, Hansen’s advice went unheeded. Government canceled war contracts, and its spending fell from $84 billion in 1945 to under $30 billion in 1946. By 1947, the government was paying back its massive wartime debts by running a budget surplus of close to 6 percent of GDP. The military released around 10 million Americans back into civilian life. Most economic controls were lifted, and all were gone less than a year after V-J Day. In short, the economy underwent what the historian Jack Stokes Ballard refers to as the “shock of peace.” From the economy’s perspective, it was the “shock of de-stimulus.”

    THIS is the lesson history that needs to be known!

  • Terrific stuff! I’ve been telling friends this, and pointing out how American civilians couldn’t do much besides invest in War Bonds, since we didn’t have an illegal drug problem, couldn’t spend on consumer durables, and spending on black market goods was considered patriotic, so we HAD to $ave our money, and it was available for investment when the guns were silenced. Perhaps the Idiot Krugman would have us nuke China and a few other nations so our economic competition would be zip, zero, nada, like it was in 1945 and we could go back to those halcyon days! Jonathan Alter of Newsweek has made the same argument that Krugman has, that we spent money like water during WW2 and it was good for us, so why not now? And I ask myself, how do these people get their jobs and get to keep them? Dios mio…..