Free Markets, Free People

Krugman and the false prophets of economics

The one-trick pony that is Paul Krugman, constantly pushes massive government spending as the panacea for all recessionary ills.  It is supposed to be the way one “manages the economy” from a central government position – as collectivist a thought as one can imagine.

In fact, one of Krugman’s criticisms – despite the fact that his estimate of the amount needed to stimulate the economy was $200 billion less than what was passed in the stimulus package – is that the government hasn’t borrowed and spent enough.  And he certainly is no fan of austerity, claiming that the “pain caucus” has been in charge (what almost a year trying to address decades of borrowing and spending?), with no significant results and oh, by the way, look at the UK.

“In Europe,” he wrote last week, “the pain caucus has been in control for more than a year, insisting that sound money and balanced budgets are the answer … [But] Europe’s troubled debtor nations are … suffering further economic decline thanks to those austerity programs.”

Yes, friends, “sound money and balanced budgets” are, apparently, things to be avoided.

But curiously Krugman never says, “oh, by the way, look at Switzerland” because if he did, he’d have to explain their positive outcome based on austerity:

The Swiss have run a prudent fiscal policy throughout the economic crisis. They have had a structural surplus in each of the past five years. Their net debt is actually lower today than it was in 2005. And guess what? In 2009 their economy suffered the smallest contraction in Europe, with unemployment today below 4 percent. As for sound money, the Swiss franc is up 95 percent against the dollar since 2000.

The key point is the Swiss never let their economy get in the shape that is now plaguing the rest of Europe and the US.  It has never spent and taken on debt like the UK, much less Portugal and Greece.  It has been a program of economic austerity for years.   Consequently, the debt level is miniscule compared to other Western economies and recovery was quick with minimal intrusion (if any) from government.   We, on the other hand, were borrowing in good times and borrowing heavily to spend on things our government has no business involving itself in much less borrowing money to do so.  And it points out that even if you buy into the Krugman theory that we ought to be borrowing and spending in “bad times” ala Keynes, the other borrowing that has taken place limits those options considerably:

The real lessons for the United States are clear. Those who run up debt in good times can borrow only so much more when a recession strikes. And heavily indebted governments postpone fiscal stabilization at their peril. If you wait to reform until the bond market calls time, you are—to use a technical term from economics—screwed.

And we’re headed toward that “technical term” more quickly than we can imagine, and yet the Krugman’s of the world still counsel more spending of borrowed money leading to more accumulation of debt. 

At a certain point, the amount of debt begins to shave percentage points off the GDP as the debt is serviced.  That, at least in my opinion, is where we are now and one of the reasons we’re seeing such a slow recovery.  GDP growth, last quarter for instance, is not at all robust:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.8 percent in the first quarter of 2011…

Economically we have to understand, at the highest levels, that despite the siren songs of Keynesians like Krugman, that the bill has come due – in fact it is past due-  and must be addressed and paid.  We  can’t afford to ignore it anymore, nor pretend that spending borrowed money will do more good than harm.  We and the can are at the end of the road.  It can’t be kicked anymore without dire consequences.  Unfortunately, while it seems we’ve at least recognized that fact – for the most part – what we can’t seem to make ourselves do is that which is necessary – cut spending deeply.  We continue to hear from the false economic prophets that we can fix all this if we’ll just borrow and spend.  

~McQ

Twitter: @McQandO

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6 Responses to Krugman and the false prophets of economics

  • The report, a mid-year update to the 200-page conspectus of the world economy issued earlier this year, says that the precipitous fall of the dollar since the start of the new millennium portends the possibility of a destabilization and “crisis of confidence” of the world reserve currency.

  • Fallicies:
    GDP growth does NOT necessarily equate to growth in production (given the public sector spending is a major component of the frequently bogus numbers).
    GDP growth does NOT necessarily equate to a rising standard of living (merely spending levels, which mostly entails buying “stuff” via imports and financing it with more borrowed funds).
    “Cost of Living” is NOT inflation; inflation, tempered by rising productivity and technological improvements, is more suitably measured by M0, M1 and M2, and since  1990 has outflanked private sector production by roughly a factor of four.
    http://mises.org/images/4005/Figure3.png
    http://pajamasmedia.com/blog/the-obama-administrations-sidam-touch/
    http://pajamasmedia.com/files/2011/05/1-61.jpg
     
     

  • But the Swiss will never be the source of a massive CRAP mortgage bubble that ramifies all around the world, either.  They actually believe in law, and in good banking practices.

  • As Barone notes – “unexpectedly” has become the new adverb for the press when reporting the economy under Obama.
     
    Whereas “expectedly” is the adverb for Krugman proposing more government spending to fix the problems.

  • This man is such an obvious low rent liar.  His constant calls for a free spending government are exactly opposite the early economics work which won him the Nobel Prize.  What a horrible sell out.

  • Where’s the bozo from a couple of days ago who demanded the research on how much money the government ‘made’ from the taxes and what not off lending Chrysler money to stay in business….the one claiming the ‘taxpayers’ would make money from the deal.
     
    Here’s an educational note today in response to his ‘theory’ about how the taxpayers will make money -
    WASHINGTON – The Obama administration said Wednesday that the government will lose about $14 billion in taxpayer funds from the bailout of the U.S. auto industry.