Goldstein Halts the Recovery!!

Paul Krugman is correct: we are NOT in a recovery. In fact, the rock is rolling quickly down the hill as we are about to have a downturn -- in a downturn.

Are policy makers in "denial," as Krugman claims? Hardly. Granted, Washington is booming, just as it did from 1933 to 1946 when government became firmly entrenched in the lives of everyone else and, well, someone had to be paid in order to carry out the "entrenching." No doubt, these people are enjoying good times and even if the rest of the country suffers, those tied to the federal government even are enjoying increased incomes. Life is good, at least in DC.

As usual, Krugman trots out the usual canards for this obvious downturn, including (1) the original "stimulus" was not large enough, and (2) Goldstein The Republican Party is blocking new spending. Let us look at both arguments, which are predicated with the nonsense that Goldstein is to blame. Krugman writes:

In the case of the Obama administration, officials seem loath to admit that the original stimulus was too small. True, it was enough to limit the depth of the slump — a recent analysis by the Congressional Budget Office says unemployment would probably be well into double digits now without the stimulus — but it wasn’t big enough to bring unemployment down significantly.

Now, it’s arguable that even in early 2009, when President Obama was at the peak of his popularity, he couldn’t have gotten a bigger plan through the Senate. And he certainly couldn’t pass a supplemental stimulus now. So officials could, with considerable justification, place the onus for the non-recovery on Republican obstructionism. But they’ve chosen, instead, to draw smiley faces on a grim picture, convincing nobody. And the likely result in November — big gains for the obstructionists — will paralyze policy for years to come.

Let us remember that in 2009, Republicans were in NO position to engage in any "obstructionism." The Senate had a filibuster-proof majority and Nancy Pelosi firmly controlled the House. Obama had come in as a combination of Superman-Messiah, and he was in a position to do whatever he wanted, Republicans be damned.

Yet, once again, Krugman chooses to claim that the government did not take on enough debt and fund enough projects (that somehow would magically have carried us onto a wave of prosperity and four-percent unemployment) to end the recession all because a few Republicans were making noise about spending. This is nonsense, pure nonsense.

Furthermore, Krugman NEVER has laid out the causal chain to explain just how taking on a few hundred billions more in government debt would have placed our economy in the pink. He likes to say that the economy would have gained more "traction," but I would ask just what he means by that. An economy is not a perpetual motion machine, and the idea that throwing in some more dollars would have given the economy enough push to sustain itself lacks an explanation device. Instead, we are supposed to just believe it.

We also see the Silvio Gesell side of Krugman when he urges the Fed to ramp up the inflation in order to "encourage" spending. Krugman writes:

The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.

Here is the problem: businesses are not just sitting "on their cash" because it makes their bottoms feel good. They have no confidence about the future, and the anti-business rhetoric that comes not only out of the White House, but also from Congress and the media is not exactly going to give business owners and investors more confidence.

So, Krugman resorts to the "trick" of rapidly depleting the value of money in order to encourage spending. However, the problem is that businesses only are engaging in short-term investments when, in fact, we need to see long-term movement in order for a recovery to begin. Unfortunately, that is not possible in this political environment, and instead of recognizing that fact, Krugman calls for financial trickery that, in essence, would be a de facto confiscation of money from those who currently are saving.

None of this trickery and coercion will produce a strong economy. Like all good Keynesians, Krugman is worried only about the shortest-term situation, but if the government continues to follow this current path of financial folly (and even try to make Krugman happy), we won't have to worry about the long run because we really will be dead.