Monday, November 8, 2010

Krugman's Phony "Painless" Solutions

I have no idea if Paul Krugman reads the Bible or any other religious material, but being that I am in the midst of reading through the section of the various major and minor prophets of Israel, I can see how Krugman fancies himself to be an Isaiah or Ezekiel. Here is Krugman giving prophecies of woe -- but also presenting what he claims to be are "solution" to the current ills.

Unfortunately, he believes, no decision makers in the government are listening. Instead, from President Obama to Ben Bernanke, these people are listening to the "Pain Caucus" (as he calls people who note that the economy cannot expand with malinvested capital), the "inflationistas," and those lyin' furriners (the Chinese and Germans) who are more responsible than anyone else for our present condition.

For example, he writes of the Chinese and Germans:
After all, you have China, which is engaged in currency manipulation on a scale unprecedented in world history — and hurting the rest of the world by doing so — attacking America for trying to put its own house in order. You have Germany, whose economy is kept afloat by a huge trade surplus, criticizing America for running trade deficits — then lashing out at a policy that might, by weakening the dollar, actually do something to reduce those deficits.
So, there you have it; these countries, which actually make goods that people want to buy, are partially at fault for our predicament. Obviously, we need a good trade war to accompany our failed "war on terror." That will bring prosperity for sure.

Here is the ultimate irony, however. Krugman believes that the government is choosing the "hard way" when, in fact, fixing the current problem is quite easy. As he wrote in his book The Return of Depression Economics, most economic crises (according to him) can be "fixed" simply by the printing of money. In other words, Ben Bernanke really can print some of it, go into his helicopter, and dump it out upon grateful people who then will go and spend it, giving the economy "traction," and leading us into prosperity.

Now, this makes Krugman a most interesting prophet. Most prophets of the Bible excoriated Israelites for seeking a life of ease, for following after false gods, and "oppressing the poor" by getting them to work, and then not paying them, or having crooked judges rule in their favor when the poor brought their cases before the courts of those days.

Krugman, on the other hand, claims that the real solution to the current situation is the easier path. Those that say that we no longer can continue the boom through loose credit and wild deficit spending and who must get the "house in order" really are the villains, for they lead us down the path of pain.

In his famous "Hangover Theory" article in Slate, Krugman (after mangling the Austrian Theory of the Business Cycle) declares:
Powerful as these seductions (ATBC) may be, they must be resisted—for the hangover theory is disastrously wrongheaded. Recessions are not necessary consequences of booms. They can and should be fought, not with austerity but with liberality—with policies that encourage people to spend more, not less.
See? The "solution" really is quite easy. When the value of malinvested assets fall and the follies of a boom are exposed, we then pretend that we are prosperous. Is the income that flowed from the money borrowed to finance these malinvestments drying up? No problem! Let the government either try to prop up these malinvestments by getting the Fed to purchase government bonds, or sell the bonds to a central bank in Upper Slobovia and use those dollars to fund the politicians' latest projects (like rail tunnels). And, if the projects run way over budget, THAT IS EVEN BETTER BECAUSE IT MEANS WE ARE SPENDING MORE MONEY!

Usually, prophets tell people that they must choose the more difficult path, but the Prophet Krugman differs. If I may use an analogy from the New Testament, it would be like Jesus telling his disciples that they should enter "through the wide gate," as "the narrow gate is too painful."

I sense a real anger in Krugman's words. Here is a Nobel Prize winner telling people that the way out of this depression is easy: just borrow, print, and spend (and spend and spend). Yet, somehow, the Bad People are winning the day, falsely convincing people that we cannot borrow and spend our way to prosperity. They are not moved by Krugman's prophecies that the road to ease is for us to start a trade war with China, tell the Germans "Zum Teufel mit Ihnen," and spend, spend, and spend some more.

Is something wrong with this picture?

17 comments:

Rick T. said...

Krugman genuinely thinks he is on the side of the poor and the unemployed, whereas the policies he supports hurts them the most and benefits the wealthy and politically connected. Trashing the value of the dollar, which Krugman explicitly advocates, and the Fed is working hard to achieve by running the printing presses at top speed, is causing rational people throughout the world to trade in their dollars for things that can't be manufactured out of thin air, like oil, food, cotton, and gold.

Given how weak the economy is, why is oil $87 per barrel rather than say $20, where it was throughout the 1990s when the economy was a lot stronger? It isn't so much that people need the oil as it is that they don't want to hold the dollars.

Same for the other commodities. According to the BLS, the poorest 20% of Americans spend over 50% of their income on fuel and clothing, while the upper fifth spend only about 10% of their income on those things (and that counts some pretty fancy clothing that the poor could never afford.) So Krugman's policies will make life even more miserable for the poor that he supposedly is trying to help. How is the economy going to get stronger from a policy that leaves many people with nothing left to spend beyond heat, gas, food, and fuel? What kind of "traction" are we going to get from retired people who can't earn anything on their savings because of the artificially low interest rates?

I'll add that except for the UK and Norway, every other major oil producing country is either an avowed enemy of the US or, at best, a problematic and corrupt ally. QE2, by inducing people to trade their dollars in for oil, and inducing oil producers to leave their oil in the ground rather than sell it for depreciating dollars, is helping further weaken the US geopolitically. I realize that is not an economic issue as such, but to the extent that we have to spend even more on defense as a result, that leaves us less money for things we might prefer.

Tom said...

"Is something wrong with this picture?"

No. Krugman is being ignored.

Lord Keynes said...

The "solution" really is quite easy. When the value of malinvested assets fall and the follies of a boom are exposed, we then pretend that we are prosperous

You clearly fail even to accurately portray Krugman’s opinions. He favours effective financial regulation to prevent asset bubbles, reckless lending and bubble economies.

And as for the ridiculous “theories” of ABCT, he is perfectly justified in rejecting them, just as ABCT is utterly rejected by Cato Institute libertarians, older neoclassicals, New Classicals, monetarists, neoclassical synthesis Keynesians and Post Keynesians (have I left anyone out?)

I sense a real anger in Krugman's words.

You can say the same about your post above. Frustrated that no one really pays any attention to Austrian economics, and certainly not outside America? That the sort of polices advocated by Austrians have such limited appeal that only small minorities would ever vote for them?

bravo said...

That first paragraph by krugman almost had me in tears. How dare china and germany have functional economies!!!!! *waves fist in the air*

And LK krugman does a fine job of articulating that he doesnt know shit all by himself

bravo said...

"That the sort of polices advocated by Austrians have such limited appeal that only small minorities would ever vote for them"

Reality doesnt really give a fuck if you vote for it or not.

Richard said...

"And as for the ridiculous “theories” of ABCT, he is perfectly justified in rejecting them, just as ABCT is utterly rejected by Cato Institute libertarians, older neoclassicals, New Classicals, monetarists, neoclassical synthesis Keynesians and Post Keynesians (have I left anyone out?)"

Well, all of these guys reject each other's theories, so according to your logic, it follows that all of their theories are also wrong

Lord Keynes said...

Well, all of these guys reject each other's theories, so according to your logic, it follows that all of their theories are also wrong

Nope - they all reject ABCT because it is itself unconvincing the fact that these schools disagree on other things is irrelevant.

Bala said...

LK,

"Unconvincing" is a good word to choose.

Richard said...

LK,

You crack me up.

Lord Keynes said...

If the only way you can deal with being totally defeated in argument is laughing, good for you.
:)

Petar said...

Lord Keynes,
Having read most of your pathetic blabbering on this blog, which is based either on straw man or on logical inconsistencies or outright fallacies, I fail to see how you have totally defeated anyone.

In the world outside your head, that is.

Bob Roddis said...

Beating a dead horse, part 87...

LK has never shown the slightest familiarity with the basic concepts of the Austrian School, acting man, subjective value, economic calculation etc.... from which all the rest is derived. He demonstrates this with every one of his snarky posts.

His form of “argument” is consistent with all of the other "critics" or "deniers" of the Austrian School that he listed. They avoid the basic Austrian ideas like they are kryptonite. People who meticulously and purposefully avoid grasping the gist of the arguments of their opponents are admitting that those arguments cannot be refuted.

Further, why would a Keynesian ever admit that he is wrong? The simple fact that one has been taken in by the Keynesian Hoax (and spent wasted months or years learning the phony jargon) should be humiliating all by itself. When you add to that the fact that not only has the Keynesian been taken in by nonsense but that his policies are the cause of our economic collapse, you will find a terminal case of the denial of reality.

As Brett Butler used to say, the child ain’t right.

Len said...

I'm no fan of Krugman, but China is in fact manipulating their currency.

The United States needs to impose tarriffs--free trade is a joke.

bravo said...

And the fed buying 600 billion in treasury bonds isnt manipulating ours? I fail to see your point. You are the joke.

Len said...

@bravo -- what's wrong punk, you wake up on the bottom this morning?

did i say the fed wasn't manipulataing US currency? learn how to comprehend a sentence and maybe you'll figure it out.
and save the same calling for someone on the street so you can get your but kicked.

bravo said...

I still fail to see your point. We manipulate our currency, no big deal? China manipulates theirs and you defacate your pants?

also thanks for proving my point

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