Obama himself after taking office declared that the USA would spend its way out of this recession/depression and the only condemnation that Krugman could muster of this strategy was that the administration wasn't borrowing and spending enough money. Since the government could create its own "money" at a whim, the only limit on spending our way back to boom conditions was a political will to increase the government's debt obligations to future taxpayers.
Then came the Greek crisis. Consistent with his Keynesian viewpoint, Krugman said that the "solution" for Greece either would be huge European Union bailouts or a return of Greece to its own currency, abandoning the Euro. Anyone who might argue that governments were cannibalizing future resources and production in order to maintain current spending was condemned as a promoter of "austerity," which in Wonderland is a Truly Evil Person.
Ever since joining the EU, the Greeks have acted as though Paul Krugman were their Guiding Light. As this article demonstrates, Greece's government, courtesy of EU taxpayers, has created boondoggle after boondoggle complete with a bloated public payroll:
Even on a stiflingly hot summer's day, the Athens underground is a pleasure. It is air-conditioned, with plasma screens to entertain passengers relaxing in cool, cavernous departure halls - and the trains even run on time.Not that any of this would matter in Keynesian thinking. Indeed, the Greek Underground would be considered the Ultimate Exercise in Creating Prosperity because it spends lots of money, and anyone who might protest that this is a huge waste of resources is an Enemy of the People.
There is another bonus for users of this state-of-the-art rapid transport system: it is, in effect, free for the five million people of the Greek capital.
With no barriers to prevent free entry or exit to this impressive tube network, the good citizens of Athens are instead asked to 'validate' their tickets at honesty machines before boarding. Few bother.
This is not surprising: fiddling on a Herculean scale — from the owner of the smallest shop to the most powerful figures in business and politics — has become as much a part of Greek life as ouzo and olives.
Indeed, as well as not paying for their metro tickets, the people of Greece barely paid a penny of the underground’s £1.5 billion cost — a ‘sweetener’ from Brussels (and, therefore, the UK taxpayer) to help the country put on an impressive 2004 Olympics free of the city’s notorious traffic jams.
The transport perks are not confined to the customers. Incredibly, the average salary on Greece’s railways is £60,000, which includes cleaners and track workers - treble the earnings of the average private sector employee here.
The overground rail network is as big a racket as the EU-funded underground. While its annual income is only £80 million from ticket sales, the wage bill is more than £500m a year — prompting one Greek politician to famously remark that it would be cheaper to put all the commuters into private taxis.
The picture painted of Greece in the above article is a picture you won't read on Krugman's page or in the NY Times, as the omission of Greek wastefulness really highlights where Keynesians and Austrians part company (not that they ever walked together, anyway).
In the Keynesian/Krugman view, spending is separate from production and, to be honest, spending is the key to producing wealth. If you spend, they will produce.
I note this because I can anticipate the objection: Demand drives production, and even Austrians, with their emphasis upon the valuation of the factors of production being imputed by consumers placing value on the "final product," would admit to that. However, when Keynesians and Austrians speak of "demand," they are speaking in two different languages.
Keynesians couch demand in simple spending; put money into the hands of people, let them spend, and the economy magically will appear. (Chartalists go even further, claiming that because governments can claim a legal monopoly over money creation, that the amount of "demand" governments can create is infinite, since government is not "revenue constrained.")
Austrians, on the other hand, note that one cannot consume when one is not producing, and that Say's Law -- yes, that "tyrannical" Say's Law that Keynesians hate so much -- has something to tell us. The only way out of this world-wide depression is for governments to stop this massive borrowing and spending and permit the malinvestments -- and they are legion -- to liquidate and for the lines of production that are sustainable to be permitted to develop.
The current tragedy in Greece is the product of reckless spending and malinvestment. Unfortunately, neither the Greeks nor the economics faculty at Princeton are willing to face the facts.