Debt and Delusion

I have stayed away from doing commentary on the whole debt ceiling "crisis" because nothing bugs me more than watching a bunch of hypocrites and frauds prattle around as though they were doing something important. Furthermore, we are dealing with a situation in which the contrived "crisis" is given more play than the real crisis that government has brought to us.

Nonetheless, we were supposed to have been transfixed with the dog-and-pony show in Washington, and now that the Political Classes have papered over yet another yawning hole, the pundits now are looking at winners and losers. In today's commentary, I deal with the angst emanating from the "Newspaper of Record," the editorial writers and, of course, Paul Krugman.

Like me, both entities consider the final decision to be a Really Bad Deal, but for reasons that demonstrate their own delusions about the economy. For all of the bad prose that these commentaries provide, I think that I can describe them in one sentence: We believe that government must spend and tax us into prosperity.

This is not possible, period. One can be of a socialist or Keynesian ideology and spout to the heavens that this time, such a scheme will work. It won't. Yet, Krugman gives us the same old delusion:

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

Krugman would be correct if assets were homogeneous, but they are not. Furthermore, he provides NO causal path as to how this continued government spending is going to lead to future prosperity. No, in Krugman's world, is just happens.

We are seeing a dearth of current private capital investment in this country, and no wonder. Krugman can ridicule business confidence all he wants by calling it the "confidence fairy," but when we have a government that has shown it is utterly hostile to investment that either is not directly subsidized or falls outside the president's view of what is right and proper (i.e. energy investments), then it is not hard to understand why businesses lack confidence to throw their money within U.S. shores.

Instead, Krugman wants us to believe that businesses automatically will invest when they see that the government is committed to showering the economy with new dollars. Well, government has been doing that for the past four year, and so far we are not seeing any results, and we won't see results, either.

What we are seeing is utter delusion in Washington, something I recently likened to the view from "Hitler's bunker" at the end of World War II. (I made the remarks while being interviewed on RT.)

So, Krugman and his employer can give us the Keynesian fairy tales all they want, but they are just as delusional as their friends in Washington. Krugman believes this madness is sustainable; it is not.