All around, right now, there are people declaring that our best days are behind us, that the economy has suffered a general loss of dynamism, that it’s unrealistic to expect a quick return to anything like full employment. There were people saying the same thing in the 1930s! Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus — and suddenly there were enough jobs, and all those unneeded and useless workers turned out to be quite productive, thank you.He goes on:
There is nothing — nothing — in what we see suggesting that this current depression is more than a problem of inadequate demand. This could be turned around in months with the right policies. Our problem isn’t, ultimately, economic; it’s political, brought on by an elite that would rather cling to its prejudices than turn the nation around.First, as Robert Higgs has duly pointed out, World War II did NOT create prosperity, unless one calls "prosperity" being men getting shot to pieces, bombs destroying cities and millions of lives, and people having to make do with rationed food and fuel.
And if Krugman insists that he only is talking about "full employment," then one can argue that slavery also creates "full employment," although I doubt seriously that Krugman believes we should bring back the "peculiar institution." (However, Krugman DOES believe that people should be forced to work for several months out of the year in order to support government employee unions and to pay for the employment of people whose sole job it is to make their lives more difficult. That may not officially be "slavery," but it is something close to it.)
Second, when Krugman is talking about "adequate demand," he means the creation of new money or the injection of newly-borrowed money into the system, as though that creates wealth. I think it is instructive that Keynesians commit the error of separating consumption and production, as though they were two wholly-unrelated things.
If creation of new money or new borrowing alone can make us prosperous, then there is no reason -- using Krugman's own logic -- that Zimbabwe was not the most prosperous nation on the earth. Should North Korea's newest "Dear Leader" or whatever he will be called wish to turn his wretched country into a citadel of wealth, all he needs is to issue bonds and have his own government purchase them with newly-printed money.
However, I will give Krugman this important point: in the end, the problem IS inadequate "demand," but in the world of economics, demand ultimately comes from what we produce. Going back to Zimbabwe or North Korea, their currencies only can be used to purchase the meager produce that comes from their terrible economies.
Therein lies the problem of the Keynesian "stimulus." Right now, where does the government spending go? Well, it goes to prop up banks, "green energy," pay regulators to ensure that we produce even less, fund left-wing political groups, and, of course, the president's multi-million-dollar vacations. The president and his Keynesian minions, however, are doing everything they can to throttle things like the oil industry, the coal industry, production of electricity, and entrepreneurship in general.
These are things that are profitable, yet do not meet the political "standards" of those in power, so the government uses resources in order to quash production of things that would be profitable, and are necessary to help lead a recovery. Instead, Obama and Krugman believe that government can subsidize an economy into recovery, as though economic losses are nothing more than mere bookkeeping entries.
In the end, it is demand, but it is HOW we are able to demand that makes a difference. For the time being, the rest of the world will accept dollars, but as the Fed and the government create more and more of them, driving down their value, this does not provide the mechanism by which entrepreneurs can create sustainable avenues of production. Instead, everything is channeled into short-term avenues via which people are trying to find hedges against inflation.
Why is the economy in depression? It is depression because the Keynesian U.S. Government insists upon strangling profitable lines of production which don't meet the political approval of those people with power and influence and channeling resources into those areas that clearly are unprofitable. This is a "transfer economy" and, contra Krugman, wealth transfers do not create wealth.