Monday, October 1, 2012

Krugman: Nothing to See Here, Folks! The Economy is Doing Great!

Yes, yes, Paul Krugman's latest column is a stirring defense of the Welfare State, which in Wonderland is permanently sustainable because interest rates are low. And why are interest rates low? I think his former department chair, Ben Bernanke, might have something to do with that, but low rates certainly are not due to any increase in savings or positive long-term outlooks by investors.

Krugman writes:
...we are not facing any kind of fiscal crisis. Indeed, U.S. borrowing costs are at historic lows, with investors actually willing to pay the government for the privilege of owning inflation-protected bonds. So reducing the budget deficit just isn’t the top priority for America at the moment; creating jobs is. For now, the administration’s political capital should be devoted to passing something like last year’s American Jobs Act and providing effective mortgage debt relief. 
 Actually, an economy normally creates employment opportunities by creating new wealth, not printing money, but in Wonderland, the printing press is the real source of wealth and the more the Obama administration through Bernanke prints (and that essentially is what the guy is doing), the wealthier we are!

How do economies grow? Before the creation of Wonderland, they grew when entrepreneurs found ways to combine resources and factors of production in way that would enable them to move these factors and resources from lower-valued to higher-valued uses, as ultimately decided by people who purchased consumption goods. Over time, entrepreneurs found newer and better ways to apply these resources in a way in which we were able to produce more with less.

Even economists at one time believed that. Today, we have Nobel Prize-winning economists claim that economies grow via government spending, through vast subsidies given to industries run by people who are politically-connected to whomever is in power, and by keeping entrepreneurs from producing more wealth.

In Wonderland, "costs" simply are official price-denominated outlays that can be raised or lowered simply via government edict. As the Federal Reserve System quietly props up more banks and governments, we are told that Bernanke actually is creating a miracle world in which the Law of Opportunity Cost is repealed.

The real economy is doing very poorly, but Krugman and his friends in Washington, which has found itself in the position of becoming wealthier during this depression -- at the expense of the rest of the country -- are doing quite well, thank you. Federal workers are taking in more than ever, while the regulatory state grows and grows, while the police powers of the State of Wonderland increase.

Once upon a time, Washington would have been exposed for the parasitic economy it has become, but now that we are in the Age of Wonderland led by Really Smart People, Washington's new riches are seen as progress. Socialism comes to a grinding halt when, in Margaret Thatchers words, the socialists run out of other people's money to spend, but I guess we are not quite there yet.

You see, Krugman actually seems to believe that the "Social Safety Net" actually is a net creator, not a net consumer of wealth. It is economics turned upside down, but for the time being, the folks who believe we create new wealth by taxation, printing money, borrowing at record rates, restricting entrepreneurs, and promoting inflation have the microphone and they are not giving it up.

9 comments:

Lord Keynes said...

"Actually, an economy normally creates employment opportunities by creating new wealth, not printing money, but in Wonderland, the printing press is the real source of wealth"

Your "critique" of Krugman is just an endless straw man, the same old laughable caricature:

http://socialdemocracy21stcentury.blogspot.com/2011/05/william-l-anderson-flunks-keynesian.html

You really think Keynesians believe that the object of fiscal policy is not to increase private sector output and employment?

Why, then, did Keynes devote so many pages to the nature of private investment and how to increase it in the General Theory?



William L. Anderson said...

Yeah, you promote private growth by regulating it to death, making energy costs go up, printing money, bailing out banks and politically-connected firms. That's the Keynesian way.

Bala said...

One of these days, I am going to write a post titled "LK flunks Logic 101".

Genius. Your claims depend on Keynes' garbage making any sense at all. Ever factored the possibility that the General Theory is just plain rubbish? In fact, it's not "possibility" but "the truth".

Mike said...

Krugman: “...we are not facing any kind of fiscal crisis’

Krugman is the new 'Baghdad Bob'

"There are no American infidels in Baghdad. Never!"

Pulverized Concepts said...

n America in which rising inequality is reflected not just in the quality of life but in its duration. For while average life expectancy has indeed risen, that increase is confined to the relatively well-off and well-educated — the very people who need Social Security least. Meanwhile, life expectancy is actually falling for a substantial part of the nation.

According to Forbes: Possible explanations cited by experts include obesity, a rise in drug use among less-educated whites, persistently high rates of smoking among less-educated white women, and an increase in the percentage of uninsured families among the least-educated Americans.

http://www.forbes.com/sites/nextavenue/2012/09/27/why-are-some-americans-living-shorter-lives-than-others/

Pulverized Concepts said...

Note that the increase in the percentage of uninsured families is among the least-educated Americans, not the poorest.

Old Mexican said...

Re: Lord Keynes,
-- You really think Keynesians believe that the object of fiscal policy is not to increase private sector output and employment? --
Bill is being critical of Krugman's assertions, LK, not of "all Keynesians."

-- our "critique" of Krugman is just an endless straw man, --

You're being disingenuous, LK. Krugman IS implying that money printing is the source of wealth:

"For now, the administration’s political capital should be devoted to passing something like last year’s American Jobs Act and providing effective mortgage debt relief."

Where do you think the government obtains the revenue for those two Christmas presents? The revenue fairy? Certainly not from taxation, otherwise budgets would always be balanced.

Anonymous said...

Krugman said:

"we are not facing any kind of fiscal crisis. Indeed, U.S. borrowing costs are at historic lows, with investors actually willing to pay the government for the privilege of owning inflation-protected bonds."

Its a specific point and its a response to Austrians who have consistently argued that the expansion of govt debt would lead to an increase in interest rates which would create a funding problem for the Federal Govt.

So whats happened: Is Krugman right - interest rates at historic lows - and if he is, what is your explanation? Ignore the point if you want but if Austrians can't get that point right why should anyone listen to anything else they have to say?

William L. Anderson said...

This is most interesting. We have the Fed intervening at record levels in order to keep interest rates low, but now the Keynesians are insisting that this is just the natural market at work.

Austrians have been at the forefront of saying that the Fed's interference is keeping interest rates lower than what they would be otherwise. Furthermore, Keynesians insist that there is no downside at all to the Fed pushing interest rates down.

(Of course, Keynesians believe that government and the central bank can do away with the laws of scarcity and opportunity cost.)