Gee, maybe we need those space aliens after all

Our economy is in depression, but there is nothing like preparing for those "space aliens" of which Krugman spoke last August 14 to put us back in the pink. An "adequate-sized fiscal stimulus" appears and we are there. Maybe we need yet another war, although the current ones have not kept our economy from going into the toilet -- but since they were not started by Democrats, perhaps they don't have the proper inflationary mix.

He writes:

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.

Considering the source

It is an exciting day for Paul Krugman! His views have been endorsed by David Frum, who according to the Great One, has "wandered off the conservative reservation." That Krugman would go ga-ga over an endorsement from Frum is quite interesting, to say the least.

Frum is a hardcore, war mongering "neo-conservative," better known for his drum beating for the various U.S. wars in the Middle East. Furthermore, Frum always has been of the school of thought that wars are "good for the economy," and his main criticism of the U.S. Government has been that it is not invading enough countries, killing enough people, and taking away enough of our liberties at home.

On the economic front, Frum always has lived on the Keynesian reservation, and his viewpoints have been well-known for a long time. That a Keynesian would endorse the views of a Keynesian hardly is surprising.

So, by all means, if someone like Frum wants to endorse Paul Krugman, perhaps it speaks more to the kind of world Krugman wants us to inherit than the rightness or wrongness of his views.

Krugman, Shame, and Politicizing Tragedies

People have sent Paul Krugman's comments on 9/11 and I admit to having a mixed reaction. As many of you know, I have not supported the U.S. wars abroad and even had a conversation with Krugman in 2004 about my opposition to them, especially the Iraq war.

However, Krugman seems to use the post-9/11 tragedy to play his usual games of political partisanship, and that is what bothers me most. George W. Bush hardly is the first politician to hype and politicize a tragedy. Yes, it is disgusting, but Bill Clinton hyped Oklahoma City and trotted out legislation that was every bit as terrible as what we saw in the Patriot Act. (In fact, much of what was in the Patriot Act was what Clinton tried to get passed but could not in the face of Republican opposition.)

Furthermore, now that the Obama administration continues the odious CIA rendition programs, sends assassination squads abroad, and keeps the prison at Guantanamo open, we hear nothing from Krugman. Nothing.

This is not a guy who support civil liberties; this is a guy who supports Democrats. Krugman will use the civil liberties weapon when it fits against Republicans, but is silent when Democrats engage in the same horrible conduct.

Yes, the Bush administration's reaction to 9/11 was shameful, just as Bill Clinton's was after Oklahoma City. Both administrations engaged in the slaughter of innocent people -- and received praise from the usual quarters.

Furthermore, when Bush was president, war was terrible. With Obama in the White House, it now is a "stimulus." Enough said.

Gotta love war and more war!

From Paul Krugman's declaration that a new war would strengthen the U.S. economy to the latest salvo from the NY Times that we need to have the U.S. Armed Forces run the country, or at least the business sector, it seems that fascism is now the Official Doctrine of the "Newspaper of Record."

One really needs to read this column by Nicholas Kristof to believe it. Big Brother loves you.

War, war, war!! Yeah, that will make us prosperous!

Krugman is at it again. During a recent appearance on ABC's "Sunday Morning," he once again made the Keynesian declaration that war is good for the economy:

“If we had the threat of war, had a military buildup, you’d be amazed at how fast this economy would recover.”

I'm not sure what we call Iraq, Afghanistan, Libya, and wherever else the U.S. Armed Forces are shooting people. I think I call it war, and we can see just how good it has been not only for our economy, but also the economies of the lands this government has attacked.

No, I don't think Krugman is endorsing even more military buildups and wars. (The Neo-cons, conservative Republicans, and many in the Tea Party have been beating the war drums loudly enough.)

Fallacy of Composition, or a Non Sequitur?

Of all of the things that Paul Krugman has written demanding that the government engage in even more massive borrowing and spending to "give the economy traction," perhaps this September 3 post is the most fallacious. Ironically, Krugman is claiming that his opponents are engaging in an informal fallacy, the Fallacy of Composition.

He writes:

Whenever the issue of fiscal stimulus comes up, you can count on someone chiming in to say, “Only a moron could believe that the answer to a problem created by too much debt is to create even more debt.” It sounds plausible — but it misses the key point: there’s a fallacy of composition here. When everyone tries to pay off debt at the same time, the result is contraction and deflation, which ends up making the debt problem worse even if nominal debt falls. On the other hand, a strong fiscal stimulus, by expanding the economy and creating moderate inflation, can actually help resolve debt problems.

So, what is his example? It is World War II. He goes on:

From 1929 to 1933, everyone was trying to pay down debt — and the debt/GDP ratio skyrocketed thanks to contraction and deflation. During and immediately after WWII, there was massive borrowing — but GDP grew faster than debt, and the debt burden ended up falling.

Yes, it seems paradoxical — but that’s the kind of world we’re living in. And the refusal of so many people to face up to the fact that we’re in a world where conventional rules don’t apply makes it likely that we’ll stay in that world for a long time come.

Here is the problem. As Robert Higgs wrote nearly 20 years ago, to say that World War II was a time of "prosperity" is an obscenity. It is true that the GDP numbers were high, but Prof. Higgs points out that the economy mainly was producing war goods. He writes:

In fact, conditions were much worse than the data suggest for consumers during the war. Even if the price index corrections considered above are sufficient, which is doubtful, one must recognize that consumers had to contend with other extraordinary welfare-diminishing changes during the war. To get the available goods, millions of people had to move, many of them long distances, to centers of war production. (Of course, costly movements to areas of greater opportunity always occur; but the rate of migration during the war was exceptional because of the abrupt changes in the location of employment opportunities.) After bearing substantial costs of relocation, the migrants often found themselves crowded into poorer housing. Because of the disincentives created by rent controls, the housing got worse each ear, as landlords reduced or eliminated maintenance and repairs. Transportation, even commuting to work, became difficult for many workers. No new cars were being produced; used cars were hard to come by because of rationing and were sold on the black market at elevated prices; gasoline and tires were rationed; public transportation was crowded and inconvenient for many, as well as frequently pre-empted by the military authorities. Shoppers bore substantial costs of searching for sellers willing to sell goods, including rationed goods, at controlled prices; they spent much valuable time arranging (illegal) trades of ration coupons or standing in queues. The government exhorted the public to “use it up, wear it out, make it do, or do without.” In thousands of ways, consumers lost their freedom of choice.

Furthermore, Krugman seems to be claiming that the "high GDP" numbers between 1941 and 1945 came as a result of all of the heavy borrowing done by the Roosevelt administration. This is nonsense. It is as though World War II came about because of "investments" by FDR and his "Brain Trust" when, in fact, the war had nothing to do with the New Deal per se.

So, in claiming that he is ferreting out the "Fallacy of Composition," Krugman engages in yet another non sequitur. Not exactly good economic analysis.