Barack Obama came into Washington with Big Plans For A Big Stimulus, and the Federal Reserve System has been spreading dollars everywhere. However, the economy remains mired in depression, and Paul Krugman believes he has the solution: more stimulus. Lots more stimulus.
In his recent column, Krugman claims that the problem is that we don't have enough government spending, and if we don't spend, expand the state, and employ more people as bureaucrats, our economy never will recover. Actually, if we continue to spend, expand the state, and employ more people as bureaucrats, indeed, our economy never will recover. Krugman writes:
Of course, structuralistas say they are not making excuses. They say that their real point is that we should focus not on quick fixes but on the long run — although it’s usually far from clear what, exactly, the long-run policy is supposed to be, other than the fact that it involves inflicting pain on workers and the poor.Anyway, John Maynard Keynes had these peoples’ number more than 80 years ago. “But this long run,” he wrote, “is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again.”I would only add that inventing reasons not to do anything about current unemployment isn’t just cruel and wasteful, it’s bad long-run policy, too. For there is growing evidence that the corrosive effects of high unemployment will cast a shadow over the economy for many years to come. Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn’t the future burden of debt — a burden, by the way, that premature spending cuts probably make worse, not better. It is, rather, the lack of jobs, which is preventing many graduates from getting started on their working lives.So all this talk about structural unemployment isn’t about facing up to our real problems; it’s about avoiding them, and taking the easy, useless way out. And it’s time for it to stop.
And what constitutes "doing something"? According to Krugman, it is having governments increase their borrowing and monetary creation supposedly to start employing idle resources. Unfortunately, we are not dealing with idle resources per se; we are dealing with malinvested resources and every one of Krugman's schemes to deal with the problem only will make that problem worse.
Whether it is propping up the housing industry or creating new bureaucracies or subsidizing pet Obama-favored "clean energy" firms, the end result is expanding the malinvestments and ensuring that those still-healthy industries are unable to lead the recovery. Unfortunately, Krugman truly is stuck in 1939, refusing to acknowledge that the very things he claims will give us recovery are leading us into the abyss.
There is one more outrageous point that he makes. Earlier in the article, he writes:
O.K., there’s something I didn’t tell you: The paper in question was published in June 1939. Just a few months later, World War II broke out, and the United States — though not yet at war itself — began a large military buildup, finally providing fiscal stimulus on a scale commensurate with the depth of the slump. And, in the two years after that article about the impossibility of rapid job creation was published, U.S. nonfarm employment rose 20 percent — the equivalent of creating 26 million jobs today.
As Robert Higgs noted in his paper on the alleged "prosperity" of World War II, the notion that World War II was "good for the economy" and made Americans prosperous is fraudulent, period. Today, prosperity will come if Americans prepare for an invasion of space aliens.