Friday, May 4, 2012

Krugman: More inflation and higher taxes will end the depression

In recent months, Paul Krugman has become an out-and-out cheerleader for inflation, claiming that throwing out more dollars somehow will revive the economy because people will quickly spend their depreciating money and such actions will enable more goods to sell. If a problem develops with that strategy -- and with inflation, the bad effects come later -- well, we can solve that with price controls and activist government.

Today, he repeats his claim that the REAL problem is that we don't have enough inflation because the Evil Republican Party doesn't want it. In fact, he argues, most Republicans want a gold standard. This time, he cites some allies, Thomas Mann and Norman Ornstein, who say that the Republicans today are “dismissive of the legitimacy of its political opposition.”

I must admit that while I see the Republicans historically as being destructive, nonetheless this is a real howler, given the fact that Democrats never could accept their losses in the 1980 election of Ronald Reagan as legitimate, and the opposition to Reagan's presidency was savage. You see, Krugman and other Democrats really believe that the one-party state that existed in this country during the 1960s and 1970s (and in many ways, Nixon's policies mirrored those of Democrats) was the only legitimate state of affairs. For example, Krugman writes:
If something like the financial crisis of 2008 had occurred in, say, 1971 — the year Richard Nixon declared that “I am now a Keynesian in economic policy” — Washington would probably have responded fairly effectively. There would have been a broad bipartisan consensus in favor of strong action, and there would also have been wide agreement about what kind of action was needed. 
 Krugman's memory might be a bit spotty, but I remember that what we had was a dollar crisis because the game of paying for the Vietnam War and the vast expansion of government during the Lyndon Johnson years by essentially printing more dollars had blown up. The response was...print  more dollars, but slap down price controls to make the ensuing inflation not look so bad.

In other words, the "broad bipartisan consensus" never existed in large part because of Democratic hatred for Nixon and the belief that no Republican ever should be in the White House post-FDR. But even if there had been that "consensus," the policy response to the crisis would have been a disaster.

Krugman, you see, claims that we can solve this whole crisis by printing more dollars and raising tax rates on wealthy people. He writes:
For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.

And the takeover of half our political spectrum by the 0.01 percent is, I’d argue, also responsible for the degradation of our economic discourse, which has made any sensible discussion of what we should be doing impossible.
 He goes on:
Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.(Emphasis mine)

No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence. 
 In other words, this depression could end if only -- if only -- there were a way to raise taxes on investment (thus, we would have less private investment so government or subsidized "investment" like what we saw with Solyndra would take its place) and spread even more dollars around the world while re-establishing the One-Party State. That is not a prescription for recovery, folks. It is a prescription for disaster.

I'm not going to carry the water for Republicans by any means. They are utterly blind to the destruction that their wars have created, and I will say unequivocally that Republican support for the Drug War and the fetish on immigration have helped to create a gulag of prisons that rivals what Stalin created in his worst days.

(Yes, I am a registered Republican, but that is because I had to do so in order to be able to vote for Ron Paul in the primaries. I'll keep that registration in hopes that future "Ron Paul" candidates will be on primary ballots down the road. This fall, I will vote -- if I vote at all -- for the Libertarian presidential candidate.)

Nonetheless, Democrats in the Obama administration have proven beyond a doubt that they are quite happy with the Surveillance State and the Police State and want to expand it, unionizing all of those government employees in the meantime, and turning them into a political force that will further destroy our few liberties we have left. (In California, for example, the powerful prison guard union -- a mainstay of the Democratic Party there -- successfully destroyed any attempts to lower the state's record number of inmates. The prison guards also are staunch lobbyists against any attempt to weaken our draconian drug laws.)

However, none of this matters to Krugman. To him, all that is needed is a return to the high tax rates of the New Deal along with further socialization of the economy. What he forgets is that when a government destroys the incentives for entrepreneurs and effectively undercuts the ability of entrepreneurs to operate without government subsidies, that government also dooms its economic future. Krugman might claim that our current problems are due to an economic plutocracy, but don't kid yourself. What Krugman wants is a political plutocracy based in Washington to run all of our affairs, a plutocracy that essentially would be answerable to no one but itself.

Of course, as a good Keynesian, Krugman has no use for the entrepreneur. Just tax, inflate and spend, and governments will create a good economy. That is his message, and it is utterly destructive, but also popular. But, then, Juan Peron destroyed Argentina's economy and he was a hero, too. I guess that Krugman wants Barack Obama to ape Peron or maybe even Hugo Chavez. What he does not say is how those men have ensured through their hyper-Keynesian policies that the economies of their nations will be basket cases into the foreseeable future.


Anonymous said...

Krugman represents the centre-left establishment. They are quite powerful now, but their power will decline over the next ten years. The younger folks understand that they are getting very few benefits, and when they gain authority in 10-20 years they are unlikely to tolerate the welfare-warfare state.

Dennis said...

I find it amusing that Krugman rails against the influence of big money in the Republican Party, while never mentioning the huge influence that wealthy liberals like George Soros exert over the Democrats.

The guy seems to think that the 1970's were some sort of golden age for America. Having lived through that time, I seem to recall that the average citizen in that era took a much dimmer view of things as they were.

Ken said...

The largest issues I took with Krugman's recent article were among the following:

1. He jumps right to "income inequality" as a cause, or at least "probably contributed", to the economic disaster. Not once is there even consideration that the income inequality is just another effect of inflationary policies.

2. He claims there was a great deal of paralysis. Now, you can say a lot of things about Congress, but you don't accrue $15 Trillion, averaging $1.5 Trillion deficits for the past three years, by practicing fiscal austerity. There was plenty of fiscal stimulus, but like all Keynesians - when stimulus fails, it just wasn't enough.

3. His partisan tirades towards the end reveal his real agenda. Goldman Sachs was one of Obama's largest donors. The Secretary of the Treasury, appointed by Obama, is a former Goldman Sachs employee. But Krugman insists it is a one-sided engagement in the bribery and crony capitalism rampant throughout DC.

4. He closes with my favorite Keynesian claptrap. "All the evidence points to a lack of demand". Nevermind that Keynesians have yet to explain what the difference is between adequate and inadequate demand. His blanket statement of "all the evidence" reminds me of the blanket statements in 2007 where "all the economists" were predicting a "normal" 10% appreciation in housing for the next year.

Curt- said...

I would only change that the American Gulag system dwarfs anything Stalin dreamed of.

William L. Anderson said...


I understand your point. It is just that we have millions of people that are in the "system" and most are there because of the Drug War. Granted, our prisons are not anything close (for the most part) to what people endured during the Stalinist era, but the size of our total prison system is moving us in that direction of Prison Nation.

Yeah, it was hyperbole, but I use it for a reason.

American Patriot said...

I don't know if this point is lost on people here but to refer to Krugman as a Keynesian is a mistake. He is a socialist. a collectivist through and through.

There is a nuance difference between Keynesianism and full blown socialism in that Keynesians normally believe in reducing taxes during recessionary times. Krugman does not believe in equality. He believes in class warfare like the President. And that make them quasi-Marxists (or maybe better termed as neo-Marxists?)

Anonymous said...

Great post today, but I do have trouble understanding your comment on this coming election. "This fall, I will vote -- if I vote at all -- for the Libertarian presidential candidate." I know you have said this before, but I just can't wrap my head around it. As an obviously intelligent person you have to know that a third party candidate is not going to win the Presidency. Even if you are trying to send a message by doing so, are you willing to reelect President Obama, just to send that message? A president whose economic policies are right in line with everything that you argue against in your blog, and are obviously passionate about. Ron Paul's campaign has influenced mainstream thinking in the Republican party especially on economic issues so why not try to elect a candidate who will at least listen to the Libertarian point of view on issues of freedom and the economy? I just feel that there is more of a chance of reshaping the Republican party, than there is a chance a third party will emerge. It seems like Ron Paul saw that when he ran as a Republican too.

JE Cox said...

Mr. Anderson, I take it you've never read the estimable Walter Karp, or maybe you slept through the 80s, but the idea that the Democrats fought Reagan tooth and nail is a joke. Democrats controlled the House all through the Reagan years and the Senate for part of them. Tip O'Neill preferred Reagan to Carter. Read "Liberty Under Siege" by Karp if you doubt their complicity with an awful and in no way "libertarian" president.

Pulverized Concepts said...

Draconian punishments for victimless crimes like drug use are creating a situation where the "criminals" that have decided to use mind-altering substances are willing to fight authorities to the death rather than spend decades in the prison system. We just saw evidence of this in the gunfight in New Hampshire that took the life of a police chief that was scheduled to retire at age 48:

As law enforcement adopts more powerful techniques, their adversaries will respond in kind and the violence won't necessarily escalate, as there have already been some strikingly violent incidents in recent history, but there will be many more of them. Security will become even more pervasive and life in all but the most remote areas will come to resemble the movie "Brazil".

Jim said...

so why not try to elect a candidate who will at least listen to the Libertarian point of view on issues of freedom and the economy?

And who would that be? Oh, you mean Mittens? Really?

I've been a libertarian for over 30 years, and that's how long I've been hearing this shuck-and-jive. Sure, Republican candidates can say the words "smaller government" (unlike their Democratic counterparts) but few of them know what it means; it's little better than a Hindu chant for 99% of them.

And they only say those words when they're out of power and want to convince libertarians to vote for them. Once they're in power they laugh at the notion of smaller government and condescendingly refer to us as "libertopians" and such, and subject us to tedious lectures about how society "needs safety rails". And they grow government; lord how they grow it!

Why should I believe that this time will be different?

tango1956a said...

Anyone notice that although claims that the recession ended in June 2009, government revenues have not recovered?

How well has that worked:

Date Inflation Unemployment
1974 9% 5%
1975 9% 8%+
1976 6% Nearly 8%
1977 6%+ Nearly 7%
1978 7% Nearly 6%
1979 8% 5%
1980 9% 7%+
1981 9% Nearly 8%