Chutzpah Economics

It is nice to see that Paul Krugman learned his Yiddish as a young man, although I'm afraid that he is accusing the wrong people of having chutzpah. You see, when an economist claims that the cause of economic malaise is the lack of "enough" inflation, it seems to me that we are seeing chutzpah on steroids.

His latest column declares:

At this point the economic case for austerity — for slashing government spending even in the face of a weak economy — has collapsed. Claims that spending cuts would actually boost employment by promoting confidence have fallen apart. Claims that there is some kind of red line of debt that countries dare not cross have turned out to rest on fuzzy and to some extent just plain erroneous math. Predictions of fiscal crisis keep not coming true; predictions of disaster from harsh austerity policies have proved all too accurate.

I'm not sure what Krugman means by claiming that the world is in "austerity" when national governments across the globe have accelerated spending and especially borrowing. But then, I have to remember that according to Krugman, the difference between this recovery and other recoveries that actually were "recoveries," is the lack of spending by state governments. State governments cannot print money, and there are borrowing restrictions (state and municipal governments cannot pay back bonds by issuing other bonds -- it's called fraud). Thus, when the economy is weak, state revenues are relatively lower than they are in good times.

As anyone can see, such a situation is the result of an economic downturn, not its cause, yet Krugman insists on turning cause-and-effect upon its head, at least when it suits his point of view. Governments as a whole create little economic wealth, and instead are huge consumers of wealth. Yet, as I read Krugman, he seems to believe that the very act of spending is, in fact, a form of production. In his view, when governments borrow huge amounts of money for consumption purposes, and when governments impose taxes upon private economic production, such things are the epitome of government responsibility.

True, Krugman writes that during "good" times, governments should pay down debt, but he never explains how it is that we will sustain such "good" times for any length of time. Krugman's hostility toward private enterprise is evident (unless the private firm is being subsidized by the government and engaged in outright crony capitalism). I cannot understand how he believes that private enterprise activity could keep an economy going for more than five minutes, given the Keynesian viewpoint that private enterprise creates underconsumption.

I do need to add the following point: Krugman is right in saying that the Republican conservatives are hypocrites in the worst kind of way. The Reagan and Bush (both) administrations were profligate, and none of them were "austerians" in any meaningful way. This did not keep Progressives from claiming that they were running "austere" governments. I remember the howling from the New York Times and CBS News (especially Bill Moyers and Dan Rather) about Ronald Reagan's supposedly austere budgets, even though welfare spending grew in real terms while Reagan was president.

And who can forget the "three million homeless" hoax during the Reagan years. We were told that the spending cuts were so severe that millions of people were on the streets, out of work and living in shelters or worse. My favorite line on this came during one of the Dukakis-Bush debates when Dukakis declared, "There are three million homeless people in America, and a third of them are Vietnam veterans."

I quickly checked some sources and found that about 4.25 million people served in that war, so Dukakis wanted us to believe that nearly a quarter of Vietnam vets were on the streets. And the reason given was that the Reagan administration allegedly was spending less on public housing, as though there suddenly were three million fewer public housing units in the country.

No one is making those claims today, but the idea that the Obama administration is an "austerity" government is a howler. Furthermore, the proclivity of politicians is to spend, and Krugman wants us to believe that politicians all over the world are closely watching the "90-percent threshold" set by that space alien himself, Ken Rogoff, and then spending less.

Although Krugman's words may seem to be hyperbole, there is true method in what he is saying. No matter how much money the government borrows, prints, and spends in search of a fiscal policy that Krugman will accept, it never will be enough spending. Why? Because this spending is not going to bring about a real economic recovery, and according to Krugman's logic, the economy in a "liquidity trap" will recover only if government spends enough. The Debt Fairy will be successful only if the fairy can be given enough steroids.

On the monetary end, the economy can recover only if the Inflation Fairy is summoned and given enough money (magic) dust to break the "liquidity trap" logjam. And when will inflation be high enough? When Krugman says it is.

If this looks like heads-I-win-tails-you-lose logic, then move to the head of the line. If Krugman is claiming that it takes chutzpah to claim that governments cannot spend a country into prosperity, then he truly has redefined the meaning of that word.

You see, by invoking his third fairy, the Spending Fairy, Krugman is the one showing chutzpah. Why? He is the one who truly believes that we can totally uncouple government spending from any constraints that an economy lays upon it.

Murphy on Rogoff and Krugman

Bob Murphy always has interesting points on his blog, and he has a couple of posts that make for good reading and thinking.

In this one, he takes a hard look at the whole kerfuffle regarding Rogoff's nonexistent endorsement of "austerity," and in this one, he exposes Keynesian Logic (an oxymoron if ever there was one) for the fraud that it is.

I would like to add that Krugman really wants us to believe that Europe has been imposing an "unprecedented" policy of "austerity," although from what I can tell, Krugman defines "austerity" as not massively increasing government spending.

Krugman's 1 Percent Fallacy

I know all readers are shocked, SHOCKED that Paul Krugman still is going off on the Reinhart-Rogoff paper, but today he ups the ante. Anyone who believes that setting off yet another unsustainable boom is not good policy actually is a people-hating moralist who sides with the Evil 1 Percent.

In other words, folks, it's Goldstein (or maybe "Scoldstein") time again. Yes, everyone knows that the way to "fix" the economy is for the government to borrow vast sums of money for consumption goods, and the spending that comes with that and printing money will give the economy enough "traction" to move on itself -- at least until the next boom runs out of steam and government has to repeat the process.

Krugman goes on to explain that anyone who might question this economic "wisdom" does so out of malevolence and (maybe) some ignorance or a false belief in some sort of economic "morality," writing:

...austerity maintained and even strengthened its grip on elite opinion. Why?

Part of the answer surely lies in the widespread desire to see economics as a morality play, to make it a tale of excess and its consequences. We lived beyond our means, the story goes, and now we’re paying the inevitable price. Economists can explain ad nauseam that this is wrong, that the reason we have mass unemployment isn’t that we spent too much in the past but that we’re spending too little now, and that this problem can and should be solved. No matter; many people have a visceral sense that we sinned and must seek redemption through suffering — and neither economic argument nor the observation that the people now suffering aren’t at all the same people who sinned during the bubble years makes much of a dent.

However, we find that this brand of economic fundamentalism really is nothing more than a dastardly plot hatched by the Evil 1 Percent (or maybe just the Evil One himself, namely Scoldstein):

What, after all, do people want from economic policy? The answer, it turns out, is that it depends on which people you ask — a point documented in a recent research paper by the political scientists Benjamin Page, Larry Bartels and Jason Seawright. The paper compares the policy preferences of ordinary Americans with those of the very wealthy, and the results are eye-opening.

Thus, the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

Could Krugman be engaging in...conspiracy theories? Read on:

Does a continuing depression actually serve the interests of the wealthy? That’s doubtful, since a booming economy is generally good for almost everyone. What is true, however, is that the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?

This is a most interesting position he is taking. There are two sets of policies in which government policy directly enriches that "1 percent." The first involves the massive bank and financial bailouts that have been at the heart of the "austerity" policies imposed upon countries like Greece, Ireland, Portugal, and Spain, not to mention the continuing bailouts being pushed by the central banks of Europe, the USA, and Japan.

And guess what? Krugman supports the bailouts, even though he believes that they should be financed, at least in Europe, via booms, the very kind of booms that collapsed and created the financial crises in the first place. To put it mildly, Krugman demands another round of "hair of the dog" economics.

The second enrichment-of-the-wealthy policy is crony capitalism, but when David Stockman speaks out against this get-rich-by-being-politically-connected set of schemes, Krugman lambasts him for being a "scold." So, it seems that The Great One wants it both ways: cry crocodile tears about how government policies hurt the poor, and then endorse economic schemes that...hurt the poor.

What about the so-called morality play of which Krugman speaks? He is saying that Austrians believe that somehow booms are "sinful," and that if Wall Street and the rest of the economy get drunk, then it is time to hide the alcohol and everything else. No soup for you!!

Yet, what is it that Austrians have been saying? We hold that credit-fed booms, and especially the credit-fed booms that involve heavy borrowing for purchasing consumption goods, are going to run aground because they are not sustainable. The borrowing and investment patterns do not match consumer spending and saving preferences, which means that the boom runs out of steam on its own.

If the economy is to have a real recovery, then entrepreneurs must be able to find those assets that are potentially profitable and be able to move resources from lower-valued uses to higher-valued uses. But, the Krugman plan is to have government subsidize moving resources from higher-valued uses to lower-valued uses, and keep doing it until one day things magically turn around.

The housing boom crashed when it became apparent that most Americans could not afford the super-high prices created by the boom and when a wave of mortgage defaults hit the system, it went down. Krugman, apparently not appreciating the hard fact that a family making $50K a year probably cannot afford the payments on a house selling for $500K, says that trying to keep an asset bubble alive not only is economically feasible, but also the only moral policy that can be implemented.

Austrians are not calling for "austerity" for austerity's sake or because they want people to be thrown out of work, but rather because they believe the current sets of policies are not economically sustainable. The American economy cannot subsidize itself into prosperity via "green energy," nor can the economy continue to exist as a series of asset bubbles. Furthermore, while the Fed can mask the problems by purchasing financial instruments like mortgage securities in order to prop up their prices, it cannot repeal the Law of Demand or the Law of Scarcity.

And Austrians certainly are not "austerians" of the European variety. We simply are saying we don't believe in the Debt Fairy or the Inflation Fairy, and we don't need Scoldstein to convince us that we cannot rebuild an economy by having Ben Bernanke pull financial rabbits from his hat.

Krugman, on the other hand, fervently believes that even though debt piled up during the last boom, which finally ran aground, the way to create a stronger economy -- and somehow magically pay down some of the debt, at least in the future -- is for more of the same. So, who is practicing a religious fundamentalism?

Thornton vs. Krugman on "Austerity"

Paul Krugman is on another "austerity" roll, as witnessed by his most recent column, although his definition of "austerity" seems to be something right out of Wonderland. As I have read Krugman, from what I can tell, he defines "austerity" as a government spending less than it did before an economic downturn began.

Mark Thornton, whose skills as a real economist I respect more than I do Krugman's (since Krugman long ago abandoned economics for political advocacy), sees things differently. In a recent article, Thornton examines the definitions of "austerity," and then takes apart the Keynesian "logic" (an oxymoron, of course):

But what is austerity? Real austerity means that the government and its employees have less money at their disposal. For the economists at the International Monetary Fund, “austerity” may mean spending cuts, but it also means increasing taxes on the beleaguered public in order to, at all costs, repay the government’s corrupt creditors.

In other words, the European style of "austerity" includes both spending cuts (or alleged spending cuts) and raising taxes, which means that while government burdens might be declining somewhat on one side of the ledger, they are increased on the other side in an attempt to prop up the banks that irresponsibly lent large sums of money to corrupt governments like Greece. Thornton continues:

Keynesian economists reject all forms of austerity. They promote the “borrow and spend” approach thatis supposedly scientific and is gentle on the people: paycheck insurance for the unemployed, bailouts for failing businesses, and stimulus packages for everyone else.

I don't believe that is a misrepresentation of either the Keynesians or Krugman, who has argued vociferously that during a downturn, the government must increase its spending and do so in dramatic fashion. (From what I can tell, he is more ambivalent regarding tax increases, at one point advocating expiration of all Bush-era tax rate cuts, including those on lower-income individuals, and elsewhere calling just for more taxes on high-income people. In other words, he tends to blow with the political winds.)

For that matter, Krugman often has claimed that because the Obama administration has not increased spending enough (or at least enough to satisfy Krugman's Keynesian tastes), that it, too, is engaged in "austerity." Defining the term in this manner, as I see it, is tantamount to moving the goalposts, as a Keynesian always can claim that there should have been more spending and borrowing. The government spends an extra $800 billion for stimulus? Not enough! Had it spent just $400 billion more, the recession would have ended!

How do we know this? Krugman says so, and that should be the only "proof" needed to confirm the thesis. The syllogism goes like this:

• The Obama administration pushed through an $800 billion "stimulus" spending package;
• Unemployment actually increased dramatically in the months afterward;
• Therefore, government did not spend and borrow enough money.

Built into the assumptions is the view that a stimulus actually would have a real effect upon the economy, creating economic growth over a longer period of time, as opposed to just making some politically-connected people better off in the short run (while making others worse off, something Keynesians don't want to admit, as they want us to believe that "stimulus" funds consist of new wealth, not transferred wealth).

When one uses such a syllogism, however, as proof that a "stimulus" actually would improve the real economy, then we are witnessing the informal fallacy of Begging the Question. Furthermore, the Keynesians want it both ways, wanting to claim that increased government spending is a response to a downturn, which is caused purely by internal "contradictions" within a market economy, while at the same time claiming that a decrease in government spending can cause a recession. (This is more of the "heads I win, tails you lose" economic propositions that Krugman and his allies like to use when engaging in what they call arguing.)

Thornton sees things differently, writing:

Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster “Austerian” approach. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. This involves cutting government budgets, salaries, employee benefits, retirement benefits, and taxes. It also involves selling government assets and even repudiating government debt.

Thornton then gives a very interesting example, one that I am sure will drive the Krugmanites batty, as it is totally counterintuitive to their own theories of political history:

One historical example of austerity legislation is the Economy Act of 1933. This legislation, submitted by Franklin Roosevelt six days after his inauguration, slashed government spending, wages, and benefits, including cuts of 50 percent to veterans’ benefits, which at the time constituted a quarter of the federal budget.

The Act helped jump-start the economy. Combined with the repeal of Prohibition it helped reduce unemployment from 25 percent to almost 15 percent. These two pieces of legislation were the real reason for FDR’s popularity. Unfortunately Congress acted on less than half of Roosevelt’s requested cuts and increases in government spending greatly diminished the beneficial impact of FDR’s austerity legislation.

In fact, Thornton argues that it was the later spending and regulation side of the New Deal that prevented a real recovery and turned the 1930s into a lost decade:

Worse still, FDR quickly adopted Hoover’s “New Deal” programs, expanded some, and added new ones. With respect to the Great Depression, Murray Rothbard’s thesis was that Hoover’s and Roosevelt’s “New Deal” prevented the economy from recovering. In an attempt to keep prices and wages high, they both continuously intervened with one program after another. More spending, more regulation, and more resources were withdrawn from the economy, yet nothing worked. Today, mainstream economists Harold Cole and Lee Ohanian have verified the soundness of Rothbard’s thesis.

Thornton then uses the post-World War II period to point out that "austerity" in the form of cutting federal spending did not bring about the predicted postwar depression, but actually had the opposite economic effect:

The proof for real austerity, however, came after World War II ended. All the Keynesian economists warned of a return of the Great Depression. In sharp contrast, the American Austrian School economist Benjamin Anderson predicted that the economy would recover, in a very short period, despite multi-billion dollar budget cuts and millions of government jobs being slashed. What was the verdict on this debate? There was no real Depression of 1946, as the economy recovered very quickly despite the fact that the government was running large budget surpluses.

No doubt, the Keynesians would claim that 1946 did not have "liquidity trap" characteristics, but I see that as just another example of how they "move the goalposts." (We are supposed to believe that there are certain magical conditions in which entrepreneurs are paralyzed and that individuals can find no gains from trade even though the potential for such gains is in abundance if only -- If Only! -- the government would spend more money.)

Austrians have not favored the general European approach in which taxpayers of countries like Greece, Ireland, or Spain are supposed to labor to pay back banks even while banks make new loans to their governments to try to prop up current spending. It is not sustainable, and I suppose that even the Keynesians would agree there.

However, like Thornton, I believe that neither the USA nor the Europeans can rebuild their economies by trying to launch another boom cycle. Such cycles, of course, have a way of ending in yet more busts and resulting in even more long-run government burdens that ordinary people must bear. European "austerity" and Keynesian profligacy are two sides to the same coin: both promote economic destruction.

Krugman Tell a Lie? Oh, Surely Not!

In a blog post following the first presidential debate, Paul Krugman insisted that while Obama did rather poorly, he spoke only the truth while Mitt Romney spoke only lies. Given that I cannot imagine the president or his main challenger telling the truth, I would say that Krugman was guilty of speaking only half a lie, but nonetheless, by insisting that Obama tells only the truth, that half was a whopper.

Krugman, being the political operative that he is, insisted in his latest column that the economy is not in any kind of crisis. In a recent speech in Europe, however, Krugman told a different story, warning of impending collapses if Europe continues its present course of what Krugman calls "austerity." What I find most interesting about his speech, however, is his insistence that the European Central Bank engage in what would be nothing more than a pure print-the-euro scheme, as though the "Zimbabwe Solution" would be sustainable. He declared that Europe must

...contain immediately the financial threat to troubled countries and stabilize yields on their borrowing, which in the end requires the ECB to be ready to be the lender of last resort and buy sovereign bonds.

Understand what he is saying. In effect, he is recommending that the European authorities create what would be an inflation crisis -- and that is what pure money printing schemes like this always create -- in order to solve the fiscal crisis. So, I guess that if Europeans are drowning in euros, they will forget that their economies are grinding to a halt. The Krugman "solution," or what we call the "Inflation Fairy."

Krugman Solves Another Mystery! And Breaks More Windows!

In his column on why he believes austerity is the wrong policy, Paul Krugman manages to play the part of both a psychologist AND an advocate of Broken-Window Economics, which is a pretty big accomplishment when one is limited to 750 words. But, then, Krugman is an exceptional person and he was up to this mighty task.

Broken Window Fallacy, Again (and Again)

It is hard to know where to begin, but I think I'll start with his newest version of why breaking windows is good economics, and leave the psychology until the end. In a move that is like hurling a one-ton boulder through a huge plate-glass window, Krugman writes:

The bad metaphor — which you’ve surely heard many times — equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain, as a whole, has run up too much debt — which it has, although it’s mostly private rather than public debt — shouldn’t it do the same? What’s wrong with this comparison? 

The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income. 

So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.

 I admit that this sounds good, and I am sure that the Really Brilliant People at Princeton and the NY Times will be his Amen Chorus, but Krugman actually manages to pile up one fallacy after another, and in the process he also demonstrates his belief that factors of production really are homogeneous. Now, if that really were the case -- one set of assets is just like another -- then maybe the Keynesian argument would make sense, but in an economy made up of heterogeneous labor, resources, and capital, Krugman really is pursuing circular logic.

Austrians argue -- correctly, I believe -- that the real problem that becomes manifest during the boom is that investors are led down the wrong paths into investments that cannot be sustained, period. Take housing, for example. Since the Housing Bubble burst in 2007-08, the government has poured billions and billions of dollars into trying to reflate the bubble, yet overall housing prices are continuing to fall.

Keynesians have no answer for this, because in their view, if the government or private consumers continue to throw money at an asset, then it automatically should be sustained. Yet, it is obvious that the housing market it not behaving according to Keynesian dictates.

Nowhere is the dichotomy between Austrians and Keynesians more clear than in those three paragraphs. With Krugman, it is all spending all of the time, and if government slashes spending on things like "green energy" subsidies, then it is making EVERYONE poorer. Austrians, on the other hand, correctly note that these kinds of subsidies themselves enrich those who are politically-connected at the expense of everyone else. Malinvestments don't even enter the picture, at least not in Wonderland.

Yes, Yes, Advocates of "Austerity" Hate Poor People

Krugman next turns to his psychological skills, ferreting out what he says is the REAL reason that "austerity" advocates continue to push their views:

...the austerity drive in Britain isn’t really about debt and deficits at all; it’s about using deficit panic as an excuse to dismantle social programs.

In the world of Keynesianism, spending on social programs creates wealth. For example, when President Obama announced that he was killing the Keystone Pipeline, he also added that the payment of additional unemployment benefits actually would help the economy more than would the building of a pipeline because it would bring about more spending than would occur in the construction of the line.

To put it another way, Obama believes that oil is not an asset, only a cost. In that regard, he is being a good Keynesian when he claims that profitable ventures are a drain on the economy but paying out welfare benefits adds to wealth.

I believe this demonstrates a huge point of difference between Austrians and Keynesians. Keynesians like Krugman hold that by spending on social programs, the government is generating new wealth and can help build an entire economy upon such actions.

Austrians, on the other hand, believe that social programs must rest upon the back of an economy that has created real wealth elsewhere. Fiscally speaking, these programs are a cost, not a generator of net wealth. This is not an argument against such programs, but rather just a statement of economics.

In other words, the arguments reflect fundamental views of economics. Unfortunately, Krugman has decided to claim that since "everyone knows" that social programs on their own are wealth-generating, that the only reason one might argue that they should be cut back is because one hates poor people.

Economies are not self-generated from government spending. Cranking up the government printing presses and then directing the newly-created money to those who are politically-connected does not give the overall economy a boost. Instead, it enriches some at the expense of others.

Now, I am not jumping in with the "austerity" crowd that holds that governments must jack up tax rates in order to pay banks that took risks when they threw loans at dubious "investments." However, Krugman's "we owe it to each other" is not sound economics on any level, period. Furthermore, his view that government spending alone will boost the economy into a real recovery is just plain wrong. His is not a prescription for recovery; it is a prescription for a continuing depression.

Will inflation save Europe?

In a recent column, Paul Krugman says that Europe essentially is committing "economic suicide" with its various "austerity" programs, with the only thing that can save the Continent being inflation. While I can agree with him in part that "austerity" programs as outlined by the European Central Bank can be harmful to economic growth, the idea that inflation is the magic elixir that turns bad economies into engines of prosperity is pure snake oil.

Krugman writes:

So if European leaders really wanted to save the euro they would be looking for an alternative course. And the shape of such an alternative is actually fairly clear. The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery. (Emphasis mine)

 How much inflation? Krugman does not say, although he should know that once a government goes down the inflation path, it needs to apply increasing amounts of inflation over time to get the same effects. The history of inflationary episodes is quite clear on that point.

However, at the same time, we have to understand just what is meant by "austerity" in the European sense. The ECB (with the Federal Reserve System lurking in the background) has engineered a bailout of the banks that lent these governments lots of euros, and in order to now pay back the loans, the governments must cut spending and raise taxes.

Cutting spending, contra Krugman, is not necessarily contractionary, although European governments impose heavy costs upon business, making it harder for businesses to be an engine for recovery. Krugman mentions Spain and its near-24 percent unemployment. What he does not say is that Spain has some of the most restrictive employment regulations in the world in which employees, once hired, pretty much have something akin to tenure, which means employees pretty much cannot be fired for any reason.

Under that set of incentives, when businesses find the back door nailed shut, it means that the front door is much harder to open. Unfortunately, people like Krugman cannot see such policies as having any effect upon employment rates in Spain because they tend to see government employment as morally and financially superior to private employment, so that if Spain makes it difficult for businesses to hire people, then let government "pick up the slack."

There is an underlying issue that Krugman cannot see because of his anti-enterprise ideology. For many years, Europeans have looked down their noses at the USA because it has not had the same restrictions on businesses as Europe and the USA's welfare state is not as vast as that on the Continent.

Yet, such restrictions and heavy spending have made it more difficult for businesses to generate real wealth, which ultimately has translated into slow growth and high unemployment. Unfortunately, the current spate of "austerity" programs fails to recognize how new wealth can be created and what it really would take for Europe's economies to grow.

Krugman, however, would have none of that. His message to Europe is simple: keep the restrictions on business in place, increase government spending, and print money, lots of money. Such actions in the present might mask the underlying problems, but in the long run, it would be disastrous.

But to Keynesians such as Krugman, it doesn't matter. In the long run, all of us are dead.