Paul Krugman is desperate for answers; in Fifty Herbert Hoovers, he asks how we got here, (“here”, of course, being a severe recession) and offers the typical Keynesian stimulus prescription to get us out of here, and back to a more prosperous time and place. After all, we didn’t suddenly become less productive, did we?
Think about it … Our capacity hasn’t been diminished; our workers haven’t lost their skills; our technological know-how is intact. Why can’t we keep doing good things?
It’s a damn good question, and unfortunately the only sentence of any worth in the entire editorial. I’ve recently asked the same question:
Jobs, wealth, productivity, capital: all squandered, destroyed. And now they say, “The free market has failed you!” Now, they say, “You need Government more than ever before!” — How 80,000 Jobs Disappeared, 24 Nov. 2008
The difference is that Krugman views the government, which failed to prevent this recession, which failed to protect its citizens from economic cataclysm, as the appropriate solution, and since I view it as the proximate cause of this (and almost all) human suffering, I reel at the idea of giving it yet more power, more control over us. Where I argue for free markets which permit or encourage people to create and develop real and sustainable wealth, Krugman wants to see more public spending.
No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession.
I would argue that no modern economist, especially not a Nobel Laureate, should look only at the fiscal policies of the depression era, in prescribing a solution for the current recession. And that furthermore, a Nobel Laureate, one would presume, should be able to examine the crash of 1929 and the subsequent depression, and identify the policies that created the downturn in the first place, primarily the massive inflation of the money supply from 1921 to 1929 (an annualized growth of 7.7%).
Krugman can’t even set up a good Straw Man!
Some policies pursued during (and in order to alleviate) the Great Depression would include, but are not limited to inflation: massive public works spending, farm subsidies, tariffs on foreign goods, maintaining wage rates/price controls, raising taxes, etc.
When people needed desperately to be relived of governmental burdens, the dead weight of government rose from 16.4% to 21.5% of the gross private product…. [President Hoover had ammassed] the largest peacetime deficiet yet known to American history. — Murray N. Rothbard. America’s Great Depression, 5th Edition, pp263-264
What is it, with the Keynesian fetish for “consumption”? Why do they harbor such ill-will towards those who would save their money, especially in uncertain times? Like many economists, Krugman maintains a variant of the “underconsumption” theory of depression, private investors and individuals, they say, simply aren’t investing enough, or spending as much as they should be spending. Krugman, for instance, argues that:
It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.
Since people aren’t spending enough, businesses lose money, and people are laid off, so they spend less, and the downward cycle continues. Therefore, it is necessary for government to make up the difference through public spending on ditch-diggers and work camps.
And, one could almost make an argument for public spending, had the public any money to spend, but it doesn’t. Not at the state level, and not at the national level. Krugman’s advice, to “spend” now, is like telling the unemployed person not to get a job for minimum wage, but instead to load up his high-interest Capital One card with debt. It’s telling someone who is in financial distress, that the only way to remedy what ails him, is to spend more money that he doesn’t have.
The Keynesian prescription for unemployment rests on the persistence of a “money illusion” among workers … Governmental inflation, then, is supposed to eliminate unemployment by bringing about such a fall in real wage rates. — Rothbard, p. 37
Since the government simply doesn’t have any money, they can only begin spending on public works by raising taxes or inflating the money supply, the latter being the preferred (and easiest) solution. But, inflation has a price: it decimates savings, renders business and economic forecasting essentially impotent, and through teh dread malinvestment, causes resources to be used up in the production of unwanted goods and services.
Just as no man ever spent his way to a fortune,ever made himself sustainably wealthy by consuming, by destroying valuable goods and resources, and no nation will ever find prosperity along that path, either.
Asking for more spending when the money is not there, is pure nonsense. Pure, fucking nonsense.
Ever wonder why nobody trusts an economist?