United Liberty
Paul Krugman is Delusional
Mon, 06/25/2012 - 11:15am | posted by Jeremy Kolassa
It’s official: the New York Times’ resident Nobel Prize Laureate/Loony is delusional. He wrote on his blog Monday about “how right he was”:
We’re coming up on the second anniversary of my piece “Myths of Austerity“, in which I tried to knock down the simply insane conventional wisdom then gelling among Very Serious People. Intellectually it was, I think I can say without false modesty, a huge win; I (and those of like mind) have been right about everything.
But I had no success in deflecting the terrible wrong turn in policy. Moreover, as far as I can tell none of the people responsible for that wrong turn has paid any price, not even in reputation; they’re still regarded as Very Serious, treated with great deference. And the political tendency behind that terrible economic analysis has at least a 50% chance of triumphing in America.
Oh well.
“Oh well” is right.
His first problem is that he says he has “been right about everything.” When one looks at the stimulus programs that have been enacted since this recession began, and the high unemployment that has persisted, the evidence is blatantly clear: Krugman is an idiot.
His second problem is his statement that “I had no success in deflecting the terrible wrong turn in policy.” Um, lest I am living on a different worldline than Krugman, the man’s main policy prescription has been stimulus, and we’ve had a lot of it:
- 2008 US Stimulus (under George W. Bush)
- American Recovery and Reinvestment Act of 2009 (under Barack H. Obama)
- 2008 European Union Stimulus
- Greek, Spanish, Portuguese, and Irish bailouts
- Numerous and myriad US government loan programs (i.e., Solyndra)
So not only was Krugman wrong, but everyone has followed his perscriptions. So that’s a double whammy.
Mish Shedlock wrote the best takedown of Krugman’s Keynesian baloney back in 2009, during the first phase of this crisis, and its still entirely relevant today:
The problem with Keynesian clowns is they never look ahead to when the stimulus stops. By definition “stimulus must end” and as soon as it does, unless the stimulus created lasting new jobs, there will be nothing to show for it other than debt.
And interest must be paid on that debt. And that interest has to come to come from somewhere, either more taxes, or printing money and cheapening the dollar. That means there is a price to pay down the road for stimulus today. Keynesian clowns act as if there is no price down the road.
Since you cannot spend what you don’t have (without long-term negative consequences), the key to a solid recovery comes from a buildup in savings, lower taxes, and letting consumers keep more of their money (as opposed to government deciding how and when it should be spent).
In short, no amount of artificial stimulus can possibly work because government cannot allocate capital in an efficient manner (repairing roads that do not need to be repaired is proof enough). This is something that academic wonks trapped in their ivory towers apparently will never understand.
Creating a better business climate, with less government waste, will work. However, the right plan will take time and patience, traits that Government bureaucrats and academic wonks both lack. Unfortunately, but not unexpectedly, we are moving in exactly the wrong direction as noted in Obama’s “Cap and Trade” Energy Plan Will Cost Jobs.
There is a price to be paid for reckless expansion of credit and we are paying the price now. All artificial stimulus does is prolong the agony. The greater the stimulus, the greater the period of future agony, just as happened in Japan. Ironically Keynesian and Monetarist clowns shouted for more stimulus all the way, and they are doing so again now.
Of course, saying this will cause Krugman to lose his readers as they are hit with a crisis of faith, and may start to think he has become a false prophet who has arrived to sow discord among the True Believers during their Moment of Heavenly Triumph, so he can’t say that. The real question is whether or not Krugman himself is a True Believer, and if he is, then he is surely delusional.
The argument is that inflation is essentially non-existent therefore devaluing the dollar is the proper policy to stimulate employment. The dollar is clearly not in danger here and further stimulus would be paid back with devalued dollars. This is how we got out of the deflation of the 1930’s and Krugman is arguing that the world would be better off doing it now rather than wait for a worldwide cataclysm as we had in the 1940’s.
Mish is wrong. We’ve had low taxes and (relatively) low regulation since 2001 and this did not spur employment. A true stimulus plan would look something like FDR’s WPA and other make-work programs that contributed to the national welfare. Of course, this won’t happen with the GOP in charge of the Congress.
The last deflationary recession of this magnitude ended in a world war which eventually did give us the necessary Keynesian stimulus.Is this what we need to do again? Have we learned nothing from history?
Spot on Tony! j Kolassa throws classic worn out and long-rejected arguments at Krugman in this piece, he needs to read Krugman’s selected blog pieces and “stop this depression now” with an open mind. Krugman ha the measure of this depression and understands the solutions.
First off, learn how to type.
Second, explain where my arguments fail.
Third, explain to me what you do when the stimulus ends.
I’ll be waiting.
The argument is that inflation is essentially non-existent therefore devaluing the dollar is the proper policy to stimulate employment. The dollar is clearly not in danger here and further stimulus would be paid back with devalued dollars.
So let me get this straight: you’re going to bring prosperity by cutting the purchasing power of the money in Americans’ wallets, so they’ll buy less goods…oh, and by the way, you’re going to pay back an ever increasing debt with dollars that are worth less, and thus will pay back less…right. Explain that.
This is how we got out of the deflation of the 1930’s
Actually, we had something called World War II. FDR’s economic policy in the 30’s was nothing more than voodoo, where he was fooling around trying to change the price of gold and fix the number of producers in any given industry. Not to mention his own stimulus programs…which failed.
We’ve had low taxes and (relatively) low regulation since 2001 and this did not spur employment.
Have you seen Sarbanes-Oxley? Did you realize that we’ve had tens of thousands of pages of regulation over the past decade? All time high has been 81,405 pages. Currently, it’s 81,247. That’s not low at all. It’s the highest it’s ever been in our history.
Go back and learn what really happened, rather than rely on the highly revisionist and inaccurate ideological “history” peddled to you.
And while you’re doing that, tell me what happens when the stimulus ends.
If you think Europe is benefiting from the bailouts, they YOU are delusional!
I believe you meant to say “then,” there, not “they.”
Second, no, I do not believe the bailouts are helping Europe…which is sort of the entire point of this article.
You refer to the European ‘bailouts’ as something he promoted as a needed stimulus. He has consistently pointed out the futility of the bailouts.
I’d like to see a link, because then we would probably agree. The bailouts have been awful for those countries.
But bailouts are really just another sort of stimulus, so it would be odd to see him argue that the bailouts were bad.
No, you are right, he does not say they are bad in principle, but they are bad in how they have been administered. Specifically, Krugman has consistently banged on about the futility of the austerity measures and the many strings attached to the bailouts. He concedes - as does most everyone here in Europe - that some kind of monetary infusion is needed to prevent utter collapse, but, as he says, ‘it’s all in the details,’ and at this rate, Europe is headed for collapse. http://www.nytimes.com/2012/06/11/opinion/krugman-another-bank-bailout.h…
[Just a technical note, you can reply to my comments without making a new one. Unless Drupal is derping again.]
Right, he bangs on against austerity…except they haven’t actually practiced austerity, they’ve made minimal cuts in spending and just offset all of it by dramatically hiking taxes. Again, Krugman is incorrect and doesn’t know what’s going on in Europe.
Veronique de Rugy on how the “austerity” is not actually austerity:
http://mercatus.org/publication/fiscal-austerity-europe-doesnt-mean-larg…
Michael Tanner on those countries that have practiced it, and have reaped the rewards: http://www.cato.org/publications/commentary/austerity-works
The problem is that banks are toxic, and just injecting cash will not get rid of the toxins, it just makes that cash infected too. It’s a never-ending cycle. The only way to break it is for the banks to fail and the toxins to be flushed out. Oh, and bondholders to take the hits that they desperately need to, while governments readjust to a new reality.
I find it amusing that you think an entire nation could be duped by a columnist from the U.S. Most people here do not even know who Krugman is. The Spanish have a mind of their own and have formed their opinion based on the crushing economic reality of the situation here, which would be pretty much how Krugman sums it up. As for cuts, look at Jerez - they have closed all of their schools, shut down public transport and the police force, and there are no jobs. That’s an extreme example, but Rajoy, at the insistence of Merkel, is imposing new cuts every Friday, which hit some areas incredibly hard. Investors are fleeing, as I said, and even those with money are afraid to spend and are sending their savings to German banks, the ‘bank jog’ Krugman wrote about. Almost a quarter of the nation is unemployed. Austerity is killing Spain and Merkel et al need to let up on their policies concerning austerity measures if there is any hope at all of getting out of this mess. As it is going now, the situation is only getting worse.
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