Financial Times writer Samuel Brittan says You Don’t Need to be a Lefty to Support Krugman.
Brittan kicks off with “The remedy for too little spending is more spending. Everything else is commentary.“
Just who gets to decide there is “too little spending?” Krugman? Brittan?
How about the free market?
Look at what promotion of spending got us. The mother of all housing bubbles is what.
In a 2002 New York Times editorial Krugman said “To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.“
Krugman claims “that wasn’t a piece of policy advocacy, it was just economic analysis.” Yeah right. For further discussion please see Krugman’s Intellectual Waterloo
Look at what government spending did to Japan and its debt-to-GDP ratio of 220% and climbing. Look at what spending did to Spain and Greece.
Japan proves that things might not matter for a long time, but anyone who does not think Japan is going to pay a very hefty price for that debt is just not thinking.
Brittan asks “Why has this message been so difficult to accept?“
The answer is that anyone with a 6th grade education knows that one cannot spend one’s way to prosperity when the problem has been too much spending.
Unfortunately, academia goes to great lengths to promote what governments inevitably want to hear (that one can spend one’s way to prosperity).
What did Stimulus do for the US and Japan?
Trillions of dollars of fiscal stimulus has already been thrown at the problem and as soon as the spending stopped so did the rebound. Krugman and Brittan now want government to spend still more money as if the results will be any different.
Nowhere does Krugman or Brittan explain how the money will be paid back, how governments can determine there is “too little spending” especially when it is crystal clear they surely did not see there was far too much spending on housing.
Government Spending is the Problem
Government spending, not the lack of it, is the problem. Nowhere did Brittan or Krugman suggest that public union workers are overpaid, that prevailing wage laws have crippled cities and states. Rather they just want to spend.
Austrian economists have a word for useless spending: “malinvestment”. Instead of spending more, how about pension reform, labor reform, getting rid of useless bureaucrats, and putting more money in the average taxpayer’s pocket?
How about eliminating crop subsidies? How about lowering drug costs by allowing imports from Canada and Mexico? How about ending collective bargaining for all public unions right here, right now?
Scrap prevailing wage laws and end collective bargaining and there is a chance governments will not overpay when they do spend. The second benefit is the lower the costs, the more workers can be hired for the same amount of money. Those wanting to lower unemployment ought to think about that simple point.
But no! Krugman and Brittan just want to spend, never stating when or how it stops, why the stimulus will not dry up as soon as spending does stop, or how the debt will ever be paid back.
“Dark Arts” Economic Illiteracy
Before throwing more money at the problem, how about some real structural reforms and attempting something that has not been tried: letting the free market handle the problem rather than government bureaucrats and economic wizards in ivory towers, most of whom have no real world experience at all.
Keynesian theory is nothing more than “dark arts” economic illiteracy. I suggest Britton read and attempt to understand Modern Day Fairy Tale of 3 Economic Wizards (Except It’s True)
Remedy For Too Little Thinking
I occasionally agree with Krugman but my general advice is if you agree with Krugman, it’s best to stop and think again.
To paraphrase Britton, “The remedy for too much writing and too little thinking is to think before one writes. Everything else is useless commentary.“
Mike “Mish” Shedlock
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