Paul Krugman writes:
For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.
Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.
The good news is that many influential people are finally admitting that the confidence fairy was a myth. The bad news is that despite this admission there seems to be little prospect of a near-term course change either in Europe or here in America, where we never fully embraced the doctrine, but have, nonetheless, had de facto austerity in the form of huge spending and employment cuts at the state and local level.
Okay, so in other words, Krugman admits that the federal government hasn’t tried “austerity” (on the contrary, it only increases spending). But his logic is that since spending cuts “at the state and local level” haven’t solved the U.S.’s economic woes at the national level, therefore it proves that we must spend more, run the printing presses more!
Krugman is delusional in his adherence to bankrupt Keynesian ideology, and you don’t need to be an economist to see it, you just have to use a little common sense. The fact that the U.S. government only continues to increase spending and that the Fed has followed the inflationary policy he has always advocated–he called for the Fed to lower interest rates to create a housing bubble, we may recall–might possibly lead one to the conclusion that the policies Krugman advocates don’t work. It is difficult to reconcile his argument that austerity doesn’t work even while admitting it hasn’t been tried in the U.S.
But what about Europe’s woes? Does Krugman have a case there? Well, I’m not as familiar with European economies as our own, but I know how to use Google. So let’s look at Ireland, for example, which Krugman argues that “austerity” has failed. What is the situation there? Well, Reuters tells me that Ireland’s debt is actually poised to increase in terms of its debt to GDP ratio, peaking next year at over 120% of its GDP. Is that “austerity”? The Wall Street Journal tells me that Ireland ran a deficit of 9.4% of GDP in 2011 and under the terms of its IMF bailout must reduce that to 8.6% this year. How is either figure “austerity”? Wouldn’t having “austerity” mean not running a deficit? Wouldn’t it mean not spending over €70 billion when revenue is at €57 billion, with spending “projected to be little changed” through 2015? Wouldn’t it by definition mean not continuing to struggle to “to rein in runaway debts”? Wouldn’t “austerity” rather entail having a balanced budget and paying down of debt, rather than a deficit and more debt? Gosh, maybe it’s the outrageous government spending that’s the problem! Did that possibility ever cross Krugman’s mind? Did the possibility that you can’t solve a “debt crisis” by spending more ever get fired across any synapses in his brain?
Krugman is like a character straight out of 1984. If he worked for the government, it would no doubt be for the Ministry of Truth. He’s got a brilliant argument. He can point to thinks like budget cuts “at the state and local level” in order to blame the continuing recession in the U.S. on “austerity”, or to Ireland’s efforts to reduce its deficit in order to blame it’s continuing woes on “austerity”, etc., but when you flip that coin around and it comes to the U.S. government’s ever-increasing spending and the Fed’s inflationary policies, or Ireland’s continued deficit spending, etc., then the argument is that there just hasn’t been enough spending, just not enough running of the printing presses.
No amount of reality will ever penetrate Krugman’s skull. He can have his cake and eat it, too. But he sounds very authoritative when he writes all his B.S. Like, for instance:
And serious analysts now argue that fiscal austerity in a depressed economy is probably self-defeating: by shrinking the economy and hurting long-term revenue, austerity probably makes the debt outlook worse rather than better.
Ooh. So if you disagree, you are obviously not “serious”. But think about what he is saying using a bit of common sense. What he is telling you, the underlying assumption of this statement, is that we need government bureaucrats to decide how to spend our money for us, because these wise overlords know better than individuals operating in a free market how to allocate resources and create economic “growth”.
Well, if you believe that, I’ve got some beachfront property in Switzerland to sell you. Here’s some antidote to Krugman from Frenchman Frederick Bastiat writing in 1850:
It is no wonder that the writers of the nineteenth century look upon society as an artificial creation of the legislator’s genius. This idea — the fruit of classical education — has taken possession of all the intellectuals and famous writers of our country. To these intellectuals and writers, the relationship between persons and the legislator appears to be the same as the relationship between the clay and the potter… They assume that if the legislators left persons free to follow their own inclinations, they would arrive at atheism instead of religion, ignorance instead of knowledge, poverty instead of production and exchange.
According to these writers, it is indeed fortunate that Heaven has bestowed upon certain men — governors and legislators — the exact opposite inclinations, not only for their own sake but also for the sake of the rest of the world! While mankind tends toward evil, the legislators yearn for good; while mankind advances toward darkness, the legislators aspire for enlightenment; while mankind is drawn toward vice, the legislators are attracted toward virtue. Since they have decided that this is the true state of affairs, they then demand the use of force in order to substitute their own inclinations for those of the human race.
God has given to men all that isnecessary for them to accomplish their destinies. He has provided a social form as well as a human form. And these social organs of persons are so constituted that they will develop themselves harmoniously in the clean air of liberty. Away, then, with quacks and organizers! Away with their rings, chains, hooks, and pincers! Away with their artificial systems! Away with the whims of governmental administrators, their socialized projects, their centralization, their tariffs, their government schools, their state religions, their free credit, their bank monopolies, their regulations, their restrictions, their equalization by taxation, and their pious moralizations! And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty; for liberty is an acknowledgment of faith in God and His works.
I guess things haven’t really changed much since Bastiat wrote that. Getting back to Krugman, he then concludes with this:
So we’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless.
If you want to know how laughable and ironic it is for Krugman, of all people, to be writing that, read my book, Ron Paul vs. Paul Krugman. One customer commented, “This small book demolishes Krugman. It shows how wrong he and the Keynesians were about the Housing bubble and how right Ron Paul and the Austrians were.” Another customer’s review was short and sweet: “Outstanding book. I have never read a more convincing argument in my life. A must read if you want to understand the world’s fiscal woes.”