Paul Krugman on BBC Newsnight: Solving the Debt Crisis With More Debt

by Jun 2, 2012Liberty & Economy, Video4 comments

Paul Krugman on BBC Newsnight debates with MP Andrea Leadsom and Better Capital LLP Chairman Jon Moulton about the U.K.’s “austerity”, which, Krugman argues, is hurting Britain and all of Europe.

Paul Krugman on BBC Newsnight debates with MP Andrea Leadsom and Better Capital LLP Chairman Jon Moulton about the U.K.’s “austerity”, which, Krugman argues, is hurting Britain and all of Europe. What countries need to be doing, he argues, is spending more by borrowing more.

Paul Krugman on BBC NewsnightPay close attention to how Krugman’s argument degenerates into an ad hominem attack on Moulton and Leadsom; they aren’t honest, they aren’t sincere, they do not care about fiscal responsibility, he says. They only care about irresponsibly advancing their own ideological viewpoint of a smaller state; unlike Krugman, who would never act irresponsibly—such as by advocating that the Fed create a housing bubble, which would later burst and lead to the unemployment he now wants to address by generating more debt—in order to advance his own ideological desire for a bigger state. The fact that he feels it necessary to resort to fallacies like personal attacks on the character of his interlocutors says everything.

As for his non-ad hominem arguments, where to begin?

First of all, what “austerity”? Spending in the UK has only increased since the crisis hit in ‘08. I want to know how Krugman defines “austerity” when he can claim it exists even as spending goes up.

Secondly, even if we were to stipulate that there has been “austerity” in Europe, there certainly hasn’t been in the U.S., which has rather followed Krugman’s prescription of increasing spending, fiscal “stimulus”, and running the printing presses. He claims the lack of a recovery in Europe “proves” that “austerity” makes things worse; but, then, paradoxically, by the same logic, doesn’t the U.S. case then also “prove” that Krugman’s prescription doesn’t work? Obviously, Krugman’s simplistic argument breaks down.

Of course, he would respond that the “stimulus” just hasn’t been big enough, the spending just hasn’t increased enoughthe same way he criticized the Fed during the recession following the bursting of the dot-com bubble for not lowering interest rates far enough to stimulate spending in the housing sector.

Thirdly, notice how he agrees that more spending today means burdening the next generation with more debt—he just doesn’t care. This is a “venial sin”, as he puts it, that we may be forgiven for. What is unforgivable is today’s unemployment. He’s only concerned with getting jobs to people today (never mind they’ll have to work harder to shoulder their debt burden tomorrow). But why is unemployment so high? Well, it’s because the Fed followed Krugman’s prescription of artificially low interest rates and inflated the housing bubble that precipitated the financial crisis. Now he wants to treat the symptoms of his own disease with more of the same that caused the disease.

And how does he want to create new jobs? By having the government create them. So what does that mean? More TSA agents? A larger IRS bureaucracy? He is never specific about what jobs he wants the government to create. This is because he doesn’t care, because in his view, even useless spending grows the economy. In that case, why doesn’t the government borrow a trillion dollars, pay $500 billion to one group of people to go around digging up holes and the rest to another group of people to go around filling them in? Look at all the jobs that would create!

And what does he identify as the problem? People aren’t spending because there is a lack of demand. So the government should artificially create demand with “stimulus”—the way he advocated that the Fed’s monetary policy should be such as to create a boom in housing, which policy along with the government policy of encouraging homeownership did indeed create artificial demand in the housing sector following the collapse of the dot-com bubble, thereby inflating the housing bubble and leading us to the crisis we are in now.

Government bureaucrats emphatically do not know better than the market how to most efficiently direct scarce resources into the most productive uses.

Fourthly, the argument that growth comes from spending is itself a fallacy. It does not, and this DEBT = ECONOMIC GROWTH argument in particular belongs with Orwell’s FREEDOM = SLAVERY. Economic growth comes from saving, from deferring consumption so as to create capital to invest in means to increase production and thereby raise society’s standard of living.

Should we really be taking advice from the guy who advocated that the Fed create a housing bubble to replace the dot-com bubble, which it did, precipitating the very situation we now find ourselves in? Are the people who are responsible for creating this mess really the folks we should trust to get us out?

This is not wisdom.

Did you find value in this content? If so and you have the means, please consider supporting my independent journalism.

About Jeremy R. Hammond

About Jeremy R. Hammond

I am an independent journalist, political analyst, publisher and editor of Foreign Policy Journal, book author, and writing coach.

My writings empower readers with the knowledge they need to see through state propaganda intended to manufacture their consent for criminal government policies.

By recognizing when we are being lied to and why, we can fight effectively for liberty, peace, and justice, in order to create a better world for ourselves, our children, and future generations of humanity.

Please join my growing community of readers!

 

Download my free report 5 Horrifying Facts about the FDA Vaccine Approval Process.

Download my free report 5 Horrifying Facts about the FDA Vaccine Approval Process.

My Books

Related Articles

4 Comments

  1. AM

    1) You need to stop linking to your own book as somehow being objective verified proof of your own assertions. “It’s true because look I said it’s true” totally weakens your argument.

    2)”First of all, what “austerity”? Spending in the UK has only increased since the crisis hit in ‘08. I want to know how Krugman defines “austerity” when he can claim it exists even as spending goes up.”

    If the UK is anything like the US in terms of public safety nets, a massive recession will automatically trigger more spending in in terms of things like unemployment insurance as people are laid off.

    3) “Secondly, even if we were to stipulate that there has been “austerity” in Europe, there certainly hasn’t been in the U.S., which has rather followed Krugman’s prescription of increasing spending, fiscal “stimulus”, and running the printing presses. He claims the lack of a recovery in Europe “proves” that “austerity” makes things worse; but, then, paradoxically, by the same logic, doesn’t the U.S. case then also “prove” that Krugman’s prescription doesn’t work? Obviously, Krugman’s simplistic argument breaks down.

    There has actually been massive austerity in the US in the form of slashed budgets at the state level. Huge numbers of teachers, police, fire, government workers all furloughed, or had wages cut, or laid off, infrastructure repairs cancelled, etc. Almost EVERY state. The 2009 ARRA – which mostly took the form of tax CUTS, by the way – was by no means large enough to offset any of that.

    4) “Of course, he would respond that the “stimulus” just hasn’t been big enough, the spending just hasn’t increased enough—the same way he criticized the Fed during the recession following the bursting of the dot-com bubble for not lowering interest rates far enough to stimulate spending in the housing sector.”

    He did argue exactly that. He also correctly predicted that as soon as the stimulus’ benefit sputtered out in 2010 that the “recovery” as it were would begin to seriously lag and we’d be in danger of double-dip recession. Sound familiar? Any resemblance to actual events? Your mentioning of his attitude towards the fed in an unrelated situation is either a red-herring detour that you haven’t thought through or just haven’t explained well enough at all – and no, sending me to link to buy your book is not the same as supporting your argument with objective citations.

    5) “Thirdly, notice how he agrees that more spending today means burdening the next generation with more debt—he just doesn’t care. This is a “venial sin”, as he puts it, that we may be forgiven for. What is unforgivable is today’s unemployment. He’s only concerned with getting jobs to people today (never mind they’ll have to work harder to shoulder their debt burden tomorrow). But why is unemployment so high? Well, it’s because the Fed followed Krugman’s prescription of artificially low interest rates and inflated the housing bubble that precipitated the financial crisis. Now he wants to treat the symptoms of his own disease with more of the same that caused the disease.”

    If you’re so concerned about the impact of debt on future generations then you should be regularly flogging Ronald Reagan and George W. Bush, two presidents who massively increased US debt through unfunded government expenditures, before going after Krugman. And I’m sorry, this repeated reference to your book and hammering on this low interest rate from 10 years ago thing – are you actually accusing Krugman of being directly responsible for the housing bubble? I mean, I didn’t write a book or anything, but I do know that PK spent most of the last decade trying to warn people about the housing bubble. And what does this have to do with the recession? We all got shafted by banks and massive toxic derivative swaps because, darn it, interest rates were just so low?

    6) “And how does he want to create new jobs? By having the government create them. So what does that mean? More TSA agents? A larger IRS bureaucracy? He is never specific about what jobs he wants the government to create. This is because he doesn’t care, because in his view, even useless spending grows the economy. In that case, why doesn’t the government borrow a trillion dollars, pay $500 billion to one group of people to go around digging up holes and the rest to another group of people to go around filling them in? Look at all the jobs that would create!”

    Is this whole column a con? Are you a closet Keynesian? Or are you just hoping that if you put some kind of sarcastic spin on a policy that basically got us out of the great depression people will be tricked into thinking it didn’t work.

    You’re also just being disingenuous now. If this guy is really the bete noir you’re making him out to be, then you’ve presumably done enough reading to know what his actual argument has been all along. Industries are not hiring due to lack of demand; there’s no demand because people can’t spend money they don’t have, either because of large personal debt, mortgage or otherwise, or have lost jobs. They can’t get them from the private sector, because, remember? No demand. Who can create jobs AT THIS MOMENT IN A DEPRESSION? Yes, the government, in those positions you listed above plus all the other ones – construction, infrastructure, education, fire, police, science, research, and on and on. More jobs = more money in people’s pockets = more personal spending = more demand = more private sector jobs = more revenue = economy is moving again, debt begins to get repaid.

    Reply
    • Jeremy R. Hammond

      1) I extensively document how Paul Krugman advocated creating a housing bubble in my book. And of course I’m going to link to it, as I want people to read it. What a stupid thing to tell me not to link to it! If you want the documentation, it’s all there. If you don’t want to take the time to buy and read it, that’s fine, but don’t tell me I haven’t documented what I said or complain to me about linking to my book.

      2) So, like I asked, what “austerity”? How can it be said there is “austerity” when spending has only increased?

      3) You say there’s been “austerity” at the state level, but Krugman posts a graph here showing spending at the state and local level has only increased, so the same question remains.
      http://krugman.blogs.nytimes.com/2012/04/28/four-fiscal-charts/

      4) I don’t know what your criticism is, so I repeat: Paul Krugman argues that the “stimulus” just hasn’t been big enough the same way he criticized the Fed for not cutting interest rates enough to create a housing bubble. The point is that his prescriptions are part of the problem, and his logic goes both ways, as one could just as easily argue that “austerity” hasn’t worked because spending and tax cuts haven’t been large enough. Krugman thinks busts are the disease and artificial booms the cure. He doesn’t understand that when you live beyond your means it is unsustainable, that when you induce a financial bubble through artificially low interest rates, the bust is the inevitable results, a necessary market correction to liquidate the debt and malinvestment and redirect scarce resources to the most productive uses.

      5) Are you trying to insinuate that somehow I’m a hypocrite because I don’t talk about Bush and Reagan? I was a kid when Reagan was president so wasn’t really paying attention then. Certainly Bush, a man who should have been impeached and tried as a war criminal, was largely responsible for the fiscal mess we’re in. Absolutely. You’ll get no argument from me there.

      No, I’m not accusing Krugman of being directly responsible for the housing bubble. I’m pointing out the fact that he advocated lower interest rates to create a housing bubble, and that’s what the Fed did. I’m holding him accountable for his irresponsible use of his prominent position.

      You ask: What does the housing bubble have to do with the recession? Are you kidding me?

      6) Government policy didn’t “get us out of” the Great Depression. It made the recession resulting from the bursting of the boom created by the Fed’s inflationary monetary policy into the Great Depression, which never really ended until after WWII. Propping up wages, for example, even as prices were falling was a major cause of the massive unemployment.

      Yes, I know what Krugman’s actual argument has been all along. I addressed it above. You’re just repeating his same fallacies. Once again, government bureaucrats do not know better than the market how to direct scarce resources to the most efficient uses.

      And saying that government should spend money to create jobs is the “broken window” fallacy identified by Bastiat in the 1800s, the fallacy of taking into account what is seen but not what is not seen. Where does the money come from? Raising taxes? You want to take more money out of people’s pockets during a depression? No? Well, then, how about borrowing? Putting the nation even deeper into debt and kicking the can down the road so our children will have to shoulder that burden. The last option is to just print the money and use the inflation tax to pay for it.

      And, again, you are repeating the fallacy that economic growth comes from spending. It does not come from spending, but from deferring consumption, saving, and investing in means of production. If you want to put more money in people’s pockets, great, so slash spending and cut taxes and they’ll have more money in their pockets, and their children won’t have as enormous a debt burden either.

      Reply
  2. Steven Aldridge

    Great article!

    Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

Pin It on Pinterest

Shares
Share This