Paul Krugman Jumps the Shark
Posted by Anthony Gregory on August 15, 2011
The absurdity of crude Keynesianism is so rich and dense it is nearly impossible to parody. For years we have heard that aggregate demand must be boosted by government to help stimulate the economy, the bolder Keynesians going so far as to argue that it doesn’t really matter what governments spends the money on—the spending level is all that is important. Borrow and spend, borrow and spend, and we shall all be prosperous once again. It is this logic that underlies the main theoretical case that World War II brought us out of the Great Depression, with focus on national spending’s rise in the early 1940s as the principal evidence for this (along with unemployment figures). The Independent Institute’s Robert Higgs has done more than anyone, perhaps, to obliterate this argument. His book Depression, War, and Cold War addresses it comprehensively.
But as important as the academic minutia, at least as far as the common people are concerned, is the basic logic of it all. Paul Krugman, the most prominent and widely read of the crude Keynesian persuasion, has in the last several years taken the simplified lessons of his school of thought and run with them without any nuance or qualification. Unlike most left-liberals who at least have the good sense to expect the Iraq war started by Bush and continued by Obama to be an expensive endeavor that signifies a net cost to the U.S. economy, Krugman would have none of this. In January 2008 he had this to say:
“I yield to nobody in my outrage over the way we were lied into a disastrous, unnecessary war. But economics isn’t a morality play, in which evil deeds are always punished and good deeds rewarded.
“The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression. The $10 billion or so we’re spending each month in Iraq mainly goes to US-produced goods and services, which means that the war is actually supporting demand. Yes, there would be infinitely better ways to spend the money. But at a time when a shortfall of demand is the problem, the Iraq war nonetheless acts as a sort of WPA, supporting employment directly and indirectly.”
Good grief! I guess we shouldn’t expect much more from the man who repeatedly in 2002 called on Alan Greenspan, chairman of the Federal Reserve, to pump more credit into real estate, to “create a housing bubble to replace the Nasdaq bubble” — only later to try to claim this is not at all what he said. This is also the man who claims the Obama administration has been typified by “austerity spending” and whose failed predictions never seem to deter him in making new ones. And this is also the man who last week essentially blamed the ongoing recession on Standard & Poor’s.
Yet his fundamental point, that spending drives economic growth, an even a war as bloated as World War II or as senseless as Iraq is overall a blessing for the economy, has long frustrated free-marketers who argued, somewhat satirically but also seriously, that the reductio absurdum of this would be that a purely destructive war against an imaginary enemy would also be productive—that building trillions of dollars worth of ships and sending them out in the middle of the ocean and sinking them without killing anyone, would be a huge boon to the economy. As it turns out, Krugman himself would probably agree with this, as he has now argued that fighting off a space invasion would bring us out of the recession, even if it turned out the alien threat was imaginary. Has Krugman finally jumped the shark? Or will his readers still afford him maximum respect? Only time will tell.
