Paul Krugman put the "basic logic" of Keynesian economic theory on full display this weekend. Check it out.
Ken Rogoff: Infrastructure spending, if it were well-spent, that's great. I'm all for that. I'd borrow for that, assuming we're not paying Boston Big Dig kind of prices for the infrastructure.
Fareed Zakaria: But even if you were, wouldn't John Maynard Keynes say that if you could employ people to dig a ditch and then fill it up again, that's fine, they're being productively employed, they'll pay taxes, so maybe Boston's Big Dig was just fine after all.
Paul Krugman: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what basic logic says.
It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish a great deal.
If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –
Ken Rogoff: And we need Orson Welles, is what you're saying.
Paul Krugman: No, there was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time...we need it in order to get some fiscal stimulus.
Here's the video.
Folks, this is what passes for "logic" in global Ruling Class circles. Let's see ... 1) destroying lives and assets in war creates an economic boom; 2) the mere act of printing dollars (inflation) creates wealth; and 3) spending money defending against a fake space alien threat can revive the economy.
In the words of Robert Wenzel, "total madness."
Total madness that fails to understand that wealth and a growing economy are created by increased production, not spending on non-existent space aliens.
Put me down as against government spending against non-existent space aliens.
If only the world operated like Krugman's fantasy-land, huh? There would be no need for productive work, no need to accumulate capital, no need for anything other than a printing press and some space to move around. I mean, why dig ditches and fill them back up when you can simply pay people to take a walk? Then to really get rich, we can start a war.
Talk about quackery. Yet this is what passes for mainstream "respectable" economics these days. And this quackery is why Bernanke just pledged to screw your grandmother for at least 2 more years (and your children until their last dying breath).
According to Krugman and his "progressive" co-thinkers, if the US engaged in constant warfare, and employed the non-military population in the "work" of digging holes and filling them back up again, we could achieve permanent prosperity. Just keep those government printing presses – or, today, pixels on a computer screen – running at top speed. Contemplating Krugman's farrago of fiscal fallacies, I can't help but think of Garet Garrett's prescient remark, made in 1950, that
"War becomes an instrument of domestic policy. Among the control mechanisms on the government's panel board now is a dial marked War. It may be set to increase or decrease the tempo of military expenditures, as the planners decide that what the economy needs is a little more inflation or a little less — but of course never any deflation. And whereas it was foreseen that when Executive Government is resolved to control the economy it will come to have a vested interest in the power of inflation, so now we may perceive that it will come also to have a kind of proprietary interest in the institution of perpetual war."
Many conservatives who are now coming to question the vast expenditures it takes to maintain our overseas empire of bases and "interests" do so in the name of fiscal austerity. However, lurking just beneath the surface of this economic objection is the suspicion that the Warfare State is just another aspect of the Janus-faced Welfare State – and that one makes the other possible. Krugman's remarks confirm this, which is why one should always listen very carefully to one's political enemies.
War and inflation are the twin Harpies, the twin miseries of the modern world, and it's no accident – as the old-timey Marxists used to say – that the advent of modern warfare, the Great War, was visited upon the world at the same time the US Federal Reserve came into existence.
How else could one wage warfare on that kind of unprecedented scale without expending unprecedented sums of money – conjured out of thin air? The Fed gave the War Party a blank check – which they proceeded to cash, and are still cashing, rolling up record deficits.
"War becomes an instrument of domestic policy" – the conservative Garrett, a former editor of the Saturday Evening Post and a stalwart of the pre-WWII opposition to the New Deal, saw the Age of Obama coming from a long way off.
David Kramer on Krugman the Crank's Keynesian space alien quackery.
And he's all smiles about it too! He also admits that World War II was "negative for social product spending," but it was still good because it got us out of the Depression. (So I guess Krugman has read Bob Higgs, he just doesn't hold Bob's negative opinion. Spoken like a true Bankster puppet.) He also says we need some inflation. Sure, higher prices are just what the poor people who "liberal" Krugman "cares" so much about really need.
In related news ...
It's good to see the birthday of fiat money getting attention today. Mises.org covers it, and LRC too. Lewis Lehrman offers a fascinating story of the Camp David meeting where the gold window was shut and where a handful of Nixon aides decided to impose wage and price controls at the same time. Very chilling material here. I'm particularly intrigued at the passing mention of Nixon's own demand for a unified front. These economic advisers had to be for it all even if they were against it all. It's a real look into the heart of how every regime works.
More on Paul Krugman and the Space Aliens:
- Paul Krugman Calls for Space Aliens to Attack Earth Requiring Massive Defense Buildup to Stimulate Economy
- Paul Krugman’s Suggestion to End the Economic Slump: Mobilize for a Space Alien Attack
- Paul Krugman's jobs program for aliens
- Krugman: You know what this economy needs? A space alien invasion!
- VIDEO - Krugman Wants To Create A Keynesian-Infused Space Alien Economic Bubble To Revive U.S. Economy