Never let it be said that Paul Krugman does not have a sense of humor. Granted, it might be unintentional, but I think all of us can get a good laugh out of his latest blog post entitled: “Deficits saved the world.” According to the Great One, who is responding to a Goldman Sachs analyst:
…government deficits, mainly the result of automatic stabilizers rather than discretionary policy, are the only thing that has saved us from a second Great Depression.
He then goes on to give a Keynesian Cross explanation of this nonsense. I had this today on the FEE webpage to help explain just how crude the Keynesian theory really is. Seeing Krugman’s recent blog, I certainly have not changed my mind on the ridiculousness of Keynesianism-Krugmanism.
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Let’s not forget the millions killed in WWII, the economy would never recovered without people being blown up.
That’s right. Think of all the rebuilding jobs created. And ditch digging jobs to bury everyone. And bomb making jobs. A good way to boost GDP and spread the wealth around. If not for the war, all those people would be unemployed. So the war was good for the economy.
The comments are amusing to say the least. here’s one from a Krugman apologist attemptint to refute Tom Wood’s claim that Harding fixed the depression:
“Sure, the economy did well in the 1920′s, just as it did between 2002 and 2008 this time. But look what happened after those economic expansions.
It looks like tax cuts lead to unsustainable growth for while, including big run-ups in the paper value of things like real estate and stocks, but then a big crash comes at the end of the cycle. Is that really the model we want to emulate?
Furthermore, the economic growth in the 20′s and the 00′s mainly helped the wealth and those who owned certain stocks or real estate. Most Americans did not see their wages rise by much.”
As you can see, he must have one heck of a cornfield to fit all those strawmen.
John M: Funny how the Fed doesn’t even exist in that guy’s world.
I also love the creepy suggestion that tax cuts create the boom-bust cycle, the implication being that if our overlords don’t take our money from us, we’re liable to get ourselves into a real pickle. Our wise rulers must get a real kick out of drones like this.
And average people’s wealth didn’t really increase in the 1920s? Is he just making that up?
The point, moreover, is that according to him, recovery is impossible without fiscal/monetary stimulus. But we did see recovery in 1921 in the absence of those things.
Also, does he not notice that we followed his advice in 2002-2008? Massive spending, and massive money pumping? His hero, Krugman, said in 2001 that what we needed were low interest rates to spur housing.
We also followed his advice in the late 1920s, at least in terms of easy money.
What I find hilarious is that Krugman was complaining in his blog today about how his private insurance company wants a copy of his marriage certificate to continue his coverage on his wife. He said that he wasn’t confident that he could obtain it from the State of California because they are in such a mess. This guy is a complete joker. He doesn’t trust them to be able to deliver him a copy of his marriage certificate but he wants them to run the entire nation’s health care system?
The only thing I like more than Krugman are comments
Thank you, Mr. Krugman, for explaining the dynamics of the current recession. The GOP would like instead to lower taxes for every problem and unleash the government, i.e. regluation. We saw how well that worked in the Great Depression. Millions homeless and 25% unemployment.
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No surprise that my comments failed to pass through the gate keepers at the N.Y. Times. I mean seriously, are they so sensitive that they cannot deal with any criticism?
There’s typically a time delay. They aren’t as bad as most of the people here suggest. Brad Delong on the other hand deletes anything critical of his post.
“It looks like tax cuts lead to unsustainable growth”
Oppressive taxes and deficit spending may very well lead to full employment and the absence of any prosperity or cyclical busts. Keynesian have been proven empirically and logically backwards in producing permanent quasi-booms. But they still have full-employment and the illusion of higher wages.
“Oppressive taxes and deficit spending may very well lead to full employment and the absence of any prosperity or cyclical busts. Keynesian have been proven empirically and logically backwards in producing permanent quasi-booms. But they still have full-employment and the illusion of higher wages.”
It’s easy to get full “employment”. Just make half the population dig ditches and make the other half fill them back in. That would lead to a “boom” in the ditch digging and ditch filling industries. But keep a few people to run the printing presses and keep the interest rates close to 0. This prevents the ditch digging and ditch filling industries from crashing and causing unemployment, which causes ditch diggers and ditch fillers to make less money, which reduces consumer spending, which reduces aggregate demand, which reduces prices, which reduces GDP. Therefore, we should employ everyone as ditch diggers and ditch fillers with a few people to run the printing presses.
If you were an intelligent alien race, and you were observing earthlings, and you happened to read Krugman’s column in the NYT, would you then warp away to the next solar system on your list, making only a single note in your logbook?
“3rd planet in system: No intelligent life noted. Hoping to have better luck at Alpha Centauri.”
I don’t understand Dr. Krugman’s explanation, but that might just be because I’m not an economist.
BTW, Dr. Anderson, I believe “Seeing Krugman’s recent blog” should be “Seeing Krugman’s recent blog post.”
J.K. Baltzersen
Krugman is using the fact that GDP=private consumption+public consumption and supposing that growth in GDP is indicative of economic improvement. As private saving increases, GDP goes down; so to prop up GDP, government must consume more to keep the economy improvement. The gaping holes in this model are painfully obvious.
I’m not an economist either, but you don’t need to be an economist to understand economics any more than you need to be a philosopher to understand ethics. An economist is simply a person who applies and researches economics for a living.
I was actually being somewhat ironic when I said “that might just be because I’m not an economist.”
My point was that if the “reality” you’re trying to explain doesn’t connect with reality, you just might have some serious problems getting people to understand.
Krugman wrote:
“namely, government deficits, mainly the result of automatic stabilizers rather than discretionary policy [emphasis mine]
Is he serious? Is there any sane person who believes that government deficits are automatic stabilizers? I just have to see his rationale for this one.
Did anyone see this comment? This is so ignorant. Capitalism takes capital accumulation!!!! Plus there are temporal preferences.
“if the problem is that rich people are saving too much or essentially hoarding cash, why not just create a mandatory spending amount for each person based on their wealth. Thus we essentially would be forcing trickle down to occur instead of reducing taxes in hopes that trickle down occurs.”
http://krugman.blogs.nytimes.com/2009/07/15/deficits-saved-the-world/#comment-199815
Those with money will invest it, or if nothing appears to investment worthy, will ‘withdraw’ capital until a better time when rates match risk.
This is the best one of all:
“3.6+5.6=9.2
I guess Goldman kept the other 1%.”
Seriously, Krugman is like the clown of economics. Laugh, clown, laugh!
Seriously, Krugman is like the clown of economics. Laugh, clown, laugh!
You can make as many fancy looking graphs as you want. It doesn’t prove anything other than that you can make fancy looking graphs.
All deliberate and scripted, even across borders.
Just today S. Harper in Canada said “the only good tax is no tax.” Sounds great, but he’s trying to set up Canadians to fall for the SPP’s latest “deficits are the answer” swindle.
Tom Woods,
To quote you from above, “I also love the creepy suggestion that tax cuts create the boom-bust cycle, the implication being that if our overlords don’t take our money from us, we’re liable to get ourselves into a real pickle. Our wise rulers must get a real kick out of drones like this.”
I see that you missed Krugman’s very basic point. It wasn’t tax cuts alone that helped feed the credit bubble. It was tax cuts coupled with increases in government spending. The deficit was the key. That’s fundamental economics.
To address another quote from you, “The point, moreover, is that according to him, recovery is impossible without fiscal/monetary stimulus. But we did see recovery in 1921 in the absence of those things.”
I’ve never seen him say recovery is impossible without stimulus, but it drags out and the downturns are deeper than need be. Let me ask you this: Since savings are piling up, but capital investment is still way down, and interest rates are effectively nil, with rising unemployment then what gets the economy moving again? Again, interest rates are low, which makes bonds expensive, so fewer investors want to buy them fearing an eventual capital loss.
Sure, economic growth will eventually return, but the jobs can lag the return of nominal GDP growth for some time without a stimulus. To put it another way, both aggregate consumer demand and aggregate investment demand are down.
Now, you may say that if we let the banks fail then that will unclog the system and allow banks capital investment to follow the liquidation. The only problem is that more than 70% of lending came from these 19 largest banks, all of which would have failed without intervention. There aren’t enough solvent foreign banks to make up the difference, and the smaller banks are too small. It would take them too long to take up the slack of the big banks, especially in an environment where most of the financing for such expansions has disappeared.
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