For Keynesians, Too Much Spending is Never Enough
"The stimulus wasn’t nearly big enough to restore full employment – as I warned from the beginning.
"Here’s the narrative you hear everywhere: President (Barack) Obama has presided over a huge expansion of government, but unemployment has remained high. And this proves that government spending can’t create jobs. Here’s what you need to know: The whole story is a myth. There never was a big expansion of government spending."
So sayeth Paul Krugman, Ph.D., economics professor, Enron adviser, Nobel laureate (for trade theory) and high priest of liberal Keynesian economic orthodoxy. Having abandoned objectivity for a New York Times byline, the erstwhile trade theorist now masquerades as an authority on fiscal and monetary policy.
Financial expert Donald Luskin describes J.M. Keynes as "something of a cult figure for modern liberal economists like Krugman," and Krugman thusly: "Most critiques of Krugman as a public intellectual begin with what is apparently an obligatory disclaimer … something to the effect that Krugman is a … well-respected economist. Then comes the ‘But.’"
In an unguarded national TV moment, Krugman confessed a huge "but" by blurting out this accurate yet understated self-evaluation: "Compare me … compare me, uh, with anyone else, and I think you’ll see that my forecasting record is not great."
Undiscouraged, Krugman still opines and forecasts – "brilliantly," according to liberal academic, political and media sycophants. After all, Krugman’s "credentialed," and he agrees with them.
On Jan. 20, 2009, Barack Obama’s first inauguration day, the national debt was $10.626 trillion. Today, the debt exceeds $16.8 trillion.
Two questions, Mister Krugman:
One: If $6.2 trillion – trillion – in deficit spending isn’t "big enough" stimulus, what is?
Two: If spending that increased the national debt by nearly 60 percent in only 52 months doesn’t satisfy Keynesians, what will?
That’s the central problem for modern Keynesians. No amount of deficit spending will satisfy them, because no amount can.
Discredited by repeated failures, in order to preserve a sense of self-worth and dignity, Krugman and fellow big-government Keynesians who invested careers in that exhausted economic dogma insist that Keynes’ theories failed only because they were applied half-heartedly.
Reflexively anti-austerity, Krugman unsurprisingly bashed a pro-austerity book, "This Time Is Different," by Ivy League economics professors Kenneth Rogoff and Carmen Reinhart, who, combined, served the International Monetary Fund, the board of governors of the Federal Reserve System, the National Bureau of Economic Research and the Congressional Budget Office Panel of Economic Advisers.
Following publication, the authors acknowledged and corrected spreadsheet errors in their work, while reasserting the validity of their conclusions. Rogoff/Reinhart simply demonstrated that debt and economic growth are interrelated: Slow growth can lead to increases in public debt; high debt impairs economic expansion.
In fact, Rogoff/Reinhart’s University of Massachusetts fault-finders confirmed the book’s premise: Nations significantly exceeding 90 percent debt-to-GDP ratios experience, at best, modest 2.2 percent growth, down from about 3.5 percent when remaining below that threshold – not negative growth, but a marked decrease – sufficient incentive to embrace austerity. Studies by the European Central Bank, the IMF and the Bank for International Settlements agree. Presently, America’s debt exceeds 105 percent of GDP.
Typically long on smug proclamations but short on data, Krugman highlighted errors only ancillary to the 2009 book’s premise and "concluded" that, by influencing policymakers to accept austerity, Reinhart and Rogoff are, ipso facto, responsible for global unemployment. Since 2009, well-documented increases in the debt loads of developed nations easily refute Krugman’s "austerity" argument and his conclusion.
Government spending is always done at the expense of private-sector investment, yet Keynesians persist in the notion that there’s greater economic stimulus when governments waste money than from investment by profit-motivated entrepreneurs. Krugman dismissed the Rogoff/Reinhart book because it convincingly disputed Keynesian orthodoxy and challenged his illusion that politicians can spend nations to prosperity using other people’s money.
Krugman’s objection to Rogoff/Reinhart isn’t a serious economic argument, only a political appeal to surrender more of the private economy to grow government.
Krugman’s opportunistic ideological nit-picking notwithstanding, Rogoff/Reinhart merit attention. For example, they observe that government defaults usually involve investor "haircuts" rather than total losses. They also reveal that the U.S. Treasury has defaulted on its debt before – in the 1930s when the Franklin Roosevelt administration reduced the dollar’s gold value from 1/20th to 1/35th of an ounce. That precedent raises legitimate fears of default by another administration emulating FDR’s spending and monetary policies.
Rogoff/Reinhart’s research provides empirical evidence that nations have failed by raising taxes and devaluing currencies to support Keynesian spending and mitigate debt, yet Washington’s mob-in-charge are already attempting both – with Krugman’s approval.
Ideologues like Krugman fecklessly deny that the primary cause of America’s economic malaise is excessive government spending that creates deficits, increases debt and prevents real economic growth.
Austerity coupled with robust private-sector growth is the proper prescription for recovery, but austerity and pro-growth policies aren’t in the big-government Keynesian playbook.