Tuesday, February 2, 2010

Paul Krugman Is Not an Economist, He Is a Political Operative

by William L. Anderson

In his January 29 column, "March of the Peacocks," we see proof of what I have been saying for years: Paul Krugman is not an economist. He is a political operative, period.

OK, why do I claim that a NOBEL LAUREATE in economics is not an economist? Is not the Nobel given to someone who has contributed something important to economic science? (Not really, but that will not be the topic of discussion today, as this column is dedicated to debunking the wit and wisdom of Paul Krugman, not trashing the Swedish Academy of Sciences, which gives the award.)

Instead, we deal with Krugman's latest missive of rage that Obama has announced a toothless "spending freeze," which apparently turns the poor president into a ... Republican. Besides Krugman's gratuitous insults of President Obama, however, I also think this column presents a very good view of what Robert Higgs calls "vulgar Keynesianism." So, let us begin.

Right out of the box, Krugman proclaims:
Last week, the Center for American Progress, a think tank with close ties to the Obama administration, published an acerbic essay about the difference between true deficit hawks and showy “deficit peacocks.” You can identify deficit peacocks, readers were told, by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending.
Horrors! Obama has endorsed such a scheme, and The Great One is enraged:
What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems.

So, let us stop for a moment and think. What is a "dumb policy idea"? Why, according to Krugman, it is anything that lessens the burden that government place on individuals. And it gets better:
The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.

Only in Paul Krugman's Wonderland can such a series of words be put into one supposed coherent thought. We are in a severe financial crisis because the financial institutions followed the government's directive and went bonkers in lending money for housing, paying no attention to the growing bubble. Furthermore, they took these risks not because the bank regulators had been seized by "Reaganite free market ideology," but because of the explicit and implicit guarantees by government authorities and especially the Federal Reserve System.

Furthermore, deficit spending is making things worse, not better. It adds to our crushing debt and it further distorts the fundamentals of the U.S. economy in a way that makes us worse off now than when presidents Bush and Obama began their attempts to "spend our way out of the recession."

Unfortunately, as they say on the late-night infomercials, "Wait! There's more!"

Read the rest here.

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