Monday, August 15, 2011

How Paul Krugman Can Find Salavation

As part of his call to gear up to fight non-existent space aliens, Paul Krugman mentioned that World War II is what brought the United States out of the Great Depression. Mary Theroux provides Krugman a bit of a history lesson on that point and provides some tips to Krugman on what he might do to earn the Nobel Prize he has received.
As Dr. Robert Higgs has more than ably shown, the Great Depression continued, and deepened, throughout the New Deal and throughout World War II. The World War II years were a time of shared privation, with virtually every item that we take for granted today either rationed: e.g., meat, gasoline, sugar, clothing; or not available at any cost: e.g., new cars, appliances, etc. The American standard of living throughout World War II remained at an excruciatingly low level that no 21st century American would accept. Meanwhile, unemployment disappeared simply because 16 million able-bodied people were sent to war, paid below-market rates and subject to danger, death, and maiming they may not have preferred to unemployment.

As I earlier detailed in “One More Time: World War II Did Not Bring Us Out of the Depression,” the Great Depression ended in 1946, when 10 million individuals were returned to the ranks of the unemployed, and federal spending plunged 40% in the aftermath of FDR’s death and the abandonment of the New Deal.

If Dr. Krugman would quit reading Keynesian theory and start reading history, he could earn his Nobel and look for salvation not from aliens but from the creative engine fueled by free individuals unencumbered by regime uncertainty and widespread diversion of productive resources to government programs.


  1. This could have been an excellent post debating the economic facts of the effect of WWII on the Great Depression. Instead it was weakened by a blatant misrepresentation of an unrelated quote by Krugman.

    If the author had bothered to listen to the complete live Krugman interview, the point he was trying to make would have been clear – for some priorities, the negative effects of increasing the deficit would be worthwhile. The (admittedly poor) analogy he used was to defend against a space invasion, but the point he was clearly trying to make was that getting the economy growing again and lowering the unemployment rate is something worth spending money on. This is certainly a topic worthy of debate, it is unfortunate that a poor analogy has become the focus instead.

    With respect to WWII and the depression, it would have been more honest to reference the original article by Christina Romer - . If there is a disagreement with the conclusions, then let’s have a debate about those and not cheapen the discussion with side-show snark.

  2. Side show snarks are pretty much all of what krugman's columns contain besides false predictions -- qe2 won't raise commodity prices unless real demand is stimulated, for instance -- GOP bashing -- as if they are really any different from the party he receives his talking points from -- so it is pretty funny to see a fan of krugman be upset over that. Not sure how you can make it through any of his columns if that is how you feel!

    Anyway, krugman has stated that he believes destruction is a good thing for an economy, giving the earthquakes in japan as an example. The broken window fallacy -- which any econ 101 student quickly realizes (provided there is not an idiot keynesian teacher) is completely false, and defies any sort of basic economic logic or knowledge. Why not just start having riots and destroying stuff left and right? Think of all the economic boom of rebuilding those houses and businesses! The problem with those who believe war is good for an economy is opportunity cost, something they also do not believe exists when calling for massive government spending, keeping interest rates artificially far too low -- aka why we are in the depression that we are in now.

    If war is good for the economy, why not be in perpetual war? Actually, obama and bush pretty much have done their best on that issue, yet the economy is still horrible. Why is that?

  3. Quote from Paul: "The (admittedly poor) analogy he used was to defend against a space invasion, but the point he was clearly trying to make was that getting the economy growing again and lowering the unemployment rate is something worth spending money on."

    This is worth debating only if you wish to ignore the facts. The space aliens analogy is perfect for illustrating the idiocy of the position.

    You don't like aliens? Haw about we declare war on the International Dateline? We could attack, bomb, and invade it for a few years, destroy a bunch of capital, maybe even kill a few hundred thousand, and then declare victory. That would apparently solve our economic problems in the universe of Paul.

    Deficit spending is a political policy, not an economic one.

  4. @geoih,

    'Deficit spending is a political policy, not an economic one'.

    Exactly. And any subsequent actions taken after the adoption of these "policies" will be so also.

    So, while I would agree that the relative merits/demerits of Krugman's, et al's, statements should be given honest, objective analysis, let's keep in mind that while many here and elsewhere may understand the Keynesian theoretical basis, the inherent flaws of it and its totally political nature, the average TV viewing/hearing zombie does not.

    This is partly what makes Krugman's alien and war statements so dangerous and poorly chosen. That viewer/hearer, in all probability, cannot connect the dots. Hence my own personal sarcasm referenced in a previous post on this subject.

    And if you don't believe for one moment that "command central" can or will latch
    on to Krugman's statements and contort them to achieve their own desired ends if they so wanted to, I recommend carefully re-reading all of human history.

  5. Pick an American city every year or two, pay the people to relocate - to make sure no one is hurt or killed - and then pay their relocations costs and salaries and expenses for a year, and then simply bomb the city and then rebuild it. This is the 'war is good for economic growth' argument, no?

    I have no degrees in finance or economics so be gentle with me.