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Paul Krugman Earns Immediate Induction into Sense on Cents Hall of Shame

Posted by Larry Doyle on June 28, 2010 9:48 AM |

Paul Krugman today sends a serious shot across the bow of those who believe in fiscal prudence and real sense on cents. Krugman, a widely read and highly respected Princeton economist writes in The New York Times, The Third Depression:

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

Krugman is no dope, but he puts forth an exceedingly simplistic commentary this morning. What is Krugman’s answer to our current economic crisis? Plain and simple, more government spending. Is it that easy? Krugman does himself and our nation a disservice by not utilizing his bully pulpit to broaden the dialogue across a host of other pertinent topics which impact our overall economy. Does Krugman believe that in doing so he takes his eye off this target, or does he simply not understand the dynamic of these other factors? Krugman shows no understanding of or appreciation for the following critical points:

1. Failed government policies which led us to this crisis.

2. The diminishing marginal returns from increased government spending.  This factor is embedded in the widely accepted principle of crowding out.

3. Excessive levels of debt/GDP ratios.

4. Unintended consequences of policies which pull demand forward and manipulate markets.

5. Real leadership. Krugman reduces those who espouse fiscal prudence as follows:

It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

Wow. Is that what this is all about? Those who are sick and tired of failed government policies and procedures, incompetent — if not corrupt — regulators, living beyond our means, and ongoing waste simply want to impose suffering on others? Does Krugman truly believe that? Then why is it that fiscal conservatives are overwhelmingly the most generous in terms of charitable giving?

I am not blindly stating that the government can not and should not be involved in developing policies, programs, and procedures to support our economy during these times. I am stating that in the midst of doing so, we need a full appreciation of these aforementioned points. For Krugman to reduce the other side of the argument to a cheap shot, he displays a real lack of leadership himself. In the process, he earns himself immediate induction into the Sense on Cents Hall of Shame!!


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