Decca Aitkenhead wrote an article for The Guardian lauding Paul Krugman’s book, End This Depression Now!. According to the author of the review, Krugman provides all the answers to our economic problems in this tome. Frankly, I would not invest the money or the time to read Krugman’s work, so Aitkendhead’s piece has afforded me another chance to critically analyze Krugman’s philosophy cost-free.
Paul Krugman is a Nobel Laureate in economics and a professor at Princeton University. Additionally, he writes a column for the New York Times, in which he spews his warped perspectives relating to affluence, Wall Street, and Republicans. His latest crusade, which I wrote about recently, is his perspective about the Great Recession and his remedy to end it. Simply put, governments should spend and not cut costs in recessionary periods, and they should “tighten their belts” during periods of prosperity. (Note: I think it is totally naïve and absurd to believe that any government would ask their citizens to “tighten” during good times. I will not discuss this aspect of Krugman’s philosophy because it has no standing in my mind.)
Krugman proclaims that those unable to adopt the Keynsian approach to the economic malaise only want to cut “sinful” spending and end the welfare system. This perspective is totally incorrect in three regards. One: fiscal conservatives do not believe debt is sinful. Two: these same people are not against spending in difficult times. And, three: saying that the conservative objective is to starve babies is the worst kind of political rhetoric. Fiscal conservatives know that spending is a key elelment in escaping recession, but it must be accompanied by a simultaneous reduction in “inefficient “ spending, so that, the national debt does not increase any further.
The “paradox of deleverage” is also discussed. Krugman tells us that one man’s debt is another man’s asset, and that if all men decide to pay off debt at the same time, the situation can become “dangerous.” What conservatives are really trying to address is unproductive spending by the federal government, the kind of spending that increases the deficit and provides little benefit to our society, not individual debt. The relevance of the paradox escapes me.
The book downplays the effect of interest expense on our economy. I hasten to point out that U.S. Treasury obligations carry all-time low interest rates. It is not inconceivable that rates will increase in the next few years reflecting inflationary expectations. This could have a huge impact on the amount of interest the U.S. government is paying each year, and will serve to exacerbate the deficit significantly.
In the same vein, Krugman minimizes the bond market reaction to fiscal conditions in specific countries. Globally, bond markets have always jacked up interest rates to countries that have deteriorated from a credit perspective, consider Spain, Italy, and Greece. It is the height of arrogance and bad judgment to think that the same could not happen in the U.S. if we do not get our house in order. The credit rating of U.S. Treasuries is a very important issue as it will increase or decrease our interest expense.
In countries that have their own currencies, it is possible for the central governments to print money to pay for debt in the native currency, or to print and convert to pay in another currency (this is not possible in the EU, excluding the UK, on an individual country basis). But, this tactic only works until inflation takes hold. It is a self-defeating way to pay off debt that led to huge problems and hyperinflation in South America a few decades ago.
The banks, which lent money that precipitated the housing market crisis, were doing so as a result of easing credit policies urged by Congress and implemented by Fannie Mae and Freddie Mac. To suggest that there was a “wild and wooly” atmosphere is just not accurate. And, of course, it must be stated that liberal efforts to put every American into a home were the underlying actions that precipitated many of the problems we now face. I do stipulate that many parties were equally culpable.
Krugman adds mightily to class warfare in his book. Actually, I would be stunned if this were not the case. Comparing the top .01% (about 300,000 people) to the other 99.99% of the U.S. population (about 300 million) is a ridiculous comparison. Of, course the former earns much more than the latter, but so what? The book even mentions that Wall Street people are very charming. This, of course, enables them to talk Americans into borrowing more debt than they can afford, and Congress into enacting laws that benefit business people. What an absurd perspective.
Finally, Krugman criticizes the original stimulus, for the one-thousandth time. As a matter of fact, the stimulus package formulated by Hank Paulson and Tim Geithner saved the country from a Depression. It probably should have been larger, but it did the job.
Everybody agrees that stimulus is necessary, but it cannot be done without elimination of unproductive spending that is embedded in our entitlement system. This country cannot afford to add another dime to its deficit; the deficit will destroy our economy in the not to distant future if no action is taken. Why can’t Krugman be more expansive in his perspective, stymie his class warfare urgings, and provide more comprehensive suggestions that include both stimulus and cost reductions? I do not understand why he is being so stubborn. I do, however, understand why so many are ignoring his advice.