Krugman: You know what this economy needs? A space alien invasion!

Discussion in 'Politics' started by bugscoe, Aug 16, 2011.

  1. Krugman: You know what this economy needs? A space alien invasion!

    Patrick Ishmael wrote about this in the Green Room, but why should he have all the fun? Not too long ago, Dick Durbin lamented the demise of credibility for Keynesian economic proposals, but even I didn’t realize the Keynesians had become quite this desperate. Fareed Zakaria offers a strange view of economics where government seizes capital to dig ditches, refill them, and then roll around in the taxes paid by the workers who did the work while everyone winds up with nothing. Paul Krugman then doubles down on this idiocy by explaining that economic growth would be just around the corner — if only Space Invaders came to life:

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    I love the war analogies. Doesn’t the Left keep blaming our current economic malaise on the two wars that George Bush started? If war was all it took to create economic growth, we’d be peaking now, wouldn’t we? And didn’t Barack Obama start a new war with Libya this year? How is the economic growth from that conflict working out?

    The rest of this is just sheer idiocy. Krugman, who won a Nobel Prize in economics, somehow forgets to tell Zakaria that seizing capital from productive enterprises in taxes (or worse, borrowing against future legitimate production in deficit spending) to fund the “ditch cycle” has opportunity costs — namely, the opportunity to produce something other than pre-filled ditches, which have a real value of zero. That’s actually a significant part of what’s wrong now. Government spending doesn’t create economic growth; it takes money from actual production, and so should be used sparingly and only for necessities.

    Krugman then takes Zakaria’s reductio ad absurdum and makes it more absurd by postulating that a mistaken alarm of a space invasion would create vast economic growth, which would just remain even after the Emily Litella moment when the space aliens didn’t invade. Unfortunately, the Nobel Prize-winning economist doesn’t explain what would happen when all of the assets built to meet the threat turn out to be useless and can’t be converted into productive assets for a non-space-war economy. Thanks to the massive seizure of capital it would take to create the defensive and offensive assets to meet that threat, we’d be left with little to power our economy, especially in a highly regulatory (and rationed) total-war economy.

    It does explain a lot about Obamanomics, however, which has seized capital to deliver almost no real new value — only to slightly speed up projects already on the planning board, and slightly speed up car and home sales that would have taken place anyway. The credibility of Keynesian economics died with Porkulus, and all Krugman and Zakaria do is keep redigging the grave and filling it back up — which is apparently good for their own personal economies.
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  3. Ricter


    I'm looking for the "space alien" bit. Don't see it...

    "Oh! What A Lovely War!

    World War II is the great natural experiment in the effects of large increases in government spending, and as such has always served as an important positive example for those of us who favor an activist approach to a depressed economy. Christy Romer is very much on the same wavelength.

    It’s especially relevant because in the 1930s, as today, many wise heads insisted that unemployment was structural, that many of the unemployed could not be gainfully employed no matter how much demand increased. Then demand actually did increase, and as Christy says,

    But World War II has something to tell us here, too. Because nearly 10 million men of prime working age were drafted into the military, there was a huge skills gap between the jobs that needed to be done on the home front and the remaining work force. Yet businesses and workers found a way to get the job done. Factories simplified production methods and housewives learned to rivet.

    Here the lesson is that demand is crucial — and that jobs don’t go unfilled for long. If jobs were widely available today, unemployed workers would quickly find a way to acquire needed skills or move to where the jobs were located.

    Oddly, however, people on the right have taken to claiming that World War II actually weakens the case for stimulus. One line, due to Robert Barro, is that it shows fiscal expansion failing because private spending actually fell. Duh. As Christy says, there was consumer rationing — spending was forced to fall. Also, something she doesn’t note, there were severe restrictions on private construction, which meant that investment not related to the war effort was also forced to fall.

    Recent work by Gordon and Krenn takes this even further by looking at the effects of the prewar defense buildup:

    <quote>After reviewing evidence from the 1940-41 editions of Business Week, Fortune, and The New York Times, Gordon and Krenn document that the American economy went to war starting in June 1940, fully 18 months before Pearl Harbor. In February 1941 fully one percent of the American labor force was at work building army training camps for 1.4 million new draftees. Employment in ship-building to expand the U. S. Navy and to supply Lend-Lease aid to Britain accounted for another one percent of the labor force in 1941. As early as June 1941, capacity utilization had reached 100 percent in the production of iron and steel and durable goods of all types.</quote>

    And they show that during the period before capacity constraints were hit, the multiplier was actually fairly high.

    But never mind. Matt Yglesias heroically actually reads Rick Perry’s book, and learns that

    <quote> — 9. Private Enterprise Blossomed Under Conscription and Wartime Price Controls: Not only does he argue that the New Deal failed to end the Great Depression, but he asserts “recovery did not come until World War II, when FDR was finally persuaded to unleash private enterprise.” (page 48)</quote>

    Nothing shakes the faith of a true believer."

    You're writer is right, imho, about the opportunity cost of war, that's long been a point made by the left, when they're in their anti-war mood. The writer is wrong about the opportunity cost of private capital, at this time, because they're not spending it anyway. Rather, from my own perspective, the capital has already been spent, we took our deduction, and we await only (more) sales. There is no point in new equipment or newhires if the sales aren't improving.

    The ditches thing is nonsense. I have a mile of ditch that is very useful. Besides, jem has mentioned he has a lot of work for people at $10/hr, )and he's likely not alone), I doubt it's ditch-digging.
  4. See it? WTF?

    Watch the video and LISTEN to the words coming out of Krugman's mouth. AND if you watch his mouth as he says it then yes, you will be able to 'see it'.

    Just like magic!
  5. pspr


    Liberalism is a disease that affects the mind. The normal thought process is turned upside down and irrational conclusions seem completely logical to the liberal mind.

    Research has turned up little in the way of a cure for the liberal disease and those suffering from this affliction have little hope of ever recovering.
  6. Lucrum


    Oh there is a "cure".

  7. Ricter


    So... you're safe. : )
  8. Arnie


    So...I guess we should start some more wars and re-instate the draft??

    Krugman is a bafoon. The facts are consumer spending DECLINED during and immediatley after the war. What did grow was their savings.

    Despite two years of fiscal and monetary stimulus, the U.S. economy is sagging. This has renewed the argument over the usefulness of more stimulus, and many of its proponents make an analogy to World War II.

    Last month, former Obama adviser Larry Summers put the case this way: "But for Hitler and the military buildup he caused, FDR would have left office in early 1941 a failure, with American unemployment above 15 percent and with the recovery promise of the New Deal shattered." And in 2008, Princeton's Paul Krugman referred to "the enormous public works project known as World War II."

    This is received wisdom to many economists and historians, but it skates around key facts of the World War II economy. Chief among them: Government policy didn't stimulate personal consumption, as Keynesian policy makers aim to do today, but rather enforced thrift.

    During World War II, there was no investment in civilian infrastructure and the government placed severe restrictions on consumption. That meant significant portions of the massive government spending went toward saving and private debt repayment. Thrift restored personal balance sheets, ultimately setting the stage for the postwar boom.

    In 1939, before the U.S. entered the war, about 15% of the work force was unemployed. The war eliminated unemployment by moving 11% of workers into the military, where they were indentured at low pay with little ability to purchase consumer goods. Another 5% were directly employed by the government as military support personnel.

  9. Isn't that the same as the government building tanks and planes and guns and ships, sending them off to war to be destroyed and then bask in the taxes and bribes from the manufacturers and soldiers?
  10. If you can explain how a ditch may destroy the country, you may be on to something.
    #10     Aug 16, 2011