Krugman's Delusion: The Past Year Proves Cutting Spending Doesn't Create Jobs

September 5th, 2011 10:31 AM

Exactly what country does New York Times columnist Paul Krugman actually reside in?

Before you answer, consider the following sentence from his article Monday:

Although you'd never know it listening to the ranters, the past year has actually been a pretty good test of the theory that slashing government spending actually creates jobs.

For the past year to be a good test of this theory, there would have needed to be a slash to government spending, right?

Was this the case?


In fiscal 2010, total federal outlays were $3.72 trillion. In fiscal 2011 which ends September 30, we're projected to spend $3.83 trillion. That's a $111 billion increase.

Yet this Nobel laureate in economics thinks government spending was slashed.

In reality, since the last time such outlays declined year over year was 1965, we should really be testing Krugman, Obama, and the Democrats' theory that dramatic increases in government spending creates jobs.

Democrats have been radically increasing outlays since they took over Congress in 2007. During this time, as spending rose by 41 percent, the economy lost roughly seven million jobs sending unemployment skyrocketing from 4.4 percent to 9.1 percent.

If Krugman wasn't delusional, the above referenced sentence from his Monday column would read, "Although you'd never know it listening to the ranters like Barack Obama, the Democrats, Robert Reich, and me, the past four years have actually been a fabulous test of the theory that exploding government spending actually creates jobs.

Isn't that really the only conclusion that one could draw given what's happened since this recent Keynesian experiment began in 2007?

Of course, it's unfair to expect this Nobel laureate in economics to make such an obvious determination.

He thinks a $111 billion increase in spending is a slash.

Post-facto opining: Are conservatives trying to prove cutting spending produces jobs or that balanced budgets do? There is a difference.

When a government the size of ours runs up huge deficits, it has to sell additional treasury securities to make up the shortfall.

Since January 2007, the treasury has auctioned off an additional $6 trillion in debt. That takes $6 trillion away from other investments.

As unemployment has skyrocketed during this period, regardless of what Krugman and other Keynesians believe, there is absolutely no way to conclude that this money spent by government has had a positive economic impact at least as it pertains to job creation.

But what might have happened in the past almost five years if that $6 trillion had been invested in other areas?

Maybe new businesses would have been formed or existing ones expanded. Maybe the deposits at banks would be higher encouraging them to more aggressively loan money.

As $6 trillion in the hands of government didn't help the economy, maybe it would have been better served if kept in the private sector.

What's fascinating about the Krugman-Keynesian argument is how liberals demanding deficit spending today look upon the fiscally restrained Clinton era with such fondness.

They all pine for those "good old days" but want to do the exact opposite now of what was hugely successful then and continue to do so regardless of it having failed so miserably since they got control of the purse strings.

Consider that in the six years after the Republicans took over Congress in 1995 demanding fiscal restraint, a mere $1 trillion of new treasury paper was auctioned while 12 million jobs were created.

I'd suggest Krugman use that period to test his Keynesian theory but don't think his intellectual honesty is up to the challenge.