Leave it to America's strongest ally in the world to speak the truth.
On Thursday, England's Telegraph published an article with the absolutely glorious headline "Britain Can’t Afford to Fall for the Charms of the False Economics Messiah Paul Krugman":
[F]ear not – salvation is at hand. Next week, there comes to these shores a Messiah, a prophet of great wisdom and understanding whose teachings promise to vanquish despair and “end this depression”. He is Prof Paul Krugman, a superstar polemicist who has been described by The Economist as “the most celebrated economist of his generation”. Actually, “celebrated” is not exactly the right word, for Krugman divides opinion like no other. To his followers, he’s a saint; to his detractors, he’s a false prophet with satanic intent.
I'm verklempt. Talk amongst yourselves:
Krugman is an economist with attitude, and he thinks Britain is in the midst of a “massive blunder” in economic policy. The UK is the very worst example of austerity economics, he believes, for unlike the poor beleaguered nations of the eurozone periphery, we’ve not had this misery forced on us by the ghastly euro, but have opted for it as an unnecessary penance for the sins of the boom. If only we could be persuaded to forsake “Osbornomics” and tread the path originally set out by our dearly beloved former leader, Gordon Brown – that of spending our way back to growth – then all would be well again.
NewsBusters readers are well aware of Krugman's incessant claims of late regarding Europe being an example of austerity's failings. He of course always forgets to point out that much of that continent's countries have raised taxes. But I digress:
To Krugman, it’s understandable that policymakers screwed up so monumentally in the Great Depression; they didn’t understand what was going on and there was no template for the circumstances they found themselves in. To his mind, there is no excuse this time around; it’s textbook stuff, which is being wilfully ignored.
But haven’t we already tried borrowing to stimulate? And what did it deliver other than fiscal ruin, which in the eurozone periphery is so serious that markets have stopped lending altogether? Krugman has an answer for these questions, too. It’s not the policy that was wrong, merely that the stimulus wasn’t big and sustained enough. As for the eurozone, again, it wasn’t the policy, but the euro. Countries with their own currencies and central banks won’t run into this kind of problem. In extremis, they can always print the money.
Easy peasy, then. What’s not to like? Well, I’m sorry, but I just don’t buy it. It may or may not be possible for a vast, largely internalised economy such as the US, with its reserve currency status, to run double-digit deficits into the indefinite future without adverse consequences, but for the UK it is a much more questionable policy.
Actually, it's a questionable policy here as well. In the past several years, there's been a lot of talk about the international community dropping the dollar as its reserve currency. Maybe with a few more credit rating agency downgrades this will become more serious. But I once again digress:
True, Britain has lived with much higher debts relative to GDP in the past, but this has nearly always coincided with major wars. With demilitarisation, much of this borrowing to spend falls away and domestic consumption comes roaring back. No such get-out-of-jail-free card exists this time around. Further, the demographic is completely different from that of the post-war baby boom generation, where growth and therefore debt erosion were more or less guaranteed. Today, the unfunded liabilities of an ageing population stretch menacingly into the long-term future.
As it is, government spending in the UK is already approaching 50 per cent of GDP. Just how high does Prof Krugman propose it should go? It’s all very well to say “jobs first” and worry about the deficit later, but once government spending becomes entrenched, it’s very difficult to get rid of it. Even Reagan and Thatcher struggled to make significant inroads.
Indeed, and this is the stimulus failure folks like Krugman continually ignore.
Consider this week's debate about whether or not the Obama administration has been a big spender.
The case MarketWatch's Rex Nutting followed by MSNBC and the White House basically made was that all the so-called emergency spending to "solve" the financial crisis and resulting recession is now part of the baseline from which new budgets are to be created.
As such, contrary to Krugman's claims, stimulus spending ISN'T one time. It goes on and on continuing to grow without any let up leading to certain financial ruin in the future given all the unfunded liabilities - Social Security and Medicare - that already exist.
When Franklin Delano Roosevelt ratcheted up spending during the Depression, such future liabilities had not yet manifested themselves.
Krugman and his ilk constantly ignore this immutable fact.
But the Telegraph wasn't done exposing the hypocrisy of the New York Times Nobel laureate:
Yesterday’s revised GDP figures, showing that the country is even deeper in recession than we thought, would appear to support the mocking tone in which Krugman condemns the idea of “expansionary austerity”. But where is this austerity? In fact, one of the few positive contributors to output in the last quarter was government spending, which grew by 1.6 per cent. Krugman seems to have forgotten the automatic stabilisers, which because of our welfare state are considerably bigger than in the US. In America, much current UK spending would count as a discretionary fiscal stimulus of the sort End This Depression Now! advocates.
And this is a point many here have made about Europe's so-called austerity: WHERE IS IT? Spending in most of these countries has continued to rise.
But to folks like Krugman, austerity means not spending as much as they think you should.
This of course is the same illogic we've seen from this ilk: any time Republicans in Congress try to slow the growth in spending on a particular program, the Left and their media minions claim it's a cut.
The Telegraph concluded: "Paul Krugman’s message is seductive, but it’s also unrealistic. If only the solutions to our plight were as simple as he thinks."
America can’t afford to fall for the charms of the false economics messiah Paul Krugman either.