I try to read all of Princeton economist and New York Times’ contributor Paul Krugman’s columns. Call it a nerdy form of masochism. By the end of each article I’m often left ripping at my hair and gouging at my eyes, screaming madly, “how did this guy win a Nobel?!?” Then I’m reminded that Yasser Arafat and Al Gore are also Nobel laureates and that maybe I shouldn’t make such a big deal out of the award.
Regardless of my disdain for his ideology I simply cannot stop reading. His seemingly religious belief that spending for the sake of spending is the solution to any economic crisis is admirable in its consistency.
Then again, it’s also fun to watch him run in rhetorical circles when he’s wrong. Remember this gem?
“[Fannie Mae and Freddie Mac] didn’t do any subprime lending, because they can’t: the definition of a subprime loan is precisely a loan that doesn’t meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issues to borrowers who made substantial down payments and carefully documented their income.”
Oops, got that one wrong. Must’ve missed the $4.3 trillion in subprime mortgages.
Well in his latest column he gets it wrong again. But in all his economic vanity he can’t admit it. Quite the contrary, he predicts the future for us, the conservative fools, who seek to deter the government from spending us into bankruptcy. In true doom and gloom fashion he argues “[F]uture historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression.”
Fortunately, we, the conservative fools, have good company. The G-20 Summit, composed of leaders from the world’s largest economies, have decided that trimming deficits is the best way to achieve long term stability in the world economy. German Chancellor Angela Merkel has been one of the most vocal advocates of putting government spending on a sustainable path. In a response to President Obama’s call for more stimulus, her government said,
“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis. That’s why they have to be reduced.”
Nobody? Is that a challenge? Apparently Paul Krugman took it as one. In his latest column Krguman explains why the silly know-nothings at the G-20 summit, with their commitment to fiscal sanity rather than spiraling deficits, will inevitably lead to the “Third Depression.” He writes:
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.
In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.
Gasp! Inadequate spending. Only in the wonderland that exists inside Krugman’s head could trillions of dollars in new government debt be considered “inadequate spending.” If the United States escaped the Great Depression by building tanks for World War II, Krugman wants us to escape this recession by building presses to print all the money we’ll need for his “stimulus.”
The problem is that Paul Krugman thinks myopically. We must spend, spend, spend and do it now, now, now. Forget the fact that we have no plan to solve these deficits in the long term, beyond inflating our currency to the point where deficits won’t matter. The rest of us have a more nuanced understanding. We actually possess the ability to assess the long-term. Moreover, the ability to think in future terms necessarily colors the way we act in the present.
As Shawn Tully of Forbes explains,
“[I]f investors are convinced that Washington has a plan to restore fiscal balance, they’ll be content with lower returns on their stocks, bonds and buildings for a simple reason: those returns will prove more stable and predictable. That comfort level, in turn, lowers risk premiums and raises the prices of equities, corporate bonds, houses, and office towers.
Right now, many investors and managers are simply terrified by the absence of a roadmap to avoid ruinous debt. “We need to know that Washington can make tough choices, that our leaders are willing to do things that are unpopular,” says Paul Willen, an economics professor at MIT. “More than anything, people need to feel that this is not out of control.”
Frankly we’re scared, not just of today’s economic downturn, but because of a future made cloudy by insurmountable government deficits. In the face of a frightening future, Americans are saving rather than spending, companies are shunning risk and entrepreneurialism, and foreign lenders may soon ask for higher interest rates to hedge against inflation.
Keynes once said, “in the end we are all dead.” Krugman seems to base his entire economic philosophy on this one sentence. There is little other explanation for why he puts so much emphasis on spending now regardless of whether we can pay for it later. Our generation deserves better than that. Solving today’s crisis should not come with the caveat that we have doomed ourselves to another one.
by Brandon Greife, Political Director of the College Republican National Committee