The Red Pill

[shermann7]

Krugman Points His Finger at Austerity

http://libertycrier.com/channels/krugman-points-his-finger-at-austerity/?utm_source=The+Liberty+Crier&utm_campaign=b38b68fdbf-The_Liberty_Crier_Daily_News_6_28_2013&utm_medium=email&utm_term=0_600843dec4-b38b68fdbf-284729081

In his essay on the revisionism of Harry Elmer Barnes and the Cold War, Murray Rothbard referred to those “intellectuals” who had as their main task, the chore of “spin[ning] the apologia for the new dispensation in return for wealth, power, and prestige at the hands of the State and its allied ‘Establishment.’” These “Establishment hacks” were appropriately titled the “Court Intellectuals.”

Which is of course intended to make it plain that they are paid to inform the public on behalf of the “King” and his agenda.

Reading Krugman over the years always reminds me of the description of the court intellectual. Perhaps it was John Maynard Keynes, the premier economist of the last century, that could be titled the ultimate “Court Economist,” but Krugman has certainly labored hard to follow the Keynesian path to State-approval and official recognition.

In a recent post, Krugman plays his role well. Overplaying the differences between the political parties in Washington, Krugman makes it clear that “the destructive turn toward austerity” has proven to be the chief source of our recent economic woes. This, naturally, is what one would expect him to say. This is his job. No matter the case, Krugman’s goal is to come out on the side that there is never enough spending, and any economic stimulus that makes it through congress is never enough.

This is wise. By immediately making it plain that the stimulus is too small, the path is paved for a larger stimulus in the future after the small stimulus fails. This has been his tactic for over a decade, since back when he called for the housing bubble (which was a great cause of the crash of 2008). So the words in this NYT piece are nothing new in the least.






The problems with Krugman’s piece are many. Firstly, his immediate use of the term austerity is incredibly misleading and misapplied. His definition of austerity is simply slashing government spending in a weak economy. But this is not what austerity means in a political sense. Austerity is a means by which the government accepts rising interest rates, moves to pay back its debts via increased taxation, and shifts its expenditures away from “growth” and toward “debt.” In other words, austerity has little to do with “slashing spending,” and everything to do with actually paying off the “bankers.”

Austerity is the effort the banking lobby promotes if there is a threat of government default. The problem with Krugman’s description of austerity is that he wants to apply it to (fiscal) conservatives. This is a tough issue to address because it calls for questioning the official political spectrum. In short, the so-called conservatives are not so conservative compared to the traditional standard of conservatism. In many ways, the self-described conservatives in the GOP are more liberal than they are conservative. The reason I bring this up is to point out that the true conservative position on this issue is near-impossible to find in Washington today.

The true fiscal “conservative” position on this issue is to simply repudiate the debt –which is to say that the taxpayers ought to just say “no” to the bankers. The conservative position is not to accept “austerity” in order to pay back its debts. Why? Because the conservative believes that the State has no right to draw in the masses to great measures of debt in the first place. Therefore, for Krugman to place blame on the conservatives for their austerity measures is misleading, I think. Although I must admit to apply “conservative” to this view puts far too much hope in the conservative movement, which is largely bankrupt itself. ”Libertarians” must take up this mantle.

Further, the reader must understand that Krugman’s war against the “austerians” (not to be confused with “Austrians”) is misguided simply because we have had no austerity. Krugman must surely prove his case that US government expenditures have been cut in order to call a “turn toward austerity” as destructive. The problem is that he would have an impossible task if he sought to make the case the United State government has actually cut a dime. In fact, Krugman is one to wail about the “dangerous sequester cuts,” which of course, add to Federal expenditures. Krugman is in dangerous territory because the critic can simply point out that spending increases are the recent cause of our economic woes.

The question we should be asking Krugman is: “what austerity?”

But of course Krugman’s main point in this piece is not austerity itself, but rather the assumption that economic stimulus has a political tendency to be cut far too soon. He mentions FDR’s New Deal and Obama’s Recovery Act. Accusing the two Presidents of scaling “back much too soon,” Krugman aims to point out that it was precisely this “scaling back” which caused economic downturn.

Now, the Austrian economist is actually not too much in disagreement here at the surface. But of course, for very different reasons. For the Austrian, it was the stimulus itself which misdirected resources and cause an unsustainable boom which necessarily led to a recession. The stimulus itself was the disease and therefore the Austrian knew that, like a drug-addicted kid who doesn’t get his fix, once the stimulus ended, the pain would begin. Krugman wants to give the kid his fix so that he feels better. The Austrian wants the kid to be healed of his addiction.

Moreover, Krugman is right to say that the stimulus itself was not permanent (in both cases), but this does not mean that spending was cut. In fact, this is the free-market complaint. It is true that the post-stimulus expenditures did not grow at the same rate as they did in the stimulus era, but it is also true that the number of dollars spent was never cut back. This is the ratchet effect which Krugman denies. But in neither stated case did spending actually fall.

The primary issue with Krugman’s analysis is displayed toward the end of his article when his states that “the key measure you want to look at is the ration of debt to GDP, which measures the government’s fiscal position better than a simple dollar number.” This is precisely his problem and precisely my issue with the Keynesian thesis. Their ratio is more important than the numbers themselves. This leads to the effect of forgetting the true debt and spending levels and is the source of the statistician’s refusal to consider looming interest rate hikes, looming tax hikes, and an eventual decision to either repudiate the debt or else call for austerity. By not focusing on actual numbers, Krugman is refusing to realize that the political ramifications of the increased spending are coming around with a vengeance. Austerity could lead to mass riots (like in Europe) and debt repudiation could lead to massive financial crashes.

What will happen when no one wants to lend to the government and the economy fails to produce the revenue levels required to keep the government going?

Krugman does not consider the scenario. Instead he denounces an austerity which does not exist and calls for a U-turn, by which he simply means an increase in spending and stimulus: a new fix for the drug-addict.

Will “tightening our belts” cause more unemployment, more pain? It will certainly deprive the very wealthy of their false prosperity. But after the immediate pain, it will be the much needed trigger to start accumulating real wealth rather than more layers of debt.

I too want a U-turn. Away from debt, central banking, and recession. And toward prosperity and market-based capitalism for a change.