Don't Worry! Be Happy! Deficits Are Good! Really!
It seems that Goldstein is at work again, like the nefarious Count Olaf in A Series of Unfortunate Events. This time, however, Goldstein (who, like Olaf, wears lots of disguises) is disguised as a Republican telling people that the current gargantuan deficits are bad.
Pay no heed to these poseurs! Don't listen to Goldstein! Instead, Paul Krugman tells us to listen to the economists, who "take a much calmer view of budget deficits than anything you'll see on TV." Anything else is a "scare tactic" dreamed up by Goldstein, uh, Republicans.
Krugman has an analogy: scaring people about the deficit is like what the Bush administration did just before invading Iraq:
To me — and I'm not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn't been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized (emphasis mine).
Furthermore, the Nobel Laureate declares:
Let's talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn't the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.
The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.
It is hard to know where to begin. First, and most important, Krugman and his minions are not being marginalized. Please. The guy is earning sums of money with his speeches and articles that would make a professional athlete jealous. The Keynesians are in positions of power and influence, occupying the top positions at the Federal Reserve System, the Ivy League professorships, and are the subjects of fawning pieces in the leading U.S. newspapers and periodicals. So, let's cut the crap about these guys being shoved into a corner somewhere.
What Krugman means about being "marginalized" is that some people dare disagree with him in public forums and in print, which he sees as something akin to blasphemy. Has he not faithfully proclaimed the Keynesian Gospel, yet there still are infidels out there?!? How dare they contradict the General Theory!
Second, Krugman himself claimed that the unemployment rate would peak somewhere in the eight-percent range if the stimulus were passed. Guess what? The stimulus passed, and we are at 10 percent and climbing. (Krugman's excuse that the stimulus was not large enough is yet more Nobel-Prize nonsense.)
So, are we to believe that the only thing between us and the abyss is the size of the deficit, and the more the government borrows and spends, the better off we shall be? That is what Krugman is claiming, because, as we all know, should the federal debt become greater, all that government needs to do is to print lots of money, which will repudiate the debt, and if the Chinese don't buy it, we can accuse them of being "mercantilists" or worse.
In other words, there always is someone else to blame. Right now, it is those pesky Republicans who, after being defanged in the past two elections (in part, for involving us in wars and for running huge deficits and giving us the Housing Bubble), apparently really are the "shadow government" after all. How do I know that? Here are the words of the Master Himself:
The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama's image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?
The trouble, however, is that it's apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.
For the fact is that thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there's hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price.
Well, Houston, we have a problem. According to Krugman, deficits are bad if they occur in a Republican administration, but are good when the Democrats are in charge. Such thinking is not worthy of an acclaimed economist who really should be above spouting political talking points. Does Krugman really want us to believe that opportunity cost — the bedrock of all economic analysis — really becomes nonexistent when the economy tanks? That deficits are bad when the wrong people are in charge, but the same conditions are good when politicians approved by Princeton University and the New York Times are in control?
Such sentiments really are not worthy of a decorated economist. Thus, I have concluded that Goldstein himself has kidnapped the economist Paul Krugman and is disguised as Princeton's finest. Yes, Goldstein is writing Krugman's column!
February 6, 2010
William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services. Visit his blog.
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