THE KRUGMAN-OBAMA CONNECTION
While advancing the central thesis of his new book, End This Depression Now!, economist Paul R. Krugman, Nobel laureate, has become a spokesman who outflanks Obama on the left in this election season. To counter the attack on the President’s failed stimulus bills (yielding no appreciable change in unemployment or private sector growth despite in excess of $5 trillion added to the national debt in less than four years), Krugman argues not that this massive Keynesian experiment has failed but, rather, that the spending thus far is less than half of what the government should have spent to jumpstart the economy.
Krugman compliments Obama for his preference for stimulus spending but faults him for not spending enough and predicts dire consequences if federal spending is reduced as Romney promises. Krugman thus creates a new straw man helpful for the President. Krugman positions himself together with his excellent resumé on the left of Obama concerning the central issue of the presidential campaign, arguing, in essence, that if Obama is re-elected and liberated from political constraints needed to win re-election, it will permit “Obama to be Obama” (paraphrasing the old Reagan adage, “let Reagan be Reagan”). Then, gloriously, Obama could spend tens of trillions more beyond receipts. At long last, argues Krugman, the economy would rebound. Does anyone other than Philip Coggan remember what happened to the Weimar regime in Germany following World War I? The regime ordered the Reichsbank to print over a trillion marks, causing a massive influx in paper currency to deluge the market. As Coggan reminds us in Paper Promises, “In 1914, the dollar was worth 4.2 marks. After the war, which Germany had financed through money-printing, the dollar was worth 65 marks. By August 1923, a dollar could buy 620,000 marks, and by November 630 billion.” As Coggan explains, by November 1923, “a kilo of butter cost 250 billion marks.”
If Krugman’s plan is followed, inflation will destroy us, leading not to an end of the current “depression” but to the ruination of capital, to loss of remaining confidence in the dollar, to extraordinary inflation, and to high unemployment—a depression not that dissimilar from the global one of the 1930s that led to the rise of Nazi Germany.
With Krugman championing the far left on stimulus spending, the spending excesses of Obama are made to look liliputian, too small to resuscitate the economy. The problem with Krugman’s theory is its implicit acceptance that unlimited government is consistent with freedom and free markets; that government growth does not inherently bring with it political corruption; and that inflation and further destruction of American capital along with a doubling of interest on the national debt is a matter of trifling significance.
Krugman suggests that if we significantly increase the national debt there will be an immediate upside: greater employment and economic activity that will diminish the downside of debt, inflation, and interest on the national debt. This is all so much wishful thinking not supported by history. The construct feeds into Obama’s rhetoric that if only we wait for a few more years, pumping up stimulus spending every now and again, the economy will rebound.
Krugman ignores the stultifying effect of government growth, and principally regulatory outgrowth, on the functionality of a free market. He ignores the cries of even leading Democrats at the conclusion of the New Deal (which likewise pumped massive sums into the economy): that all of the public works projects did little to lessen unemployment and virtually nothing to revive the economy.
Indeed, the periods of greatest economic growth in America have been ones in which government spending as a percentage of Gross Domestic Product and government regulation of the market have been far lower than they are now. Without question, private initiative and innovation have led to every major advance in the U.S. economy, while government planning and expansion have uniformly retarded growth and have created barriers to the free use of capital to satisfy consumer demand. The market dislocation effected has reduced the American standard of living and has transformed the nation from a society of independent people to one of dependents.
If Krugman’s thesis were correct, one would expect that the Communist Chinese economy before market reforms would have been the greatest in the world, but even the Central Politburo of the Communist Party of China had to reduce government control over the entire economy to yield that nation’s greatest revolution—not the murderous cultural one but the life saving and living standard lifting free market one. It should be noted that even Chinese stimulus spending during the recession has proven a failure, incapable of elevating the Chinese economy from its present doldrums.
There is a danger for President Obama arising from Krugman’s recent foray into national politics. The public is rightfully skeptical of the intellectual brain trust for a government planned economy that brought Larry Summers, Timothy Geithner, and Ben Bernanke to positions of enormous power, lording over and channeling economic forces. Krugman looks increasingly like another Summers, Geithner, or Bernanke. The dreaded status quo with its recession and high unemployment remains firmly in place despite the efforts of this brain trust. Krugman fits the Larry Summers mold—supremely confident in the correctness of his opinions even when they do not work.
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Increasingly Americans are reuniting with a history they know to be a proven way to freedom and progress: limited government, markets unfettered by oppressive regulation, and faith in freedom of choice and innovation rather than in state paternalism. Washington’s leadership still does not appreciate the full gravity of this movement but some, like Senator Orrin Hatch and former Senator Richard Lugar, have felt quite personally the backlash from an angry electorate. If these sentiments in favor of a restoration of the American republic continue to grow (and it is likely they will), Obama’s days will be numbered and Krugman will be viewed as yet another wise man whose wisdom lies in theory, not in reality.
© 2012 Jonathan W. Emord - All Rights Reserved