Let’s see. Since the Democrats took over Congress in 2007 and the White House in 2009, our national debt has skyrocketed and our deficit is so large, we may well corner the market in red ink. We’ve been engaged in a bacchanalia of spending that makes the spendthrift Republicans of 2001-2007 look positively Scrooge-ish. And most of it has occurred after the start of the worst recession since the 1930s, which caused government revenues to crash thus requiring dangerously foolish borrowing from abroad to finance that spending. The situation is so dire and our finances so fragile that, unthinkable as it once was, America’s credit rating is at risk.
So, in the face of all these problems (and topped off with a dollop of high unemployment), what does Nobel Prize-winning economist Paul Krugman recommend? Budget cuts? Lower taxes? Restraint in government spending and less interference in the marketplace so that it can do what markets naturally do and heal itself?
Don’t be silly, silly! When you’ve been on a spending bender like the one the Democrats have been on, the only answer is the hair of the dog – spend more!
Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?
Very hard, if the current state of political debate is any indication. All around the world, politicians seem determined to do the reverse. They’re eager to shortchange the economy when it needs help, even as they balk at dealing with long-run budget problems.
But maybe a clear explanation of the issues can change some minds. So let’s talk about the long and the short of budget deficits. I’ll focus on the U.S. position, but a similar story can be told for other nations.
Funny, but other nations such as the now-infamous Greece, but also including Italy, Spain, Portugal, and Ireland, have done just that -run huge deficits supported by borrowing to keep the spending going- and now they’re economic basket-cases; Greece is on the verge of insolvency and is torn by riots.
Krugman’s recommendation is orthodox Keynesianism, which sees spending as the way out of a recession on the assumption that economic growth will inevitably pick up and revenues will again be at a level to match spending. In the 1930s, with high unemployment killing consumer spending and even money itself vanishing from some places, Keynes’ theories seemed a reasonable attempt.
Trouble is, we now know they didn’t work: unemployment in the 1930s never fell under double-digits regardless of how much the government spent. Indeed, the government’s interventions probably lengthened the depression by several years. And we can see in the current recession that the government’s Keynesian policies have done nothing to revive the economy or create jobs – unless you count temporary census jobs.
So, whether one looks at history or current events, it’s clear via empirical evidence that Keynesianism does not work. Yet Paul Krugman wants us to double-down on it, because this time it will work. Somehow. Just trust him.
They say that the definition of insanity is doing the same thing over and over, while expecting a different result each time. If that’s true, Krugman should start measuring the drapes for his rubber room.
Or maybe Paul should just watch this:
RELATED: Roger Kimball accuses Krugman of engaging in wishful thinking.