Wednesday, June 23, 2010
What "Expansionary" Policies?
William Anderson
OK, Paul Krugman is a True Believer. No matter what, according to the Nobel laureate, the government needs to spend and spend and spend because the economies of the world are in a giant "liquidity trap." However, in a recent blog post, he claims that any deviation from such policies of borrowing, printing, and spending simply is "horrifying." Horrifying?
Not surprisingly, Krugman turns back to Keynes for inspiration:
- The case for expansionary policies in the face of a slump is
intellectually difficult; Keynes described the writing of the General
Theory as a painful process of discovery, and so it is. The natural
instinct of almost everyone is to think that tough times require tough
measures, and that if the economy is suffering, the government should
tighten its own belt. It would take a clear consensus from economists to
overcome that natural bias.
- And that consensus has, of course, been lacking largely because a significant proportion of the economics profession has spent the last three decades systematically destroying the hard-won knowledge of macroeconomics. It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.
- And that consensus has, of course, been lacking largely because a significant proportion of the economics profession has spent the last three decades systematically destroying the hard-won knowledge of macroeconomics. It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.
If anyone did any refutations, it was Henry Hazlitt in 1959 when he made mincemeat of The General Theory in his own book, The Failure of the New Economics. Hazlitt went through Keyne's "masterpiece" line by line, demonstrating how it was nothing but a tissue of fallacies.
There was no "hard-won" knowledge of macro, unless one believes that an economy is nothing but a bunch of aggregates, that prices are just numbers to go into an index, and that government creates wealth by printing money. Don't forget that this "hard-won" knowledge by 1980 was giving us double-digit inflation, high unemployment, and an economy in tatters.
So, Krugman wants us to believe that all we need is borrowing, spending, and lots of printing money. Oh, and costs are nothing but administrative numbers. This is not economics, folks, it is pure bureaucracy.
http://krugman-in-wonderland.blogspot.com/2010/06/what-expansionary-policies.html --
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