Dr. Krugman And The Economics of Hauling Coals To Newcastle

No Problem - Just Spend More

It seems that Keynesian Economists are similar to Bill Murray’s failed character in the movie Groundhog Day. They simply relive their errors until they work off their bad karma and correct their errant assumptions. Yet Dr. Paul Krugman, dominus et deus of the American Neo-Keynesians, seems stuck in an infinite karmic loop. He’s waking up on Groundhog Day forever, and sees the shadow of smaller government on the fringes of his worst nightmares. He opines below on how to prevent a coming economic depression.

“Somebody has to spend more than their income, and, for the time being, that has to be the government,” says Krugman.

Of course when a Republican was in office and the deficit was large, Krugman considered this wasteful. With a Democrat in office, his thinking has….evolved. Now a country that prints its own currency can pretty much spend what it likes. He also espoused some fascinating views on how much of a national GDP governmental spending could constitute. He was asked this on CNBC and didn’t seem to appreciate the querry.

But after persistent and aggressive questioning from both Kernen and CNBC’s Michelle Caruso-Cabrera, Krugman seemed offer 50 percent as a number that would be an acceptable amount of government spending as a percentage of GDP.

At this point an exercise in simple arithmetic suggests that any nation breaking even on its balance of trade would have to tax 100% of its private sector value production in order to balance this size of government with adequate revenues. That would be the 100-100-100 Plan that replicates what would happen if Herman Cain and Nancy Pelosi ever submitted a joint tax reform proposal.

Given a $14Tr US GDP, Krugman is implying a year in which the government executed $7Tr in expenditures. With no change in revenues from recent years Krugman is advocating a $4.5Tr annual deficit. He opines this will prevent a depression. That a tenured professor at MIT who writes a widely-flogged column for the NYT actually believes this is the case depresses me to the point that I need another Gin and Tonic.

Keynesians have learned nothing from the dominoes falling in Greece, Spain, Italy, et al. They have honed in on the exceptional case of Japan so that they could ignore the preponderance of data from most of the rest of the developed world. Dr. Krugman remains trapped in karma’s infinite loop. It’s time for someone to either hit CTRL-ALT-DEL or pull the plug.

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