Krugman had this piece last week. I can always tell when he writes something new, because the blog receives a spike of hits on prior Krugman pieces; notably Paul Krugman, Keynesian Idiot parts One, Two, Three, and Four. For easily discernable reasons, there are people every day going to search engines and typing in “Paul Krugman is an idiot” or some minor variation thereof.
We’re coming up on the second anniversary of my piece “Myths of Austerity“, in which I tried to knock down the simply insane conventional wisdom then gelling among Very Serious People. Intellectually it was, I think I can say without false modesty, a huge win; I (and those of like mind) have been right about everything.
Um, yeah… We’ll go back to that. However, his “huge win” is the kind that Mohammed Saeed al-Sahhaf is famous for trumpeting.
But I had no success in deflecting the terrible wrong turn in policy. Moreover, as far as I can tell none of the people responsible for that wrong turn has paid any price, not even in reputation; they’re still regarded as Very Serious, treated with great deference. And the political tendency behind that terrible economic analysis has at least a 50% chance of triumphing in America.
That’s because austerity works. The idea is to not spend more than you have, more than you take in, and definitely don’t spend more than you’re worth. If you continually deficit spend, you’re just maxing out credit cards. Well, eventually you run out of credit. This is happening for the PIIGS right now.
It’s also happened at the state level inside the US. And you know what? An objective look at Wisconsin shows that it works. Look at any state that reduces taxes and fosters growth and eliminates barriers to entry and you’ll see it. North Dakota’s energy boom, Michigan’s increase in the film industry (since they cut taxes for movies… sadly they’re too dumb to cut taxes for everything), and Texas’ overall economy shows it again and again.
Krugman finishes up his “anniversary” piece with more stupid:
Meanwhile, Ed Balls — who I gather was nearly forced out of a leadership position by the Very Serious members of the Labour Party — has been right all along, and now has a great term for the failed policy prescription: since it was advocated by Cameron, Merkel, and Sarkozy, he calls it “Camerkozy” economics. Well done.
Yeah, about that. The Balls piece here says “austerity has failed, we must go for growth”:
I warned in my Bloomberg speech nearly two years ago that a global hurricane was brewing; and that before economic recovery had been secured, a premature rush to austerity — led by Britain’s new Chancellor — risked tipping Britain and the world back into recession.
Britain is now in that double-dip recession. Other countries are bound to follow. And the global hurricane I forecast is well and truly upon us. There is now a real risk of the global economic recovery being swept away. So what should world leaders do?
Oh noes, socialism failed. That’s never happened before.
First, the eurozone must admit that muddling through, patching up bank vulnerabilities, country by country, while sticking to the ideology of austerity has failed and is now building to a catastrophe.
This is stupid on so many levels. No, Europe hasn’t stuck to austerity. His very next point shows it.
The eurozone countries — above all, Germany — must face up to the economic and political logic of the single currency they have signed up to: that they stand or fall together and must do whatever it takes to support any and all of its members in difficulty. That means a recapitalisation of troubled banks and the European Central Bank able to act — like the Bank of England can in Britain — as a lender of last resort to support banks and countries in the euro area.
You know what happens when you’re “recapitalising troubled banks”? You’re giving them money they shouldn’t have. You’re bailing out nations that shouldn’t be bailed out. You’re doing the exact opposite of austerity. Austerity means let them fail. It means let them suffer the consequences of their actions, let them learn from their mistakes, let them go bankrupt and reorganize and rebuild themselves into a streamlined model of a nation-state that doesn’t outspend its own resources.
You know what else Germany doesn’t have to do? They don’t have to bail you out, stall for time, and fall with you. They can ditch the Euro and go back to the Mark.
Being the “lender of last resort” should tell you something – that your system has failed so much you’re down to your last resort. Maybe you should reconsider what got you there, rather than just continue on that foolish path.
As long as that doubt remains, market confidence will not be restored and this crisis will not be resolved. That deep uncertainty is why last weekend’s bail-out of Spanish banks has not restored market confidence. And it is why, without a proper firewall to stop contagion spreading to other troubled economies such as Spain and Italy, a disorderly Greek exit would be catastrophic not only for Greece but for the rest of Europe and the world economy.
That doubt remains because they were bailed out, not in spite of it, you orally flatulent twits!
If your neighbor goes bankrupt, you don’t keep giving him money until you have none. He never learns his lesson, he spends you into the poor house with him. The global marketplace knows that you idiot Keynesians just want to keep giving money to junkies. The global marketplace and the “bond vigilantes” that Krugman laments in his old column don’t want to deal with you. Every single time that you bail something out and try to “stop contagion”, you’re doing nothing of the sort. Greece’s problem is they spent money they didn’t have, so your solution, Balls and Krugman, is to give them more money they don’t have? You don’t see why the market wouldn’t feel confident in a junkie’s ability to reform?
This is gas on the fire, not a firewall.
There is no easy option for Greece, given its problems. Difficult reforms are vital. But how can an austerity plan — which has seen recession turn into depression, youth unemployment soar to more than 50 per cent, the economy shrink by six per cent in the last year alone and the national debt grow further — be seen as a success? As even the credit rating agencies now recognise, as Standard and Poor’s puts it, that “austerity alone risks becoming self-defeating”.
The irony is that yesterday’s vote now allows eurozone leaders to do what they should have done before. They must now revise the Greek bailout agreement if it is to have any chance of economic success or lasting political support.
Apparently the global supply of stupid is pretty high, because Balls and Krugman are both well-equipped.
Greece will not reform if you throw money at it. Greece has a governmental structure set up to spend spend spend, and it will do so again until it runs out of money again. Margaret Thatcher famously said “Socialism works well until you run out of other people’s money.” Krugman and Balls are screaming “we need more money so it can work!”
The systemic failure of the socialist welfare state is what’s self defeating. Austerity measures will result in that system collapsing, and that’s the only solution to it. Throwing more money at it just means everyone involved will collapse with it. There’s a reason that socialist welfare state economies are imploding basketcases. More bailouts just prolong failure and kick the can down the road. Kicking the can, to the Keynesian, is seen as proof that things are going well again… and when they immediately fail as the stimulus wears off, they need their next hit.
Second, we need a global growth plan. President Obama and new French President Hollande are right to argue for action now to stimulate economic growth and employment, as part of tough medium-term plans to get deficits down. They deserve support from every world leader. So why is our Prime Minister unable to join them in trying to persuade German Chancellor Angela Merkel to change course? Because he has spent the past two years championing the very German-led austerity policies which are not working across the eurozone or in Britain.
The consensus of the past two years between David Cameron, Angela Merkel and former French President Sarkozy — “Camerkozy” economics — has been horribly exposed. Tough decisions on tax and spending are needed but if every country cuts at reckless speed at the same time, the world will risk tipping back into recession, and it will be harder to bring deficits and debts down.
Obama and Hollande are both socialists. They’re both economically inept schmucks who think that taking money from taxpayers and throwing it around is the best way to stimulate an economy. They believe that visible things like public works projects will somehow save the world, taken by the force of the government’s gun from the private sector which would’ve spent that money in a productive manner.
Taking money from a small business owner, be it a small IT company, a gun shop, or a vinyard, whatever it may be, and lumping their resources together to throw money at failed European states hurts those otherwise productive businesses inside the US (and France, and any other nation that is forced to pay bailouts by its political leaders) and merely reinforces the idiotic behavior that got the failures where they are. It subsidizes and endorses failure.
Back to Krugman’s piece that he’s celebrating the anniversary of:
For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.
Okay, let’s make this simple. Click and read.
Stimulus does not work. It cannot work. It rewards failure, the friends of politicians, takes money from the taxpayer for needless expenses, and props up failures.
You don’t cure depression by maintaining failure. You cure depression through success.
But don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”
Krugman, you’re an idiot. Trichet is correct.
Spending cuts will only hurt the recipients of government largesse. And the “confidence fairy” will not take the pain away. Trichet never said there wouldn’t be pain (at least not as quoted). There will be. But the ultimate result will be increased confidence in the marketplace, and knowledge that stable governments will quit screwing with monetary policy and leave the market to take care of itself – that will lead to confidence and reduction in uncertainty. It will lead to the knowledge that failing companies need fo reorganize or die, not start lobbying for bailouts. It will lead to recovery. And it will be painful for a time, but it will end.
And current examples of austerity are anything but encouraging. Ireland has been a good soldier in this crisis, grimly implementing savage spending cuts. Its reward has been a Depression-level slump — and financial markets continue to treat it as a serious default risk. Other good soldiers, like Latvia and Estonia, have done even worse — and all three nations have, believe it or not, had worse slumps in output and employment than Iceland, which was forced by the sheer scale of its financial crisis to adopt less orthodox policies.
Now, I’ll be the first to admit that I don’t know as many specifics about these national examples as a serious economist does. Being that Krugman is not a serious economist, and instead is a mindless big government deficit spending bailout-supporting junkie-enabling Keynesian idiot, I’ll hazard a guess as to why some of these issues continue to persist.
With a quick search, Ireland is beset by Keynesian idiocy:
It is hardly surprising that “austerity” is unpopular. It is nothing other than a transfer of incomes from labour and the poor to capital and the rich. One of the greatest fallacies of the current crisis is that “there is no money left”. This is wholly untrue. Companies are sitting on cash mountains all across Europe. And the profit share of national income has risen. This is why stock markets are rising – corporate incomes (profits) are rising.
All recent history suggests that Irish voters will come under intense pressure to vote yes. They will be accused of wrecking the euro if they vote no, and that all sorts of calamities will follow.
But those wrecking the European economy and potentially the euro are the politicians who allow capital to flow freely within the eurozone when it is allocated by bondholders, and refuse to allow the state to reallocate capital on the basis of what is economically rational.
Yeah, they’re pretty much beset by Keynesian idiots on all sides. Makes it difficult to stop spending taxpayer money when you’ve got idiots arguing that by giving everyone cuts, you’re engaging in “transfer of incomes from labour and the poor to capital and the rich”. Did they learn nothing from Hazlitt? Or, more likely, they never read his work
So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.
Parse away. You’ll find that it’s got a rock solid foundation of how you need to have money to spend it, and spending money you don’t have on things someone else wants for you doesn’t work. The “bond vigilantes” crap is just the market moving within the constraints established by governments. There is no “confidence fairy”. Is this more of that “animal spirits” magic? Do Keynesians really rely on totems or something?
A policy that blights millions is their government taxing the individual to redistribute their money into failing programs. That the programs fail and the blame is shifted from government to “the rich” or “bond vigilantes” or anyone else is the the government doing just that – shifting blame.
What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.
– Adam Smith
Governments have taxed their citizens and forced the citizens whom the government is supposed to serve into the untenable position of having to pay for failures. Governments have overspent money in the interests of political social programs that ultimately fail.
This is the equivalent of a father of a family taking on great debt to pay for his delinquent junkie son’s habit. His daughter and wife suffer while the son continues to enjoy his handouts, all in the name of “helping” him. Then the neighbor asks the father to help out with his mortgage, so the father takes on more debt and overspends is his income bailing out his neighbor. His own daughter and wife suffer, and his son continues to be a junkie because his actions are enabled and supported by the father. Ultimately, there is not enough money for the father to keep up his payments unless he starts begging for help from other neighbors (nations), or taking from his daughter’s allowance and his wife’s income (taxation). Pretty soon, no one has any money – the junkie still wants more, and the father is obligated to help pay for his neighbor.
If the father is forced to stop spending when the daughter and wife say “no more”, and the neighbor he tries to borrow from says the same, the father will have to correct his ways or simply collapse. Either way, the daughter, wife, and even son will benefit as the daughter and wife are free to earn their livings and the son is free of his enabler and is forced to change his life.
There is no confidence fairy, and the idiocy that has been spouted since the General Theory was put out is still as idiotic on Krugman’s self-congratulatory one-handed anniversary as it was the day Keynes crapped it out. Though I should give Keynes an iota of credit – even he noted that in a nation with systemic debt and deficit spending that you can’t engage in bailouts for the very reasons discussed above.