The Burning Platform
Guest Post: Krugman’s Adventures In Fairyland
Submitted by William L Anderson of The Ludwig von Mises Institute,
After studying and teaching Keynesian economics for 30 years, I conclude that the “sophisticated” Keynesians really do believe in magic and fairy dust. Lots of fairy dust. It may seem odd that this Austrian economist refers to fairies, but I got the term from Paul Krugman.
According to Krugman, too many people place false hopes in what he calls the “Confidence Fairy,” a creature created as a retort to economist Robert Higgs’s concept of “regime uncertainty.” Higgs coined that expression in a 1997 paper on the Great Depression in which he claimed that uncertainty caused by the policies of Franklin Roosevelt’s New Deal was a major factor in the Great Depression being so very, very long.
Nonsense, writes Krugman. Investors are not waiting for governments to “get their financial houses in order” and protect private property. Instead, he claims, investors are waiting for governments to spend in order to create enough “aggregate demand” in the economy to bring about new investments and, one hopes, full employment.
According to Higgs, the “humor columnist for the New York Times, Paul Krugman, has recently taken to defending his vulgar Keynesianism against its critics by accusing them of making arguments that rely on the existence of a ‘confidence fairy.’ By this mockery,” Higgs says, “Krugman seeks to dismiss the critics as unscientific blockheads, in contrast to his own supreme status as a Nobel Prize-winning economic scientist.”
It seems, however, that Krugman and the Keynesians have manufactured some fairies of their own: the Debt Fairy and the Inflation Fairy. These two creatures may not carry bags of fairy dust, but they might as well, given that their “tools” of using government debt and printing money to “revitalize” the economy have the same scientific credibility.
Let us first examine the Debt Fairy. According to the Keynesians, the U.S. economy (as well as the economies of Europe and Japan) languishes in a “liquidity trap.” This is a condition in which interest rates are near-zero and people hoard money instead of spending it. Lowering interest rates obviously won’t spur more business borrowing, so it is up to the government to take advantage of the low rates and borrow (and borrow).
If governments issue enough debt, argue Debt Fairy True Believers, the economy will gain “traction” as government spending, through the power of pixie dust, fuels a recovery. Governments spend, businesses magically gain confidence, and then they spend and invest. (At this point, we are apparently supposed to just overlook the fact that the Keynesians are saying that we need the Debt Fairy to resurrect the Keynesian version of the Confidence Fairy.)
The Inflation Fairy also plays an important role, according to Keynesians, for if bona fide inflation can take hold in the economy and people watch their money lose value, then they will spend more of their savings. In turn, this destruction of savings will, through the power of Keynesian sorcery, revive the economy. Thus inflation undermines what Keynesians call the “Paradox of Thrift,” a theory that says if a lot of people withhold some present consumption in order to save for future consumption, the economy quickly will implode and ultimately will slip into a Liquidity Trap in which no one will spend anything.
These fairies can work their magic if (and only if) one condition exists: factors of production are homogeneous, which means that government spending will enable all lines of production simultaneously. The actual record of the boom-and-bust cycle, however, tells a different story. It seems that the Debt and Inflation Fairies enable booms along certain lines of production (such as housing during the past decade), but as everyone knows, the fairy dust lost its magical powers and the booms collapsed into recessions.
Austrians such as Mises and Rothbard have well understood what Keynesians do not: the structures of production within an economy are heterogeneous and can be distorted by government intervention through inflation and massive borrowing. Far from being creatures that can “save” an economy, the Debt Fairy and the Inflation Fairy are the architects of economic disaster.
Despite Keynesian protestations that the U.S. and European governments are engaged in “austerity,” the twin fairies are active on both continents. The fairy dust they are sprinkling on the economy, however, is more akin to sprinkling ricin on humans. In the end, the good fairies turn into witches.
Did any of you bitches even watch the ending of teh Auburn vs Alabama game tonight? Where the hell are your priorities?
I saw the ending. Sabin blew it big time. I love seeing the mighty fall.
Spell hte right
“Investors are not waiting for governments to “get their financial houses in order” and protect private property. Instead, he claims, investors are waiting for governments to spend in order to create enough “aggregate demand” in the economy to bring about new investments and, one hopes, full employment.”
And then Government created markets and saw that it was good.
For the bureaucrat, the world is a mere object to be manipulated by him.
Read more at http://www.brainyquote.com/quotes/authors/k/karl_marx.html#GzPzhRq0cWlriis2.99
Krugman is so full of shit his Jewish eyes are brown. Currently, it takes $34 dollars of government spending to equal a $1 dollar rise in GDP. He’s revealed himself to be a liberal progressive socialist, supporting the liberal progressive socialists in currently in power. The truth doesn’t matter to them, and they can spin any amount of lies they want, because they own the MSM and boobus Obesus Americanus will believe whatever they say as long as they continue to get their free shit. We’re doomed.
In my “fantasyland”, I can never decide who I’d like to string up with piano wire first. Bernanke, Jamie Dimon, Lloyd Blankfein, the imbecile mulatto, or Krugman. Such difficult choices.
Florida State rulz, Alabama drools.
Paul Krugman is an excellent example of an intelligent and intellectual man who through out his life has been dedicated to his work and spent great effort to gain his achievement who is a total fucking moron.
High IQ morons are particularly dangerous because they can think stupid in remarkably brilliant ways and help fuck things up to a much greater extent than regular morons.
When they kill the Bankers it would probably be a good idea to get rid of Krugman too.
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