Someone in the mainstream media is finally saying it. Yes, Paul Krugman, shut up!"
From the UK Telegraph:
Sorry, a bit late on this one, but I see old Kruggers, Nobel prize winner and New York Times columnist, is at it again. Not content to lecture his own country’s administration about how they are not spending enough, Professor Krugman lambasts Britain’s coalition government in his latest column for its deficit reduction plan, which he reckons will condemn the UK to a depression.
Here’s a taste: “What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it”.
Good stuff, and who knows? Maybe he’s right. Yet the idea that you can more or less indefinitely keep putting off deficit reduction until the economy is firing on all cylinders again just looks like an excuse to me for continuing to spend at unaffordable levels. He accuses the Tories of being “ideological” in their single minded pursuit of deficit reduction, and of using the crisis to dismantle the welfare state, yet he conveniently skirts around the underlying issue, which is in essence that the country can no longer afford this expenditure.
Sorry, Paul. You can't print your way to prosperity. Perhaps that is why you are in academia and not in the real world. There comes a time when the access for money printing has to come out of the system.
The striking thing about my last two visits to the US is just how worried by the deficit most Americans are. Indeed they are ashamed by it, and rightly take the view that unless it is tackled soon, it will seriously undermine America’s long term economic prospects, not to mention its positions in the world. Obama’s failure to realise this, and to continue to force a minority liberal agenda down everyone’s throat, is the reason he’s lost the plot. To restore his presidency, he needs to move towards the centre, and that includes the construction of a robust deficit reduction plan that begins with dispatch.
Professor Krugman suggests that Britain has nothing to fear from excessive public debt, which is still as things stand below its long run historical average. He’s technically right about this, but like a lot of statistics used to support a particular, ideological position, it’s completely meaningless. Looking at the path of UK public debt as a percentage of GDP, there have indeed been quite long periods when it has been much higher than it is now, but these periods mainly coincided with prolonged and all embracing war – first the Napoleonic wars, then later the Boer war and the first world war. Britain had barely recovered from the financial consequences of the first world war by the time the second world war hit.
Bingo. Surprisingly, Krugman is (and this is typical of Kensian economists) clueless about the significant destruction of monetary inflation. There is no economic nirvana where every business wins. At least not in capitalism or with nation states. Such money printing only leads to eventual economic chaos and then war. To quote Marc Faber: "The will print, they will print, they will print....and then there will be war."