Here are typical and recurrent thoughts from two of the more prominent advocates of the preeminence of government in their unwavering belief that what is needed is not just more government intervention but “neutron bomb” more in the form of unlimited government spending.
I am placing this post online with links to the relevant articles and related excerpts as well as with the empirical evidence that shows that both Krugman (Nobel laureate) and Evans Pritchard are demonstrably wrong. No PhDs required to look at the charts and draw conclusions.
I will provide commentary at a later stage just because Krugman’s opinion deserves it. I just need to gather my thoughts so I won’t come across as some deranged hysterical crank.
(It is now later in the day since I posted this blog and am now going add my comments at the bottom of Krugman’s article excerpts)
“[…] it’s both instructive and discouraging to look at the state of America circa 1938 — instructive because the nature of the recovery that followed refutes the arguments dominating today’s public debate, discouraging because it’s hard to see anything like the miracle of the 1940s happening again. Now, we weren’t supposed to find ourselves replaying the late 1930s. President Obama’s economists promised not to repeat the mistakes of 1937, when F.D.R. pulled back fiscal stimulus too soon. But by making his program too small and too short-lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment — and now it’s fading out. […] The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion. […]
Then came the war.
From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. […] But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits. […] The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses. […]
“Get a grip, the lot of you. While there is no easy way out for the US after stealing so much prosperity from the future through debt, there is no excuse for this dead-end defeatism. Clearly, the ‘canonical New Keynesian’ model that holds such sway on America’s elites is intellectually exhausted.
The Fed has an arsenal of neutron bombs if it wants to use them, and uses them correctly. It can engage in “monetary policy a l’outrance” as Maynard Keynes propsed in his Treatise on Money in 1930, before he lost his way with the General Theory.
Blitz the market with bond purchases, but do so outside the banking system by buying from insurers, pension funds, and the public.”
Guido’s comments posted some time after this blog went online.
I have observations at several levels of Mr. Krugman’s opinion. For openers, and considering my contention, I find it interesting Mr. Krugman should mention WWII and the similarities of the socio/economic/political juncture of today. But I find it appalling that he should think that “[…]it’s hard to see anything like the miracle of the 1940s happening again.” So the global devastation and loss of life brought about by war during the 40s was a miracle? If Mr. Krugman had any degree of attachment to reality feeble though it may have been, he now has obviously totally lost it and is adrift in a universe of purely subjective values and aberrant half truths. Just for starters, how can human action born of human intention ever come to be classified as a miracle? And how is the loss of untold millions human lives and the concomitant devastation of the land and cities a miracle?
I’m not a religious person. But; my God. Somebody stop this man.
Mr. Krugman goes on to use WWII as a means to leverage his argument. Essentially, Mr. K feels that compared to the 40s, government today did not spend enough money. Mr. K tells us that all would be well if only Mr. Obama just let rip and instead of pfaffing about with spending Trillions in the low single digits as he’s done to date, he took a page out of the WWII playbook and threw Trillions in the range of twice GDP at the economy – i.e. $30Trillions or thereabouts.
Mr. K is either blissfully unaware or is purposely omitting to remark the concomitant circumstances that went with WWII US deficit spending. That is; the male population was enlisted and sent to the front, women were hired in industry and commerce, and civilian industry was turned to war industry producing ships, planes, tanks, guns and ammo – production that was immediately absorbed and spent resulting not only in total capacity utilization at home but also bringing about the destruction of global industrial capacity. In the meantime, war was wasting men, women and children and devastating agricultural land and fishing grounds around the world.
If you are a reader of this blog, you will know that today there is sufficient evidence to prove that the US administration of the time was aware of the Japanese plan to attack Pearl Harbor. The reason the attack was allowed to proceed is because at the time the USA were still reeling from the effects of the Great Depression with no obvious way to overcome the ramifications of the debt overhang that afflicted the economy since 1929. Something was needed to once again re-ignite inflation. War was just the ticket not so much because it would galvanize local markets and industry but because by obliterating the rest of the world’s industrial capacity and infrastructure, the USA emerged as the de facto single industrial power left standing. As such, the USA were once again free to expand the credit markets because the new inflation could now be pushed into new markets in Europe and in Asia. Thus US industry and credit markets were jump started as the US began to supply the rest of the world with everything from the most basic necessities to the Marshall Plan, technology, armaments and consumer goods.
That is the empirical truth of WWII.
Krugman either naively or intentionally omits to indicate the circumstance that allowed the USA to go ballistic on government spending. Even worse, Mr. Krugman omits to say that the excess credit creation of the 40s and the 50s, led us directly to 1970 and the abrogation of Bretton Woods. WWII deficit spending did not solve a problem. It just postponed it and made it bigger and much more dangerous. As our leaders abrogated Bretton Woods and as Nixon stopped gold convertibility by pushing the US$ as reserve currency unto all other countries, the problem was postponed yet again and made much bigger. The creation of the Euro and the push for globalization was just more of the same.
Today, the Bank of International Settlements estimates global outstanding obligations at US$600Trillion – that’s Six Hundred Trillion US Dollars. By comparison, global GDP is hovering in the range of US$50Trillion and dropping very fast.
The following charts highlight the reason Mr. Krugman is demonstrably wrong. Either he is wrong or he is on a mission.
However, considering that our governments at the behest of a restricted band of banks have deliberately imposed a fiat monetary system upon society, the inescapable truth is that government must always and everywhere preach more debt and more spending regardless the juncture. In this respect, government needs minions to express “learned” opinions. Mr. Krugman Noble laureate that he is, is a government propagandist. There cannot be any other explanation to what is clearly laid out in the charts below.
M3 is no longer published. In terms of official data, we have to make do with M2 but the message does not change. The year-on-year growth of money supply chugs along in the double digits…. Since 1980 for example, money supply increased by well over 1000%