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Treating The Economy Backwards

by John on 04/27/2012

Fair warning: I’m writing about New York Times columnist and economist Paul Krugman.  Prepare yourself for the deluge of comments: “If it comes from Krugman, it shouldn’t be read because it’s red” or “Krugman hasn’t seen a tax hike he didn’t like.”

Mention Krugman and viewers and readers swarm to your site.  There are so many examples of media bias against Krugman that he could have fathered Ann Coulter’s child and it would have been labeled as rape.  But I am sure if that happened, Krugman would have castrated himself after.  Still, I am really trying to make an informed not inflamed point here.  So, here goes.

Krugman’s column today – and most days – is about the failure of austerity.  He writes:

For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.

Let me put my protective helmet on.  Krugman is right.  “You’re a commy, Daly.” Austerity has not worked.  The recovery is tepid in the US and worse in Europe.

Where Krugman is wrong is that austerity could eventually work.  But don’t applaud me for standing up to the lefty-socialist.  Austerity would create massive destruction of assets and lives which would then allow societies to start all over again.  But it would be unbearable and, frankly, inhuman for most people and their governments.  We’re already seeing a high amount of suicides in Europe.

What’s so FUBAR about governments and politicians – on the left and the right – is they are literally backwards.  They’re reactive instead of being pro-active.

The time for austerity in the US was from 2002 until 2007.  We should have cut back drastically on government spending.  David Walker, the former Comptroller General of the US, was touring the country talking about this.  But many have never heard of David Walker.  And many who actually heard him speak, unfortunately, did nothing to heed his warnings.

Instead, the government ran up ungodly deficits on Iraq, Afghanistan, and the military because we were, dare I say it, frightened of al-Qaida and Osama bin Laden.  Still, we, as individuals, showed no fear of spending on everything.

And now we have it backwards again.  Krugman is right; the stimulus needed to be bigger.  But would Krugman – and others who follow him – find the right time to cut the stimulus and curtail spending? 

There is no evidence that the American human nature can do that.  So, I get where the Tea Party crowd and the fiscal hawks in the GOP (like there are any in the Democratic Party) are coming from.  We have never been able to turn off the spigot of government spending and the tsunami of Medicare and Social Security is not subsiding. 

Even, Greenspan was too spineless to remove the punch bowl by raising interest rates.  And we have too many special interests bribing (yes, I used that word again) our politicians who can’t help themselves: “I’m creating jobs for my constituents.”

The truth is we’re all followers of John Maynard Keynes – until we have to cut spending.

Until we get ourselves on a budget that includes cuts and investment for jobs, we will continue this cycle to our peril.  

There is a solution.  Democrats and Republicans are ignoring it.  You shouldn’t.  It’s the Bowles-Simpson plan.  Please, I will ask again, read it.

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