Keynesian

 

From The Daily Bell is another rant on the economics of Paul Krugman and his like:

Krugman: Last Gasp of the Hamiltonians?

Wednesday, January 04, 2012 – by Staff Report

Alexander Hamilton

Nobody Understands Debt … In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit. This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people inD.C. talk about deficits and debt, by and large they have no idea what they’re talking about – and the people who talk the most understand the least. – NYTimes/Paul Krugman

Dominant Social Theme: We can borrow our way to prosperity.

Free-Market Analysis: Paul Krugman is at it again, defending the socialist economics of John Maynard Keynesagainst the common sense of normal people. Nobody understands debt, he writes, except of course for … him. Krugman.

He understands it so well that he is convinced that nations can borrow their way to prosperity. Krugman, who evidently doesn’t like people, prefers to deal in abstracts like “nations” – as if nations are not actually composed of people. Krugman sees only the broadest picture.

Generally, Krugman, the winner of the faux Nobel Prize for Economics, is not much enamored Continue reading »

 

The folly and nonsense that is Paul Krugman appears to be unbounded. He does not understand, or at least rants as if he doesn’t, the basic principles of economics. But elementary mathematics comes into play when countries are tapped out. Europe and the US are essentially insolvent. Like Blanche du Bois, both stagger forward only on the kindness of strangers and the profligacy of central banks. Unfortunately the limits of both benefactors has about been reached.

Pater Tenebrarum has a devastating intellectual takedown of Mr. Krugman as well as an outstanding Austrian economic analysis of the current problems.

An example of the first is this paragraph (there are many more):

No-one should be particularly surprised that Krugman once again asserts that government is ‘not spending enough’ – that has been his song and dance seemingly forever. We say ‘seemingly’ mainly because he sotto voce condemned government spending when the previous administration engaged in it. So the Keynesian advice on deficit spending seems only applicable when the administration is not a Republican one. However, we don’t want to quibble too much over Krugman’s inconsistencies, which are in the main a result of his occupation as a political hack. We are here to quibble with his economics. As regards the Nobel Prize, it is routinely handed to people in support of interventionism and statism, so we think of it rather as a contrary indicator these days. Some good economists may occasionally receive a Nobel prize, but receiving the prize is not per se proof positive that the recipient is a good economist – it is more likely to signify that the recipient is considered palatable to the welfare/warfare state establishment.

Discussing Mr. Krugman’s “more government spending,” Mr. Tenebrarum dissects his logic, showing it to be faulty, and concludes:

… there can be no increase in ‘aggregate spending’ achieved in this manner [more government spending], since the only way the government can spend more is by either raising taxes or borrowing the money. In both cases the private sector’s ability to spend and invest is curtailed to the exact same extent to which the government’s spending power is increased. The third method is to inflate the money supply further (in reality a mixture of all these methods has been and continues to be employed). This is even worse, as it brings about all the attendant effects of inflation. In an economy that is already severely impaired by successive episodes of credit booms and the capital consumption they have engendered, this inflationary policy can at best bring a short term flare-up of economic activity that delays the slump but only makes it worse in the end, as even more scarce capital is malinvested and wasted.

In the process of analysis, Tenebrarum refers and applies Austrian economic reasoning and logic. He cites both Henry Hazlitt and Ludwig von Mises in his analysis, including this quote from von Mises:

“Now, the irredeemable perpetual public debt presupposes the stability of purchasing power. Although the state and its compulsion may be eternal, the interest paid on the public debt could be eternal only if based on a standard of unchanging value. In this form the investor who for security’s sake shuns the market, entrepreneurship, and investment in free enterprise and prefers government bonds is faced again with the problem of the changeability of all human affairs. He discovers that in the frame of a market society there is no room left for wealth not dependent upon the market. His endeavors to find an inexhaustible source of income fail.

There are in this world no such things as stability and security and no human endeavors are powerful enough to bring them about. There is in the social system of the market society no other means of acquiring wealth and of preserving it than successful service to the consumers. The state is, of course, in a position to exact payments from its subjects and to borrow funds. However, even the most ruthless government in the long run is not able to defy the  laws determining human life and action.

If the government uses the sums borrowed for investment in those lines in which they best serve the wants of the consumers, and if it succeeds in these entrepreneurial activities in free and equal competition with all private entrepreneurs, it is in the same position as any other businessman; it can pay interest because it has made surpluses. But if the government invests funds unsuccessfully and no surplus results, or if it spends the money  for current expenditure, the capital borrowed shrinks or disappears entirely, and no source is opened from which interest and principal could be paid. Then taxing the people is the only method available for complying with the articles of the credit contract. In asking taxes for such payments the government makes the citizens answerable for money squandered in the past. The taxes paid are not compensated by any present service rendered by the government’s apparatus.

The government pays interest on capital which has been consumed and no longer exists. The treasury is burdened with the unfortunate results of past policies.”

For those who want to be able to understand why the ravings of Paul Krugman are wrong, this analysis is excellent. Ditto for its Austrian analysis of the economic problems.

I encourage you to read this article.

 

Our economic problems rightfully dominate the news. However, they are merely symptoms of a bigger, underlying problem — government.

Government is never a solution. It is always the source of the problem(s).

For many, the previous paragraph is heresy. They “know” that government is necessary and good. They “know” that government solves problems and brings order to the chaos that would prevail in its absence.  “They” are wrong!

Government has become little more than a carefully-crafted myth based on propaganda disseminated by government itself. It has devolved into a scheme of plunder whereby the elites plunder the masses.

It did not start that way, at least not so egregiously. Government transmogrified into a vicious predator, preying on the wealth of the productive to enrich the political class and their cronies. It is no longer a force for good, but for evil. It has turned into the biggest criminal enterprise known to man.

This quote from Albert J. Nock is eight decades old, but appropriately describes what passes for government in Washington, DC today:

Taking the State wherever found, striking into its history at any point, one sees no way to differentiate the activities of its founders, administrators and beneficiaries from those of a professional-criminal class

Americans have always viewed government skeptically. The vast majority of people still believe government is necessary. They also believe government is a potential, if not actual, evil because of its monopoly on power. Our Founding Fathers were explicit regarding this potential. George Washington described government as follows:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

A carefully crafted Constitution was drawn up to contain government and its power. Over time it was effectively demolished. With it went most limitations on government.

The Need For Government

The myth of government rests on two key assumptions — government is necessary and beneficial. Both are supported via the State’s propaganda machine. Few citizens recognize government as a predator enriching Continue reading »

 

The talking heads on CNBC this morning are excited about the ECB rate cut. I assume it is because they are paid to generate viewership, although ignorance and/or stupidity should never be ruled out as an alternative or joint hypothesis.

Jim Cramer is one of several who believes this rate reduction improves the outlook. Soaring markets seem to agree with his position. But nothing of substance has changed. The underlying economic problems of Greece, the other PIIGS, Europe or the US for that matter have not been addressed. Today’s market euphoria is akin to celebrating the provision of more alcohol to an alcoholic. Temporary pleasure has been purchased at the cost of worse suffering ahead. The hangover from hell has been deferred, not avoided.

Michael Krieger interpreted the action properly:

Nothing has changed and absolutely nothing has been accomplished.  There is no “solution” to the crisis that will not result in massive pain, confusion and wealth decimation.  The reason is patently obvious.  At least half the continent is completely and helplessly bankrupt.  There are only two outcomes to the entire situation.  Either the sovereign debts are written off aggressively and the banking system declared insolvent and restructured or the ECB decides to turn on those printing presses to the tune of trillions and destroys the purchasing power of the union in Zimbabwe-like fashion.

The belief that more credit will solve problems created by too much credit qualifies Continue reading »

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