Wednesday, September 8, 2010

Paul Krugman's thought process

In Krugman's latest article in the New York Times, he states that the US should spend on the order of $30 trillion dollars in stimulus spending to leave our economic woes behind.  It is hard for me to believe that this man writes for a national newspaper... Let's take a look.

First of all, how does he come up with the proposed spending amount, $30,000,000,000?

Oh sorry, that is thirty billion.  I'll try that again:

$30,000,000,000,000

There, I got it.  He is using the total amount spent by the US on WWII.  If you are able to get past the absurdity of comparing potential stimulus for infrastructure spending to World War II... it gets more absurd:
'Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.'
So he has not chosen to adjust the actual amount of dollars spent using inflation to come up with today's dollars, he has chosen to use GDP.  Does this make sense?  Maybe to certain economists, but not to me.   So I am looking to replace my vehicle:  I made $40,000 in 1999 and I bought a truck for $38,000 so I spent roughly 1x my gross salary.  So does that mean that I should spend 1x my gross salary to replace it?  No, I actually spend $22,000 on a new SUV despite my gross income being more now.  His proposal makes no sense, but take a look further down his article, it gets yet more absurd:
'Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. '
Emphasis mine.  Get that?  The post-war boom was created by the deficit spending during the war!  It appears as though Mr. Krugman is making a bit of a leap here.  I don't think it was the spending of the money that created the demand for American industry.  Spending and production doesn't create demand.  A few microseconds of thought and we might be able to guess at what did create the demand for American industry after WWII.  Think about it:
  • it was a world war fought against Germany in Europe and Japan in the Pacific
  • lots of people died
  • Europe was destroyed with entire cities wiped off the map (Dresden, Berlin, etc.)
  • Japan was devastated by the utter destruction of 2 cities with nuclear weapons....
  • An entire generation of men from the U.K. died
  • 20-25 million Russians died...
  • No fighting or damage took place on the continental U.S.
The industrial capacity of the continent of Europe, Imperial Japan, Russia, and England was utterly destroyed while simultaneously the industrial capacity of the US experienced a total reinvigoration.   Global demand was instantly redirected wholesale to the U.S.A.  where it was efficiently supplied by the newly built and retooled factories.  That might account the 'foundation for long lasting prosperity!'

As a side note, a lot of the people who read and comment on your articles make me ill:
'I am so glad to see Dr. Krugman remind his readers of the inspiring leadership that FDR exhibited in dealing with the great depression.'
'A great and on target historical analogy.'
'After watching, reading and studying I must confess that you are the only person who has been dead on about all of your predictions.'
    I could see that reading drivel such as that might, eventually, inflate your ego enough to write such absurd thoughts and believe them.  But the NYTimes actually publishing that nonsense is probably a lot of the reason it was recently sold for one dollar.