Help me out here, people, because I really want to get to the bottom of this. I’ve been trying to see the world from Nobel-Prize-winner Paul Krugman’s perspective for months now, and I’m coming to the conclusion that either I am not sufficiently imaginative or Krugman has a screw loose.
First, last week Krugman predicted the end of the world if Republicans took control of the House of Representatives on November 2: “Be afraid. Be very afraid.” But we can chalk that up to partisan silliness; anyone who reads Krugman knows he is a shill for Democrats.
What I can’t really figure out is the incredible statements about public debt he routinely makes. I think I get (although I disagree with) the basic Keynesian argument about the utility of government deficit spending to “prime the pump” when the economy is in a recession. But there are two things about Krugman’s usage of this argument that astound me. Both of them are on display in his most recent New York Times column.
First, Krugman acts as though the U.S. government hasn’t really gotten serious about attacking the recession via deficit spending. Where has he been since the summer of 2008? The last three years we have had deficits well over a trillion dollars annually, and we’re closing in on an on-budget public debt of $14 trillion. If this isn’t serious Keynesianism, what is? Krugman appears to think that if you haven’t gotten the economic results you want yet, all you have to do is borrow and spend more, more, more. As long as creditors are willing to lend, the sky is the limit. Does this really strike anyone as a reasonable proposition?
The second thing I don’t get, and this may be a contributing factor to the first one, is that Krugman appears to think that all debt is created equal: “one person’s debt is another person’s asset.” The economy is a zero-sum proposition. At any given moment in time, this might be true, but Krugman doesn’t seem to take into account what any normal person knows: easy access to credit tempts people to be stupid and destroy wealth.
Here’s an example. I borrow $10,000 dollars and use it to throw a big party for all my friends. I hire a caterer and a live band, and everybody has a great time for a few hours. The way Krugman frames his argument, it appears that he thinks my party will have exactly the same economic impact as if I had used that $10,000 to expand my business or do R&D on a new productivity tool. But it seems evident (to me at least) that the first activity results in a net destruction of wealth, whereas the second results in a net production of wealth.
The lion’s share of the borrowing done in this country over the last few years has gone towards the first kind of consumption: McMansions and the like, or what the Austrian economists call malinvestments.When we went too far in that direction, we ended up with a crisis. But Krugman doesn’t recognize any of that, and now that it’s time to deal with that reality, all he can do is denounce those who disagree with him as “debt moralizers.”
I really hope that Bob Murphy’s project to raise money for charity to persuade Krugman to debate him works out. It might help me figure out why I can’t seem to see the world from his perspective.