Home > Deficit, Keynesian Economics, Krugman > Got to love the British, “Will someone please shut Krugman up!”

Got to love the British, “Will someone please shut Krugman up!”

It’s nice to see that even across the pond people realize that Krugman doesn’t know what he is talking about.

Sorry, a bit late on this one, but I see old Kruggers, Nobel prize winner and New York Times columnist, is at it again. Not content to lecture his own country’s administration about how they are not spending enough, Professor Krugman lambasts Britain’s coalition government in his latest column for its deficit reduction plan, which he reckons will condemn the UK to a depression.

Here’s a taste: “What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it”.

Good stuff, and who knows? Maybe he’s right. Yet the idea that you can more or less indefinitely keep putting off deficit reduction until the economy is firing on all cylinders again just looks like an excuse to me for continuing to spend at unaffordable levels. He accuses the Tories of being “ideological” in their single minded pursuit of deficit reduction, and of using the crisis to dismantle the welfare state, yet he conveniently skirts around the underlying issue, which is in essence that the country can no longer afford this expenditure.

This is the problem with the welfare state, it can’t afford itself. Hell even the Swedish figured that out.(This is from a far leftist writer)

There is virtually no opposition to this dismantling of the Swedish welfare state in the mainstream Swedish political system. One party in Sweden – The Left Party – has in the past rejected at least some of this path that Sweden is taking. But the Social Democrats have refused to even consider entering into a deal with them unless they water down their principles and accept that Sweden “has to” carry out even more more major public spending cuts – which the Left Party have more or less agreed to. Social Democrat leader Mona Sahlin calls this “responsible economics”. What she means however, is that perpetual large cuts to public spending are responsible to the needs of capital and big business in Sweden, not to the social and economic needs of Swedish people.

Now back to the Brits.

Professor Krugman suggests that Britain has nothing to fear from excessive public debt, which is still as things stand below its long run historical average. He’s technically right about this, but like a lot of statistics used to support a particular, ideological position, it’s completely meaningless. Looking at the path of UK public debt as a percentage of GDP, there have indeed been quite long periods when it has been much higher than it is now, but these periods mainly coincided with prolonged and all embracing war – first the Napoleonic wars, then later the Boer war and the first world war. Britain had barely recovered from the financial consequences of the first world war by the time the second world war hit.

The big point missed by those who think elevated public debt doesn’t matter is that these periods of excessive debt utterly crippled the UK economy. Indeed, Britain’s decline through the twentieth century as an economic superpower directly correlates with increased indebtedness. Fighting wars is not good for economic health

  1. October 26, 2010 at 11:45

    Not sure about Britain, but didn’t the period of excessive debt known as WWII lift the US out of the Great Depression and into the boom years of 1947-1973? I’m not exactly pro-war (quite the contrary!), but it does not seem always and everywhere the case that “fighting wars is not good for economic health.”

    • October 26, 2010 at 19:26

      No the war didn’t get us out of the GD. That is a common fallacy usually from those that want to think that it did. You can’t depend on GDP statistics because of the massive price controls over the economy at the time. I mean can you expect the government to pay the “market price” for a tank? How much is an artillery shell really worth? They simply made numbers up that looked good politically. Even then the numbers were depressing. Really can you call forced conscription the same as zero unemployment? If so then slavery is the answer for every recession, but I think you know how foolish that would be.

      Here’s an article that sums up why the war didn’t end the depression.
      War Prosperity? A Reassessment of the US Economy in the 1940s

      • yttik
        October 27, 2010 at 09:25

        In a way WW11 helped to stimulate the economy. It sparked a lot of innovation and investment from the private sector. People wanted to invest in new companies, believing if they invented a good product, it could also be marketed to the military. So many of the things we enjoy today were actually created by American ingenuity that was sparked by a desire to help with the war effort and to make a profit doing it.

        There was also this idea coming from government that a financially strong and prosperous America was directly connected to our national security. Debt was not encouraged during WW11, we were supposed to be frugal and ration our expenses very carefully.

        It was almost the opposite of what we have today. Today we are encouraged to create debt and the wars are viewed as shameful things not worthy of a war effort. The private sector is also viewed as bad, as greedy and evil.

  2. October 26, 2010 at 14:09

    I’ve been amazed for years how long Krugman has worn the emperor’s new clothes and few seemed to notice. Great to see someone calling him out. I never paid much attention to the hack. From the first time I read him years ago I found it hard just to get past the first or second straw man. Sometimes I’d make it to the absurd reasoning, but very rarely.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: