Krugman Says We Are In A Depression & More Gov’t Spending Is Necessary

Fischer Black and Myron Scholes won the Nobel Prize for Economics. Scholes was  involved with Long-Term Capital Management that blew up on that formula. The fund, which started operations with $1 billion of investor capital, was extremely successful in the first years, with annualized returns of over 40%. However, following the 1997 East Asian financial crisis and the Russian Financial Crises the highly leveraged fund in 1998 lost $4.6 billion in less than four months and failed, becoming one of the most prominent examples of risk potential in the investment industry that the Federal Reserve stepped in to bailout because of what they owed the banks. So a Nobel Prize is by no means an endorsement of any theory’s validity.

The Nobel winning Princeton Economist Krugman who writes for the NY Times is a highly dangerous socialist who is of the “New Economics” thinking following Marx and Keynes that government can manage the economy. He currently claims that the economy now needs all the help it can get to End This Depression Now! in his new paperback edition that has just been released with a new preface.

“The U.S. economy is recovering but slowly,” and still experiencing “depression conditions,” says Krugman. “Almost four million workers have been out of work for more than a year…we haven’t had anything like that since the ‘30s” [and]… there’s lots of unused capacity…a lot of savings that have nowhere to go.”

Krugman’s solution is MORE government spending, not less, in order to GROW the economy. I too can have a trillion dollars anytime I want. I write one check from one account to a second account for $1 trillion and my bank statement will say I am a trillionaire for a brief shining moment until it bounces. Krugman  fails to understand that government spending FAILS to stimulate the economy following a bell curve with diminishing effects BECAUSE we no longer are borrowing from ourselves but China. Krugman say: “A growing economy is the best solution to all our problems.” True, but it is the private sector that actually creates stuff that contributes to the national wealth no “public servants”. He is by no means even concerned that more government spending will lead to bigger deficits. “There is no good reason dealing with debt should be a priority today.” Krugman, goes even further saying that “the 10-year outlook for debt [in the U.S.] is not too bad.”

Krugman is still of the Marxist school and actually thinks that government jobs will grow the economy. He now suggests that the federal government should reverse state and local budget cuts in infrastructure and education. “Just undoing that would lead a long way back to full employment. It is in fact that easy.”  He is totally ignoring the tax increases at every level of government.

2013-Budget-Table

I honestly do not know what even to say. Germany is over 50% of the people working for government. He clearly sees no problem with everyone working for government and fails to understand that someone has to produce something. He is also ignoring the rising interest costs. Here is President Obama’s own official budget. This 2013 budget assumes NO rise in interest rates and interest expenditures jump from $230 billion currently to almost $1 trillion annually by 2022. If interest rates rise 1% we will see interest expenditures approach $1.5 trillion annually and 40% of that goes offshore. You better tear down the wall between the US & Mexico because we are going to need EVERY Mexican to come here to work off the books to make up for all the government jobs producing nothing – which is why they are call “public servants”. 

2013-Budget-Debt

Now look at this portion of the budget. The receipts (taxes) are at $2.3 trillion and spending is at $3.6 trillion for 2013. Look at 2022. The deficit is cut in half, but the taxes are 100% of that reduction rising to $5.1 trillion when spending rises to only  $5.8 trillion. Krugman must be of the mindset that taxation has no impact on the economy because it is not a “cost” of living, but an “obligation” that somehow does not count.

I just fail to see his logic if there is any. All I can do is say get a real job to observe how people truly react outside of school if you want to understand real economics. Even Paul Volcker admitted this “New Economics” thinking failed a long time ago.