Last week, Keynesian inquisitor-extraordinaire Paul Krugman shot off the bizarre suggestion that “historically low-inflation” called for more monetary easing. I debunked the notion of historically low inflation here. Alas, Krugman has now not only made the vague suggestion that another war could potentially be good for the economy, but has taken a step into the absurd, by suggesting that what we really need is an alien invasion. Zecharia Sitchin would be proud. From TIME:
According to the New York Times columnist and Nobel Prize laureate, you know what would end the economic slump in 18 months? Aliens.
Paul Krugman probably feels like an alien himself these days, considering Washington is completely ignoring his unwavering arguments for more fiscal stimulus as President Obama and Congressional Republicans try to out-deficit-reduce each other. So maybe that’s why Krugman has aliens on the brain.
While talking off the cuff on Fareed Zakaria’s GPS program (Zakaria is also a TIME Magazine contributor), Krugman conjectured about what would happen if aliens landed on earth and attacked us.
“If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in 18 months,” Krugman says, referencing an episode of The Twilight Zone in which an alien threat was manufactured to bring about world peace.
Krugman’s suggestion is actually a sci-fi reiteration of John Maynard Keynes’ idea that “filling bottles with money, burying them in quarries filled with other garbage, and then letting the free market extract them for profit” is a way of stimulating the economy. “And isn’t it?” ask the Keynesians. Sure, it creates jobs, it circulates money creating demand, which should lead to further investment and jobs. But Keynes’ (and by sci-fi extension, Krugman’s) position is quite superficial. Namely, all of the resources and time that could have gone into creating things that people actually need — in the case of America today, improving energy infrastructure, a better healthcare system, improved roads and transport, and improved food infrastructure and so on — have instead gone to digging up money out of a quarry, or in Krugman’s example, building huge lasers, missiles and ion cannons to fend off the alien threat.
Now Krugman’s counter might be that there is another alternative: not spending money at all. And, he might say, this is the greater danger. If everyone just hoards cash then nothing productive will get done, there will be deflation, and people and businesses will hold off on purchases until a later date, creating an ever greater deflationary spiral. The problem with this argument is that it ignores the basic primeval human reality: people have needs and wants. Will people hold off on buying food and fuel in the anticipation that prices might fall in the future? Certainly not. What about non-necessities? There has in recent years been a great deal of deflation in consumer electronics — and people are buying wide-screen televisions, iPhones and Playstations in ever-greater numbers. And that is the fundamental problem with Krugman’s position. The riots in London are not good for the economy. Earthquakes are not good for the economy. And building giant ray guns to fight off an alien invasion is not good for the economy. All that these things do is massage GDP numbers, while taking capital and labour away from more productive ventures.
Another significant problem is that stimulus funds often get frittered away to the bank accounts of insiders.
Without addressing underlying structural problems — like taking big money out of politics — the Keynesians are wasting their time.
An alien invasion — much like reinstating slavery, or starting a Third World War — would cause GDP growth. But GDP does not tell the whole, or even half the story.