Paul Krugman loses it

I usually pay no attention to Paul Krugman and his columns that always argue for more government intervention in the markets. Krugman has been advocating a second stimulus even bigger than the last for some time now. Sure, the first one did not work, so let's do it again only bigger this time. Yesterday, Krugman went beyond the pale in my opinion. In a column entitled 1938 in 2010, Krugman argues that Obama was making the same mistake that Roosevelt made in 1938, namely not pushing further government stimulus to grow the economy. Not surprisingly, Krugman blames the economic decline in 1937-1938 on a lack of government spending, not on the rise in tax rates that was pushed through at that time. Still, Krugman is always selective in his fact choice so even this deception is not surprising. What got me, however, were sentences like this one: "But it’s both instructive and discouraging to look at the state of America circa 1938 — instructive because the nature of the recovery that followed refutes the arguments dominating today’s public debate, discouraging because it’s hard to see anything like the miracle of the 1940s happening again."

"The miracle of the 1940's" is Krugman's term for World War 2. Let's see: up to 100 million dead, much of Europe and Asia in ruins, concentration camps and genocide, enslavement of Eastern Europe to Soviet communism, and nuclear weapons. To Krugman, that is a "miracle" because there was a return to economic growth.

Then we get to the really big lie from Krugman: "From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. 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. ....
But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits."

I believe that Krugman is sincere in what he is saying; but he is dead wrong. If Krugmen were correct, there should have been a mjor burst of growth continuing after the war. Instead, the US saw two severe recessions in the early post war period. What actually led to the post war growth was the vast increase in demand from the household sector of the economy, the consumer. Remember that throughout the war, there was no production of automobiles, essentially no production of appliances, very little in the way of luxury items and not much home construction either. In essence, the US had five or six years of demand stored up and it all hit the market at once in 1946 and 1947. It took many years for that demand to work its way through the economy. All the time it took for that excess demand to work its way out of the system was time that pushed the nation towards prosperity. meanwhile, the big government, big spending paradigm of the Roosevelt years came to an end. by the Eisenhower years, spending was at more normal levels, but with the consumers and businesses no longer fearing the next intrusive move by the government, normal economic growth continued.

1938 is truly a year which teaches those of us in 2010 what to do. The answer, however, is not what Krugman announces. The answer is a simple one -- First,do not raise taxes in the middle of a recession or depression. Second, do not inject uncertainty into the markets or those who need to make investments will simply stop doing so with disasterous consequences.

Obama and the Obamacrats have already violated both of these points. any further moves like this will make a double dip recession a certainty.