Distortion as a policy

Writing in the New Your Times, columnist and economist Paul Krugman argues forcefully for additional stimulus. According to Krugman, due to cutbacks in state and local government budgets, we are already living with de facto austerity. Here is his point in his own words:

"Although you’d never know it listening to the ranters, the past year has actually been a pretty good test of the theory that slashing government spending actually creates jobs. The deficit obsession has blocked a much-needed second round of federal stimulus, and with stimulus spending, such as it was, fading out, we’re experiencing de facto fiscal austerity. State and local governments, in particular, faced with the loss of federal aid, have been sharply cutting many programs and have been laying off a lot of workers, mostly schoolteachers."

It sounds correct, doesn't it? But there is only one problem with Krugman's argument: it is just a lie. Krugman is talking about the big decrease in total government spending in the last year that led to the austerity from which we now suffer. So here are the numbers for just the last year. The change from 2010 to 2011 in total government spending (federal, state and local) is an increase from $5.798 trillion to $6.163 trillion, a rise of just under 7%.

So there you have it. Krugman believes that a rise of spending of 7% is austerity. In other words, he is either totally misinformed or he is lying. Krugman, however, is not unfamiliar with government spending or how it is calculated. Indeed, he has spent his life working in economics. He clearly is not misinformed.

The truth is that the conclusion of Krugman's column is that he will give president Obama great lattitude in coming up with a solution because the GOP will not agree to anything. It is a political rather than an economic argument. Of course, were Krugman to accept the fact that Obama's policies have failed, that would have to result in his accepting the argument of the GOP (oh, the horror!). Since Krugman could never bring himself to do that, he just distorts reality to fit his own conclusions instead.