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The Topsy-Turvy World of Paul Krugman

In case you are not familiar with Nobel Prize-winning economist Paul Krugman’s take on our current fiscal crisis, he thinks the only way to avoid a longer recession (or possibly a Long Depression) is to have government spend our way back into prosperity. “Spend now, while the economy remains depressed; save later, once it has recovered,” he writes in his NYT article. “How hard is that to understand?”

It’s very hard, Mr. Krugman. In fact, it’s impossible to “understand” because the idea is irrational. For people who do not live in a topsy-turvy world where apparently money can be created out of thin air and has no basis in reality, it’s impossible to “understand” how spending more in the face of a massive, mind-blowing deficits is a good idea. When you are broke, you do not need to spend more. You need to stop spending and produce more. People being productive create money. Governments that arbitrarily “stimulate” the economy with future money that doesn’t exist create inflation, not prosperity.

I’m  heartened to see that there is a growing backlash in the media (and among voters) against Keynesians and statists, like Krugman, who believe the only way out of a recession is to increase consumption.

Finally, voices of reason are pointing out that it was government intervention into the economy — (artificially low fed rates, a policy-driven housing bubble and government sponsored entities, Fannie and Freddie) — that got us into this mess in the first place and thus it cannot be government that gets us out of it. The following is an excerpt from today’s Investor’s Business Daily editorial:

The world is going to hell in a handbasket, Krugman suggested this week, thanks in large part to its refusal to follow his advice to the letter.

Actually, he has it exactly backward. Krugman was among those who encouraged the new Obama administration and the Democratic Congress to spend massive amounts of money early on in a kind of Keynesian frenzy to shock the moribund economy back to life.

It didn’t work. With a stimulus — a deficit, that is — of nearly 11% of GDP, our economy is barely growing, while unemployment remains shockingly close to 10% of the adult working population.

Even the European leaders are realizing that we have finally “run out of other people’s money” — Margaret Thatcher’s famous observation on the inherent problem with socialism. Obama’s insistence on implementing socialist and Keynesian policies is yet another power-grabbing tactic and a threat to liberty.

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