Washington & Wall Street: Paul Krugman and the Big Lie About Jobs, Consumers
New York Times columnist Paul Krugman likes to name call. When Krugman reaches the limits of his incompetence as an economist and polemicist of the Keynesian socialist left, he likes to call Republicans liars. For example, in his August 15, 2013 column, “Moment of Truthiness,” he attacks several prominent conservatives for their lack of truth:
Republicans made a lot of political hay over a supposedly runaway deficit early in the Obama administration, and they have maintained the same rhetoric even as the deficit has plunged. Thus Eric Cantor, the second-ranking Republican in the House, declared on Fox News that we have a "growing deficit," while Senator Rand Paul told Bloomberg Businessweek that we’re running "a trillion-dollar deficit every year."
Krugman is correct when he says that the deficits have fallen, slightly, thanks to higher taxes and budget sequestration, but Rep. Cantor (R-VA) and Senator Paul (R-TN) are right to be concerned about the deficit. The Congressional Budget Office notes that while deficits are falling in the near term, the medium term outlook is hardly as rosy as Krugman and his pals in the Democratic Party want you to believe. Here is what CBO had to say this past May:
If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, CBO estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP. Because revenues, under current law, are projected to rise more rapidly than spending in the next two years, deficits in CBO’s baseline projections continue to shrink, falling to 2.1 percent of GDP by 2015. However, budget shortfalls are projected to increase later in the coming decade, reaching 3.5 percent of GDP in 2023, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.
Between 2009 and 2012, the US government ran deficits well-above a trillion dollars, on average $1.3 trillion each year, in an orgy of emergency spending and “stimulus” that did nothing to help the US economy. So perhaps you can forgive Cantor and Paul somewhat for their hyperbole about the current deficit. As I’ve noted on Twitter, Rand Paul plus NJ Governor Chris Christie put together aren't half as smart as our beloved Dr. Ron Paul (R-TX). But what really has Krugman’s boxer shorts tied into a knot is his slavish devotion to the liberal fallacy that deficit spending actually helps unemployment.
Former New York Times columnist Henry Hazlitt outlined in his classic 1959 book, The Failure of the New Economics, that the Depression era deficit spending by Franklin Delano Roosevelt did nothing to alleviate unemployment, contrary to the heroic newsreel footage prepared by FDR’s propagandists. He wrote:
In Keynesian policy, unemployment is never to be corrected by a reduction in money wages. Keynes recommends two main remedies. One is deficit spending (sometimes euphemistically called government “investment”)… The other main Keynesian remedy for unemployment is low interest rates, artificially produced by the “Monetary Authority.” Keynes incidentally admits that such artificially low rates can only be produced by printing more money, i.e. by deliberate inflation.
Now if Paul Krugman and the liberal left had their way, the 2013 federal budget deficit would still be at a trillion plus. This is why Krugman spends so much time fretting about the terrible “austerity” that the Republicans and the Obama Administration have visited upon us all via sequestration. He stills believes, it seems, that deficit spending can make a meaningful difference in terms of either job growth or overall unemployment. But as we all know, the only reason unemployment is falling in the age of Barack Obama is because fewer Americans are actually working.
The big lie that neither Krugman nor the left will admit is that years of deficit spending and artificially low interest rates – thirty years to be precise -- just managed to keep nominal job and GDP growth moving forward. Consumers and working people lost ground steadily in terms of what their hard earned dollars will buy at the grocery store. When Fed Chairman Bernanke and the Federal Open Market Committee publicly target 2% inflation, they are increasing the invisible tax of inflation, a tax that has killed real consumer income and job growth for decades. But Paul Krugman does not want to talk about that.
So when liberals complain that low-income workers are stuck in part-time jobs, struggling to make ends meet, and living paycheck to paycheck, remind them that the ludicrous interest rate and fiscal policies of the past several decades are to blame. The only way to really grow jobs that have better income potential is to limit the growth of government, deficits, and inflation.
The public sector is now half of the US economy in terms of income. We need to encourage private sector credit expansion and investment. The public sector offers no hope in terms of sustainable job growth–contrary to the advice from the Krugmanite socialists. Focusing on low inflation and private sector job creation is a winner for everybody at the table.