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Published On: Wed, Apr 10th, 2013

Borrowing and Spending, the Paul Krugman ‘Way to Wealth’

Hey, big spenders! It’s Paul Krugman to the rescue!

In the aftermath of David Stockman’s recent New York Times article, Krugman is assuring his faithful readers that the massive debt financing of the Obama administration’s spending spree is no big deal and that it is not real debt at all, figuratively speaking.

Why? According to Krugman: “…debt does not directly impoverish us, because it’s money we owe to ourselves.”

What does he mean by that?

…think about the macroeconomics; did America really put itself $30 trillion in hock to someone else? No, some Americans lent to other Americans, which is a very different issue.

 

photo 401(K) 2012 via Flickr

photo 401(K) 2012 via Flickr

In other words, it essentially is free money, and the government can engage in this financial trick indefinitely without there being any negative consequences. Essentially, what Krugman is saying is that internal bond finance (mostly by the Federal Reserve System) essentially gets rid of the Law of Scarcity. Government, through money printing and issuance of bonds, is an unlimited fountain of wealth creation, and if there is inflation with all this, all the better, according to Krugman, because inflation will help U.S. exports, creating jobs and making us wealthier. (That is Krugman’s Inflation Fairy at work.)

(Gee, I wish whoever is holding my mortgage would buy into this: I don’t have to repay you! Don’t you see, WE OWE IT TO OURSELVES!! Any harm that would accrue by my default would be perfectly internalized into a zero-sum outcome. I gain, you lose, America is not harmed at all!)

Understand that Krugman is the most decorated academic economist of our time. His face is all over the talk shows, and he is treated with the kind of reverence in academe once reserved for someone like Einstein. Yet, his central message is this: internal bond finance of government trumps scarcity. Yes, the guy actually believes this, or at least one can say he provides the Obama administration with cover for its destructive policies.

Remember, Obama declared that unemployment payments from the government create more wealth than does an oil pipeline, and that a welfare system actually makes the economy stronger and is not an economic burden, but a provider of wealth. Yes, for all of the supposed sophistication of American Progressives (and especially the ones that worship Krugman and Obama), it seems that in the end they confuse financial trickery with wealth creation.

Krugman in Wonderland 624


William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

Read more at “Krugman-in-Wonderland”

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About the Author

- William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

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  1. Mike says:

    Every time Schiff is on TV, he acts like the typical bearer of gloom and doom that he is. He never adjusts his “predictions” and still believes hyperinflation can happen in the US while talking over anyone that disagrees with him. Krugman and Steve Keen are far more polite than Schiff will ever be so that’s why they have gotten so far with their message. I heard that Schiff even called Mike Norman a “f***ing bastard” some time ago.

    http://mikenormaneconomics.blogspot.com/2010/11/schiff-goes-berserk.html

  2. Anonymous says:

    Well Peter Schiff gets to be on TV all the time and talks over the CNBC and FOX Business personalities all the time and you’re trying to paint Krugman as this economist that gets all this undeserved praise? Peter even talked over Lauren Lyster with his typically dogmatic attitude! You Austrian hacks and apostles of Ron Paul are so funny.

    You know what they say, a broken clock is right twice a day!

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