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Published On: Thu, Apr 11th, 2013

Keynsians gone wild, understanding the spending, borrowing and printing of money as keys to a strong economy

When it comes to debating the whole issue of extending the boom via money printing and borrowing or allowing the malinvested assets to be liquidated or changed to other, more profitable uses, Paul Krugman has become unhinged (like most Keynesians). This is what Keynesians insist upon proclaiming:

  • Booms run aground because people mysteriously stop spending;
  • Some booms are bubble-based like the Tech Bubble of the 1990s and the Housing Bubble of the last decade;
  • Even though the asset prices for the things in the bubble are out-of-kilter and it is apparent that the economic fundamentals are out of balance (like trying to put people with $50K incomes into $500K houses), the boom can be continued if the government borrows, prints, and spends enough because government spending is a perfect — actually, superior — substitute for spending by individuals and private firms. In fact, Keynesians claim that the REAL problem is that those out-of-kilter asset prices are falling, and that is what causes the economic downturn.

USCurrency_Federal_Reserve(Keynesians believe that effect is cause, and cause is effect. So, if prices fall, that is what causes a recession, and the way out is to reflate those prices.)

In other words, a boom can be sustained and nurtured by the government and then one day, the economy will be so recovered that private spending can mostly make up the difference until that day when people mysteriously stop spending again.


If anyone suggests to Krugman that the above scenario is fantasy, he becomes absolutely unhinged, as he has with the publication of David Stockman’s new book and Stockman’s recent NYT op-ed. Of course, Krugman insists that anyone who would hold views that differ from his holds them because that person wants others to suffer and die of starvation.

The word “liquidation” seem to be like waving the proverbial red flag in front of the bull, and I address that issue in my recent article on Lew Rockwell’s page. (I have an error in the opening sentence; the Greider article was published in 1981, not 1982. I have notified the page manager and hope for a correction today.)

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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