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Published On: Mon, May 14th, 2012

Krugman: More inflation and higher taxes will end the depression

In recent months, Paul Krugman has become an out-and-out cheerleader for inflation, claiming that throwing out more dollars somehow will revive the economy because people will quickly spend their depreciating money and such actions will enable more goods to sell. If a problem develops with that strategy — and with inflation, the bad effects come later — well, we can solve that with price controls and activist government.

Today, he repeats his claim that the REAL problem is that we don’t have enough inflation because the Evil Republican Party doesn’t want it. In fact, he argues, most Republicans want a gold standard. This time, he cites some allies, Thomas Mann and Norman Ornstein, who say that the Republicans today are “dismissive of the legitimacy of its political opposition.”

I must admit that while I see the Republicans historically as being destructive, nonetheless this is a real howler, given the fact that Democrats never could accept their losses in the 1980 election of Ronald Reagan as legitimate, and the opposition to Reagan’s presidency was savage. You see, Krugman and other Democrats really believe that the one-party state that existed in this country during the 1960s and 1970s (and in many ways, Nixon’s policies mirrored those of Democrats) was the only legitimate state of affairs. For example, Krugman writes:

If something like the financial crisis of 2008 had occurred in, say, 1971 — the year Richard Nixon declared that “I am now a Keynesian in economic policy” — Washington would probably have responded fairly effectively. There would have been a broad bipartisan consensus in favor of strong action, and there would also have been wide agreement about what kind of action was needed.

Krugman’s memory might be a bit spotty, but I remember that what we had was a dollar crisis because the game of paying for the Vietnam War and the vast expansion of government during the Lyndon Johnson years by essentially printing more dollars had blown up. The response was…print  more dollars, but slap down price controls to make the ensuing inflation not look so bad.

In other words, the “broad bipartisan consensus” never existed in large part because of Democratic hatred for Nixon and the belief that no Republican ever should be in the White House post-FDR. But even if there had been that “consensus,” the policy response to the crisis would have been a disaster.

Krugman, you see, claims that we can solve this whole crisis by printing more dollars and raising tax rates on wealthy people. He writes:

For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.

And the takeover of half our political spectrum by the 0.01 percent is, I’d argue, also responsible for the degradation of our economic discourse, which has made any sensible discussion of what we should be doing impossible.
 He goes on:
Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.(Emphasis mine)
No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence.
 In other words, this depression could end if only — if only — there were a way to raise taxes on investment (thus, we would have less private investment so government or subsidized “investment” like what we saw with Solyndra would take its place) and spread even more dollars around the world while re-establishing the One-Party State. That is not a prescription for recovery, folks. It is a prescription for disaster.
I’m not going to carry the water for Republicans by any means. They are utterly blind to the destruction that their wars have created, and I will say unequivocally that Republican support for the Drug War and the fetish on immigration have helped to create a gulag of prisons that rivals what Stalin created in his worst days.
(Yes, I am a registered Republican, but that is because I had to do so in order to be able to vote for Ron Paul in the primaries. I’ll keep that registration in hopes that future “Ron Paul” candidates will be on primary ballots down the road. This fall, I will vote — if I vote at all — for the Libertarian presidential candidate.)
Nonetheless, Democrats in the Obama administration have proven beyond a doubt that they are quite happy with the Surveillance State and the Police State and want to expand it, unionizing all of those government employees in the meantime, and turning them into a political force that will further destroy our few liberties we have left. (In California, for example, the powerful prison guard union — a mainstay of the Democratic Party there — successfully destroyed any attempts to lower the state’s record number of inmates. The prison guards also are staunch lobbyists against any attempt to weaken our draconian drug laws.)
However, none of this matters to Krugman. To him, all that is needed is a return to the high tax rates of the New Deal along with further socialization of the economy. What he forgets is that when a government destroys the incentives for entrepreneurs and effectively undercuts the ability of entrepreneurs to operate without government subsidies, that government also dooms its economic future. Krugman might claim that our current problems are due to an economic plutocracy, but don’t kid yourself. What Krugman wants is a political plutocracy based in Washington to run all of our affairs, a plutocracy that essentially would be answerable to no one but itself.
Of course, as a good Keynesian, Krugman has no use for the entrepreneur. Just tax, inflate and spend, and governments will create a good economy. That is his message, and it is utterly destructive, but also popular. But, then, Juan Peron destroyed Argentina’s economy and he was a hero, too. I guess that Krugman wants Barack Obama to ape Peron or maybe even Hugo Chavez. What he does not say is how those men have ensured through their hyper-Keynesian policies that the economies of their nations will be basket cases into the foreseeable future.

Check out the “Krugman in Wonderland” posts here on DOB – click here


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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