Tag Archives: paul krugman

The Return of Depression Economics

Paul Krugman argues that the idling of productive capacity in the world economy makes investment in public goods more likely to pay off now than at other times. While in good economic times credit is rapidly transferred to speculative growth opportunities, in bad economic times credit contracts, and much more production can be achieved with the same amount of wealth. Krugman calls this ‘Depression Economics,’ because it is true in bad economic times only.

Economist’s View: Krugman: What to Do
What to Do, by Paul Krugman, NY Review of Books: What the world needs right now is a rescue operation. The global credit system is in a state of paralysis, and a global slump is building momentum as I write this. Reform of the weaknesses that made this crisis possible is essential, but it can wait a little while. First, we need to deal with the clear and present danger. To do this, policymakers around the world need to do two things: get credit flowing again and prop up spending.

I believe not only that we’re living in a new era of depression economics, but also that John Maynard Keynes—the economist who made sense of the Great Depression—is now more relevant than ever. Keynes concluded his masterwork, The General Theory of Employment, Interest and Money, with a famous disquisition on the importance of economic ideas: “Soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

We can argue about whether that’s always true, but in times like these, it definitely is. The quintessential economic sentence is supposed to be “There is no free lunch”; it says that there are limited resources, that to have more of one thing you must accept less of another, that there is no gain without pain. Depression economics, however, is the study of situations where there is a free lunch, if we can only figure out how to get our hands on it, because there are unemployed resources that could be put to work. The true scarcity in Keynes’s world—and ours—was therefore not of resources, or even of virtue, but of understanding.

However, the market, not the government, picks winners through the savage mechanism of creative destruction. The government is not able to perform this role effectively.

Simply spending money on neat toys like new schools or bridges to nowhere is not the answer, because such project generate nothing and leave us with costs we will have to pay once the economy comes back.

Rather, we should focus on infrastructure spending that changes the system in ways favorable to us. The most obvious bad aspect of the system is that economic growth leads to greater consumption of oil and natural gas, which enrich bad states like Venezuela and Russia. Spending projects should focus on breaking this link, so that we can become wealth without them becoming powerful.

Projects like Solar Los Angeles, Windy Maine, and a million electric cars are part of the solution.

Heck, even the CEO of Poet Ethanol will be addressing a forum together with Tom Daschle and Jim Woolsey. The time to weaken the chains that bind us to Gap states like Russia and Venezuela is now.

Increase Immigration to Shrink the Size of Government

Mike Bales’ Infantilism,” by Dan, tdaxp, 26 February 2005, http://www.tdaxp.com/archive/2005/02/06/mike_bales_infantilism.html.

“The Road to Dubai,” by Paul Krugman, New York Times, 31 March 2006, pg A21.

Two days ago I argued that we should annex Mexico to expand States’ Rights. However, we don’t need to go that far to bury the dreams of the big government elite. Simply embracing sustained immigration leads to smaller government and more freedom

The Face of Small Government

The paleoeconomist Paul Krugman eloquently demonstrates this point in his New York Times column today…

Labeling immigration part of a “hard right economic conservative” agenda, Dr. Krugman notes

Countries with high immigration tend, other things equal, to have less generous welfare states than those with low immigration. U.S. cities with ethnically diverse populations — often the result of immigration — tend to have worse public services than those with more homogeneous populations

This is true. I’ve seen this first hand. As I wrote more than a year ago:

[My home state, South Dakota, was] settled by two big government groups: Germans and Swedes. Swede-state Minnesota is famous for its “red’ tradition, while the state of Bismarck, North Dakota is partially socialist. Fortunately, while Germans and Swedes are very charitable to their own they are suspicious of each other, and so ethnic distrust led to South Dakota’s very small government.

Diversity leads to small government. Think of the huge “protected” sector in Japan, or the traditionally insular European states, and the huge welfare systems they have built. People are generous with other people’s money to people like them, and will spend away the future in big-government solutions to problems. But in an immigration nation built with people from all over, and the public is more respectful of property and skeptical of Official Establishments.

Shrink government. Increase immigration.