There is an entertaining op-ed by Paul Krugman in the NY Times attacking Fredrich Hayek of all people. A short snippet:
Krugman's criticism of Brad DeLong and Hayek regarding austerity is quite amusing. Blind to his own bias, that deficit spending can continue ad infinitum, Krugman blames the cause of the Great Depression and its length on austerity, arguing deficits came afterward.
He applies this backward logic to our present economic and fiscal situation. In true Keynesian form, he proposes to spend even more, going beyond the recent record budget deficits into terra incognito.
The bond market will have its day, to judge the deficit spending fools. But surely Krugman will come up with new arguments that the Feds just aren't spending enough fiat paper to plug the gigantic leaks popping up in the economy.
It seems that in Krugman's world, you can conjure up wealth out of nothing, and market cycles should be outlawed. The market going up is fine, but certainly it cannot be permitted to decline or correct!
A picture follows that perhaps a certain someone with a Ph.D. in Economics might understand.
Brad DeLong directs us to a 1932 letter by Friedrich Hayek and others arguing that (a) deficits somehow caused the Great Depression (b) deficit spending would drive up interest rates and make the Depression worse.
Truly, nothing ever changes. The insistence that big deficits somehow caused the crisis even thought they actually didn’t appear until after the crisis was well underway — and were clearly caused by the crisis, not the other way around — prefigures the debate in Europe, in which everyone declares that fiscal irresponsibility is the core issue even though both Ireland and Spain had low debt and budget surpluses on the eve of crisis.
And Hayek’s prediction that deficits would drive up interest rates despite high unemployment was, of course, totally wrong.
Krugman's criticism of Brad DeLong and Hayek regarding austerity is quite amusing. Blind to his own bias, that deficit spending can continue ad infinitum, Krugman blames the cause of the Great Depression and its length on austerity, arguing deficits came afterward.
He applies this backward logic to our present economic and fiscal situation. In true Keynesian form, he proposes to spend even more, going beyond the recent record budget deficits into terra incognito.
The bond market will have its day, to judge the deficit spending fools. But surely Krugman will come up with new arguments that the Feds just aren't spending enough fiat paper to plug the gigantic leaks popping up in the economy.
It seems that in Krugman's world, you can conjure up wealth out of nothing, and market cycles should be outlawed. The market going up is fine, but certainly it cannot be permitted to decline or correct!
A picture follows that perhaps a certain someone with a Ph.D. in Economics might understand.
Yes, Krugman is oblivious to cycles. Yes, deficit spending did not correlate with immediately rising interest rates in the 1930s, but has he heard of the 1970s?
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