Myths of Austerity?

Leo Kolivakis's picture

Via Pension Pulse.

I want
to follow-up on an article Paul Krugman published a few days ago in the
NYT, Myths
of Austerity

When I was young and naïve,
I believed that important people took positions based on careful
consideration of the options. Now I know better. Much of what Serious
People believe rests on prejudices, not analysis. And these prejudices
are subject to fads and fashions.


Which brings me to the
subject of today’s column. For the last few months, I and others have
watched, with amazement and horror, the emergence of a consensus in
policy circles in favor of immediate fiscal austerity. That is, somehow
it has become conventional wisdom that now is the time to slash
spending, despite the fact that the world’s major economies remain
deeply depressed.


conventional wisdom isn’t based on either evidence or careful analysis.
Instead, it rests on what we might charitably call sheer speculation,
and less charitably call figments of the policy elite’s imagination —
specifically, on belief in what I’ve come to think of as the invisible
bond vigilante and the confidence fairy.


vigilantes are investors who pull the plug on governments they perceive
as unable or unwilling to pay their debts. Now there’s no question
that countries can suffer crises of confidence (see Greece, debt of).
But what the advocates of austerity claim is that (a) the bond
vigilantes are about to attack America, and (b) spending anything more
on stimulus will set them off.


What reason do we have to
believe that any of this is true? Yes, America has long-run budget
problems, but what we do on stimulus over the next couple of years has
almost no bearing on our ability to deal with these long-run problems.
As Douglas Elmendorf, the director of the Congressional Budget Office,
recently put it, “There is no intrinsic contradiction between
providing additional fiscal stimulus today, while the unemployment rate
is high and many factories and offices are underused, and imposing
fiscal restraint several years from now, when output and employment
will probably be close to their potential.”


Nonetheless, every few months we’re told that
the bond vigilantes have arrived, and we must impose austerity now now
now to appease them. Three months ago, a slight uptick in long-term
interest rates was greeted with near hysteria: “Debt Fears Send Rates
Up,” was the headline at The Wall Street Journal, although there was no
actual evidence of such fears, and Alan Greenspan pronounced the rise a
“canary in the mine.”


Since then, long-term rates have
plunged again. Far from fleeing U.S. government debt, investors
evidently see it as their safest bet in a stumbling economy. Yet the
advocates of austerity still assure us that bond vigilantes will attack
any day now if we don’t slash spending immediately.


don’t worry: spending cuts may hurt, but the confidence fairy will take
away the pain. “The idea that austerity measures could trigger
stagnation is incorrect,” declared Jean-Claude Trichet, the president of
the European Central Bank, in a recent interview. Why? Because
“confidence-inspiring policies will foster and not hamper economic


What’s the evidence for the belief that fiscal
contraction is actually expansionary, because it improves confidence?
(By the way, this is precisely the doctrine expounded by Herbert Hoover
in 1932.) Well, there have been historical cases of spending cuts and
tax increases followed by economic growth. But as far as I can tell,
every one of those examples proves, on closer examination, to be a case
in which the negative effects of austerity were offset by other
factors, factors not likely to be relevant today. For example,
Ireland’s era of austerity-with-growth in the 1980s depended on a
drastic move from trade deficit to trade surplus, which isn’t a
strategy everyone can pursue at the same time.


And current examples of austerity are
anything but encouraging. Ireland has been a good soldier in this
crisis, grimly implementing savage spending cuts. Its reward has been a
Depression-level slump — and financial markets continue to treat it
as a serious default risk. Other good soldiers, like Latvia and
Estonia, have done even worse — and all three nations have, believe
it or not, had worse slumps in output and employment than Iceland,
which was forced by the sheer scale of its financial crisis to adopt
less orthodox policies.


So the next time you hear
serious-sounding people explaining the need for fiscal austerity, try
to parse their argument. Almost surely, you’ll discover that what
sounds like hardheaded realism actually rests on a foundation of
fantasy, on the belief that invisible vigilantes will punish us if
we’re bad and the confidence fairy will reward us if we’re good. And
real-world policy — policy that will blight the lives of millions of
working families — is being built on that foundation.

Mr. Krugman has been busy lately, appearing on
Charlie Rose
, and on Sunday he took part in the roundtable
discussion on ABC's This Week
, discussing the jobless recovery and
why he was correct that more stimulus was needed in the first package.

also appeared
on CNN's Fareed Zakaria
stating that more needs to be done to shore
up the economy in the form of spending on public works and other
programs. On the flip side, Mr. Zakaria interviewed Harvard economic
historian Niall Ferguson who thinks we need to stop spending and
"radically simplify the tax code" to shore up business confidence. I embedded the video with both interviews below and will go over a few key points.

First, as I have
stated before, implementing austerity measures at a time when private
sector recovery is still fragile is very dangerous and will ultimately
threaten the global recovery

Second, Krugman is right
that austerity will work against governments trying to shore up their
fiscal position. Why? Because if austerity slows the recovery, or worse
still, kills it, then governments will see their tax revenues shrink
dramatically. Imposing austerity measures during a fragile recovery is
akin to engaging in fiscal suicide.

Third, Krugman is right
about Ireland, Latvia and Estonia. They all implemented savage cuts,
unemployment went up, as did the cost of insuring their debt, and
government revenues dwindled. It has been nothing short of a monumental

Fourth, "invisible bond vigilantes" do not pose a
serious threat for the US or even Japanese bond market. Bond vigilantes
can easily pick on Greece, Portugal and maybe even Spain, but that game
has run its course too. The Europeans finally woke up and sent out a
strong signal to speculators in the form of a trillion
dollar gamble

Importantly, the
big, bad bond vigilantes are simply no match for the Federal Reserve and
they know it. Bernanke can squash them like a bug if they get too smug
and start speculating on US sovereign debt.

Fifth, as I wrote in
my last comment, the bond market is more
worried about a 1930s echo
right now, which is driving yields
lower. If they were more worried of massive fiscal crisis leading to a
run on the US dollar, then yields would be skyrocketing up, not down.

I do not agree with all of Krugman's proposals. Spending on public
works is not a long-term solution to bolstering the labor market. You
need to implement a much more radical approach which will target new emerging
industries. I was happy to see president Obama announce that the
government is handing out nearly $2
billion for new solar plants
, but this is a drop in the bucket,
basically peanuts.

Seventh, I think Mr. Ferguson is right that
we need to simplify the tax code, but I prefer a consumption tax which
does not penalize low income families over any flat income tax. Mr.
Ferguson was coy stating that "Keynesian policies were an abysmal
failure in the past". It wasn't Keynesian policies that led to the 1970s
stagflation episode, but supply shocks and funding the Vietnam war
through expansionary monetary policy.

Finally, one thing
Krugman said on ABC's This Week really struck me. He said he doesn't
like the term 'double-dip' because even of the US economy grows at 1%
but unemployment rises to 10.5%, it won't technically be another
recession, but that doesn't mean much to those who are currently
struggling to find work.

We are at a crossroad. Millions of
unemployed people are losing hope, waiting for policymakers to come up
with a program targeting job growth. Instead, all they are seeing is
political feuding that doesn't address the central core issue - jobs.
It's as if politicians have run out of ideas and go with whatever the
latest poll tells them is the flavor of the day. The lack of leadership
from politicians and business leaders during these unnerving times is
truly disheartening.

Let me end by wishing all my US readers a
Happy Fourth of July. As bad as it gets, never lose hope in America.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
anarkst's picture

Leo, you must fix the economy before you get the jobs.  Sound money, sound trade practices to re-build the manufacturing base.  It took a half century to create this mess, it's going to take two decades to fix it.  But fix it you must.  All capital must now be spent to this end with minimal amounts to prevent the bottom from falling out.  Get rid of the FED, no interest loans on primary residences, and small business.  Revoke 90% of the corporate charters, then see how it goes for a couple of years. 

Leo Kolivakis's picture

Let's start with imposing corporate tax rates that aren't easily skirted.

anarkst's picture

You're trying to kill an elephant with a fly swatter.

Quantum Noise's picture

Leo, I've asked this question before, but is worth repeating. If deficit spending is such a great panacea, why not go all in, run a 50% deficit as % of GDP forever and shame the Chinese with their pathetic 10% growth? Fuck it, let's do 100% or even better, 1000% deficit. If you'll say that 1000% is too much, I need to ask you then at what deficit level would you say we had enough?


My non-economist view is that we are looking at the wrong metric. We shouldn't look at the federal deficit, but at the current account deficit. If you look at that, you'll see that the US has been losing wealth continuously since 1991 with the pace accelerating sharply since 1998. If the federal government is borrowing money from internal sources and spends it on infrastructure using internal resources, I would say that this kind of deficit doesn't make us poorer. But if we're borrowing to stimulate consumption of foreign produced goods, that does.


The government should focus, IMHO, on fixing the current account deficit. This point was made recently by Intel's former long time CEO Andy Grove. I suggest you read it:

His key statement: "Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars -- fight to win.) ...all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability -- and stability -- we may have taken for granted. "

Leo Kolivakis's picture

I read Grove's comment and liked it, till the end where he discusses some form of protectionism to remedy the situation. The current account deficit will not be fixed until China's middle class become strong global consumers. This is years away.

doggings's picture

how do I get a job on here? I can definitely cut, paste and make the odd comment inbetween blocks of text better than Leo.

Leo Kolivakis's picture

Go for it big guy, I've been blogging for over two years, sometimes 7 days a week, for no money whatsoever. When you go through that, then we'll talk.

Kali's picture

The working or formerly working people in US have already been living "austerity".  Hence, the no spending.  The government, corporate and WS elite are partying like 1999.  The ubermen need to take their haircuts and stop misallocating resources to nonproductive activities.  So, cut frivolous spending, stop borrowing and make targeted "investments" in productive capacity.

I am sure the UK gov dandies are shitting bricks over the 40% cuts requested.  Welcome to the desert of the real.

Muir's picture

Wow, real wise... and deep thinking.

tom's picture

Since Leo says nothing important beyond quoting Krugman's half-baked analysis, I'll just quote Doug Noland of Prudent Bear's latest response to Krugman.


The New York Times’ Paul Krugman attracted some attention this week with his article, “The Third Depression”:  “We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.  And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending…  In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.”

With energy and commodities under renewed selling pressure this week – with gold even dropping $44 - unsettled global markets provided additional fodder for those focused on so-called deflationary risks.  U.S. economic data has indeed gone from unimpressive to increasingly alarming.  The recovery is in trouble, and there will be increasing calls for additional fiscal and monetary stimulus.

Mr. Krugman writes of a “stunning resurgence of hard-money and balanced-budget orthodoxy.”  I haven’t seen it.  Nor do I see policymakers “obsessing about inflation.”  Rather, I see “post-Bubble” policymaking confronting a predictable predicament:  massive government debt issuance, liquidity creation, and market interventions that are counterproductive and potentially quite destabilizing.  We’ve reached the stage where even massive inflationary stimulus provides only ephemeral effects.

For almost two years now, global policymakers have partaken in sovereign debt excess unlike anything experienced in history.  Central bankers have monetized and provided marketplace liquidity to an extent never before deemed possible.  These interventions and market intrusions have, predictably, led to additional distortions and more problematic imbalances.  Markets, having luxuriated in policymaker-induced reflation, are now focused on hangover effects.    

The problem today is not some misguided focus on inflation and balanced budgets.  Hard money?  Come on.  The key issue is instead the evolving and worsening stresses associated with an historic boom in (all varieties of) marketable debt.  To be sure, the markets are increasingly questioning the creditworthiness of various types of government debt from Greece to California.  It should be recognized as a major issue that Credit concerns have made their way to the realm of sovereign and U.S. state obligations – the heart of contemporary “money” and Credit mechanisms.  

Mr. Krugman – along with many – believes the solution is only greater stimulus through the further expansion of government deficits and central bank balance sheets.  Their prescriptions are misguided and have been proved misguided.  Yet the layers of complexities involved – not to mention ideology – preclude the possibility of an enlightened debate and a desperately needed change in the direction of post-Bubble policymaking.  

Regrettably, the “Keynesian” approach has already been implemented too many times and in regrettably undisciplined excess.  And it’s become a spent force.  Policies implemented earlier in this decade to combat so-called “deflation” risk instead fueled spectacular Bubble excess.  In the process, the Creditworthiness of non-government mortgage finance was virtually destroyed – along with swaths of the Credit system.  The 2008 vintage of deflation fighting is now working to destroy the creditworthiness of government obligations.  The stakes are incredibly high.  Rather than recognize the problems associated with ongoing Credit excess, the inflationists (as they’ve tended to do throughout history) cling to the notion that the issue is insufficient government borrowing and spending.  And there will be no reasoning with them.

In a CNBC interview earlier in the week, New York Governor Patterson rose above the economics profession with his comment that the problem was “An Unavailability of Spending Crisis.”  It’s not that politicians wouldn’t prefer to stimulate; it’s that they increasingly fear they are losing the capacity to pile on more debt.  Officials recognize that they risk destroying their state’s (or city’s, county’s, nation’s) creditworthiness.  Dr. Bernanke has often referred to the role that a shortage of money played in exacerbating the Great Depression.  He argues that this dearth of money was primarily a post-Bubble policy blunder.  I would counter that a runaway (“Roaring Twenties”) Credit Bubble ensured a post-Bubble money and Credit crisis of confidence.

These days, markets have begun to protest ever expanding debt levels, and investors/speculators will now demand additional returns to compensate for heightened risk.  They’ll want more liquidity.  In a sign of today’s changed environment, ballooning government deficits may very well lead to rising risk premiums on debt throughout the system.  And higher borrowing costs, as Greece can attest, can radically alter a borrower’s risk and solvency profile.  And - especially in speculative, trend-following markets - faltering debt values tend to set in motion an exodus from those instruments, resulting in illiquidity and market dislocation.  At this point, the best policymakers can do is to focus on the longer term and endeavor to enact economic policy that will over time support our debt load – rather than further expand and impair it.

In the markets, financial conditions continue to tighten, although this flies in the face of conventional thinking that near-zero Fed funds and ultra-low Treasury yields equate to “easy money.”  Risk aversion is increasingly entrenched, which ensures that “money” is becoming a lot less easy to come by.  In particular, the leveraged players continue to be stung – hurt by faltering global risk markets, illiquidity, and acute instability throughout.  

And with policymakers – fiscal and monetary – at this point largely hamstrung, one is hard-pressed to fashion a scenario where the leveraged players are anytime soon incited into re-risking and re-leveraging.  Over the past couple of months, the speculator community has gone from playing government-induced reflation for all it’s worth - to wishing they could somehow unwind long positions and perhaps even go short.  When the markets’ marginal source of liquidity is in the process of changing from leveraged long to bearishly short, the marketplace faces a period of tough conditions.

Remington IV's picture

Krugman ... mr. pragmatic

economicmorphine's picture

Dear Dr. Krugman:

Do you believe that we live in a finite world?  By that, I mean to ask if you believe that there are limits on the natural resources available on the planet?  If so, how can we grow to infinity?  In order for your vision to be valid, we need to be able to grow to infinity.  If we can't, austerity is a given.  It's just a matter of when.  Doctor, you're a can kicker.  




arthur darrell's picture

B I N G O " As Douglas Elmendorf, the director of the Congressional Budget Office, recently put it, “There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.”

and bingo was his name. ps, Krugman got 3 right for the 1st time in his career.

geminiRX's picture

"Last I checked, governments were never run like households. If you still have not figured why, then you don't understand public economics 101"

Leo, I can name at least one province in North America that does run like a responsible household and has no debt (and subsequently sustains your ass). Perhaps you should seperate and see how long your version of economics 101 lasts... Mish has you pegged.

booboo's picture

For the prudent person, someone who has saved, invested in their own business and reinvested in their future, set aside funds for their children for seed money so they can start something when the time comes all that QE has done is reward failure. Analogy:The largest institutions, the dinosaurs that were meant to go extinct during this natural phase of global debt cleansing are being given the life support, kept in some artificial climate controlled location with the proper mix of atmosphric gasses that was once their natural breathable mix until the oligarchy comes up with  some hair brained scheme to change the entire global climate to fit the dinosaurs which in turn kills off what would have been the natural successors. Leo, I really do admire your effort, your staying power, I am not sure if you are paid for your opinions or just a flesh and bones John Deere manure spreader but as someone who lives in the dirt with real honest to goodness small business folk here is the deal. All of the money tossed at the TBTF has resulted in one thing, keeping them alive long enough to eat every store of wealth down to the last kernal of grain. Credit is still locked up, UE is still rising, house prices continue to fall and have a ways to go, our money is being debased at a record pace, the globe is on the verge of a planetary biker bar fight and the only thing that matters is to people like you is how can "they" syphon more money out of the producers pockets. 

With the money we have thrown down the TBTF rat hole we could have shot them in the head let their spawn die at their dried up teat, recapitalized ten new banks AND be well on our way to recovery. Turn around Leo, you took the wrong turn, it's not too late. 

Clinteastwood's picture

Demographics in the US is being ignored.  The baby boomers have most of the money to invest.........and they are no longer taking entrepreneurial risks.  They are too old.  Certainly clowns like Krugman, Bernanke, Paulson, Obama don't inspire confidence, but the larger issue is........even if we elect Ron Paul and get back to sound money, who is out there to create the next big macroeconomic paradigm?  We no longer have the ability to go to the moon, and now we have way less ability to produce economic growth.  Americans are just too old.

blindman's picture


 multiplier effect depends on much lending and

productive allocation of energy,  debt saturation

is the problem and the solution.  america's favorite past time.

  please enjoy this

most unusual and fascinating link below. 


ps. aren't the bond vigilantes the same group that

needed the bailouts in the fall of 2008?   i keep wondering

what the heck is going on here?  organized fiat crime must be

behind it all.

primefool's picture

The biggest failure in convetional, academic economic thinking is - that things adjust gradually. they dont. Things break. Specially when they are held up artificially for too long. It makes the system brittle. Robs the system of recupeartive powers. So , yeah - things will be EXTREMELY calm and well behaved - then in a one week span - bond yields will break out .

primefool's picture

keynsianism - like Carbo-loading - is great for athletes. Not so great for corpulent, diabetic, heart cases.

primefool's picture

I guess you are like the fund manager in 1999 that reasoned that OK - some folks think tech stocks are overpriced - But - they have been going up steadily - so maybe the nervous nellies are wrong - because - you see stocks have been going up.

Fast Forward to today - bond yields have been declining - so - maybe the nervous nellies are wrong.

yeah its all about credibility - and our Fed's and Govt credibility is on shaky grounds. So more at risk of having an abrupt credibility failure! Yeah of course everything will be fine ( very low volatility) - UNTIL - OOPS - not fine any more .

Dismal Scientist's picture

'During the 1997 Asian financial crisis, Krugman advocated currency controls as a way to mitigate the crisis. Writing in a Fortune magazine article, he suggested exchange controls as "a solution so unfashionable, so stigmatized, that hardly anyone has dared suggest it."[93] Malaysia was the only country that adopted such controls, and although the Malaysian government credited its rapid economic recovery on currency controls, the relationship is disputed.[94] Krugman later stated that the controls might not have been necessary at the time they were applied, but that nevertheless "Malaysia has proved a point—namely, that controlling capital in a crisis is at least feasible."[95] Krugman more recently pointed out that emergency capital controls have even been endorsed by the IMF, and are no longer considered radical policy.[96] '

Assuming the 'Impossible Trinity' of having a stable exchange rate, independent monetary policy and freedom of capital simultaneously still holds, then to prevent a run on the USD, reintroduction of capital controls is a more likely solution than surrendering independence of monetary policy or fixing exchange rates in the US. TPTB will try this first, before a new exchange rate regime backed by specie. 

You want to grow, Paul and Leo ? Then stimulate the engine of the economy, ie: small business, with tax breaks; and get out of the way of recovery. DON'T reintroduce capital controls, but I bet K-Thug will not be able to resist...

docj's picture

You know, I tried to follow Leo's advice the last time I was out with my friends at the local pub.  I was pretty well in the bag and said - hey, this guy keeps telling me that if I just keep spending money I don't have I will eventually recover - so why not try to drink myself sober?

I ended-up hugging a toilet-bowl.

The "global economy" will end up the same way if we keep following the advice of these zealots.

Gully Foyle's picture


"so why not try to drink myself sober?
I ended-up hugging a toilet-bowl."

Don't blame others for your bad genetics.

docj's picture

Heh - never met anyone yet who could drink, to excess, continually before ending up putting their head in a place that was never built for one's face, Gully.  But maybe that's just the crowd I run with.

Cheers - (hic)

Gully Foyle's picture


I ran with a tough crowd. Often was blackout drunk but rarely puking drunk. Most of the people I knew were like that.
Then again it could have been the drugs.

docj's picture

Interesting - I've never been "blackout drunk".  Usually leaving my night's consumption in a bowl out the hole it came in was the signal for me to call it a night.

Then again I've never even dabbled with artificial joy, so perhaps that helps explain that.

To be honest though, I quit drinking years ago - was merely using binge drinking as a ludicrous example to highlight the silliness of Leo's argument.

Gully Foyle's picture


Dude viewing my past from my present perspective I'm amazed I'm alive. I'm amazed most of the people I know are alive.
I think if we had access to the quantity, variety, and quality of drugs available today most of us would be statistics.
I drove blackout drunk all the time. I never had an accident.
Either I was an awesome driver with excellent muscle memory or I'm blessed.
Youth really is wasted on the young.

Leo Kolivakis's picture

Wonderful insight, and let me ask you a simple question, should we follow Ferguson's advice? Or go the way of Ireland, Latvia and Estonia? Is that the solution to our economic malaise? No thanks.

docj's picture

Malaise is coming, thanks or otherwise, because all ponzi schemes collapse, eventually.

Hope you make a killing before it all comes crashing down, Leo.  Honestly.  But please don't insult our collective intelligences by trying to convince us all that black is white, up is down, and insolvent is solvent.

PS - no, I did not junk you.

Thoreau's picture

Leo can not see beyond the hubris of the age he was born into. ALL growth is ultimately unsustainable: cosmic, organic, societal, governmental, economic, etc. Yet somehow his society, his government, his economy is different; different being synonymous with unique. The only thing unique about our empire is the reach and level of devastation that has occurred.

The empire of wealth is long past; the empire of delusion has carried us to the doorway of the next empire: reality. So get real, Leo, and get with the program.


malek's picture

There is one thing that is unlimited: the number of new ideas/inventions possible (with practical implicatons to real life, I might clarify.)

So we may be able use the same, limited physical things in a new, more effective manner.
Unfortunately inventions cannot be commanded...

chrisina's picture

What Krugman and many other economists don't seem to understand is that this is not just a cyclical downturn. This is the end of an era, that of cheap oil and debt led growth.

So we are confronted with three problems that require a solution:

1. find a replacement for cheap oil

2. decide what to do with the $60 trillion of public and private debts in the West that will never get paid.

3. find a way to produce the necessary goods and services that is resilient and sustainable, which is the opposite of what we are doing now with an always more concentrated, wasteful and fragile system.

Adding another $ 5, $10 or $20 trllion of Government stimulus from debt is just like trying to prolonge the high of an addict for a little while longer and evidently solves none of the 3 critical problems above.

GBruenetti's picture

There is no such thing as a "global recovery". Unless we find us another energy source of comparable or better EROEI ( ). There is none in sight however.

So the next global recovery will come once we shed enough billion people that we can make do with the energy sources we have then. That's assuming we survive as a race at all.

Cheeky Bastard's picture

Leo, brotha, how did you like that huh? First seemingly polite and cuss words free thread under your article in months. 

Leo Kolivakis's picture


I have become immune to all these personal attacks. Serves no purpose whatsoever to engage with these people, so I just ignore them.

Nihilarian's picture

Except, of course, with this reply.

malek's picture

Hey finally I agree on something with Paul Krugman:
"Much of what Serious People believe rests on prejudices, not analysis."

If I may slightly rephrase that to
"Much of what Serious People believe rests on prejudices or partial analysis ignoring the contradicting facts, not complete analysis"
he does deliver a perfect self description!

mtomato2's picture

"Paul Krugman is a moron. Does he not understand the math? If you spend more than you make, you eventually go broke. You can put off the day of reckoning by borrowing but not forever."


Many counties are currently firing math teachers...  soon nobody will understand the math.  Isn't that what they want?

Nihilarian's picture

...Keynesianism is based on not understanding math. Yet it is part of public school course work. How can the two jive? Frankly, I think firing math teachers is getting to the root of the problem.

Leo Kolivakis's picture

And replace them with more sex-ed teachers. :)

Nihilarian's picture

Not sure that will work. A story by way of a friend's wife who teaches special education: Kids with mental handicaps still engage in sexual intercourse, so it is customary for them to be taught safe sex. My friend's wife taught the class by using a condom and a banana to demonstrate proper safe sex etiquette. The next day she entered the classroom to find two of her students in the middle of coitus. And on a desk next to the students -- a banana inside a condom.

Gully Foyle's picture


"And on a desk next to the students -- a banana inside a condom."

What did it smell like?'s picture



Leo Kolivakis's picture

Chomsky always wrote about how conservatives hate Keynesian economics, but love military Keynesianism. Same goes for corporate welfarism.

overmedicatedundersexed's picture

Leo, don't you know (obviously comrade chomsky does not) . With one you end up with toys with the other you end up with useless paper.

Diogenes's picture

Paul Krugman is a moron. Does he not understand the math? If you spend more than you make, you eventually go broke. You can put off the day of reckoning by borrowing but not forever.

The US long ago passed the point where they could pay back their debts. They can no longer even pay the interest on the debt. They can only survive by borrowing or printing more and more money every month.

The trick for the lenders is to keep making money as long as possible but bail before the Ponzi scheme blows up. In other words you don't want to be the first to pull your money out but you sure don't want to be the last.

As more lenders pull out and the borrowing keeps getting bigger interest rates  must rise as they did in Greece  and elsewhere. When that happens the you know the scheme is going to blow any day.

Austerity and spending cuts are the only way to stop the handbasket. It's no fun but it's better than having your whole economy turn into an exploding cigar.

Canada and New Zealand went through it and survived and so will Europe.

TBT or not TBT's picture

"Paul Krugman is a moron. '

Hmmm.   I think of him as a paid shill, paid for less in money than in self-estime building column inches in the NYT, and dinner party acceptance.    Yassar Arafat and Barack Obama also have Nobel prizes.   Enough said, probably.

juwes's picture

I was in Tokyo circa JPY/USD 122 (It felt like home (except for all the cleanliness), not expensive)!  Any comparisons to their civilization should be dropped after you mention housing crash.


Their habits, lifestyles, history, culture, and everything else is opposite or different to the U.S. in every aspect.


Look elsewhere for couplings to the U.S. economic puzzle.

keating's picture

I like the UK approach. For those on the dole, job training. If you do not accept a job, you are off the dole.  I also like returning to the 2008 spending levels for all government, a massive decrease from this rather short term massive increase. I really like Arnold's choice to put all government workers at minimum wage until the budgets balance.

The stimulus should be resticted to job training and tax breaks for small business.