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Military Keynesianism Gone Haywire: Paul Krugman Pines For World War ... Based On Ginned-Up Reasons

George Washington's picture




 

By Washington’s Blog 

As I have repeatedly documented, influential Americans are lobbying for war in order to save the American economy - what is often called "military Keynesianism".

For the first couple of years that I wrote on this topic, commenters more or less said, "That's crazy, no one is calling for war to stimulate the economy".

When allegations surfaced that Rand Corporation was lobbying the Pentagon to start a war to save the economy, Washington Post hack David Broder started promoting war as an economic panacea, and former Goldman Sachs analyst Charles Nenner and economist Marc Faber started predicting a major war, people started paying more attention.

And well-known economist and writer Paul Krugman has argued for years that World War II is what got us out of the Great Depression.

For example, Krugman writes today in the New York Times:

World War II is the great natural experiment in the effects of large increases in government spending, and as such has always served as an important positive example for those of us who favor an activist approach to a depressed economy.

But Sunday, Krugman went over-the-top by more or less calling for a major war ... and manufacturing a false justification for starting one, if need be:

If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better.

 

There was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time…we need it in order to get some fiscal stimulus.

 

 

 


This statement is disturbing for two reasons.

First, many economists have demonstrated that - contrary to commonly-accepted myth - war is actually bad for the economy.

And the following statement by Mr. Krugman implies - whether intentional or not - the use of hanky panky to justify military spending:

And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better.

Doesn't Mr. Krugman know that governments from around the world have admitted that they carried out "false flag" attacks in order to justify their aims? See this and this.

How can he be so irresponsible to publicly pine for all-out war based upon ginned-up reasons?

Postscript: There have been Internet rumors floating around for years that the government was planning to use a "faked alien invasion" to justify a power grab by the government. I have no idea whether or not that rumor has any truth, and it is irrelevant for the purposes of this post.

 

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Tue, 08/16/2011 - 09:04 | 1564860 dwdollar
dwdollar's picture

This is so stupid I don't know where to start.

Tue, 08/16/2011 - 08:49 | 1564813 rsnoble
rsnoble's picture

Just one problem with all that.........nuclear weapons.  Go ahead and start war with Russia and China. Watch what happens.  I guarantee you won't be sitting at home watching tv like nothings going on like you do now.

Tue, 08/16/2011 - 08:41 | 1564798 daxtonbrown
daxtonbrown's picture

Well Krugman is right in te sense that what we currently have is the makings of a civil war between a keynesian government and its people. Ratcheting Keynesianism has created debt bondage (slavery) not only for current citizens, but for future generations. Since the unfunded libilities cannot be sustained, there must come a time of revolt, it is baked in the cake. So in a perverse sense Krugman is right, except the war will be to move idiots like Krugman from the seat of power. There's a book on what this civil war would look like. http://www.futurnamics.com/civilwar.php

Tue, 08/16/2011 - 09:09 | 1564783 falak pema
falak pema's picture

Is Herr Krugman the new seer of Obama's NWO, the new Keynes in the doom and gloom of Peak Everything? The Guderian of flatten earth rage to solve the abrupt roll back of golden consumerism age? 

Remember, the 20th century with its prodigious economic and demographic growth, resembles in many ways to that most exciting century the 13th, when the Crusades, the silk and spice trades, made the world Marco Polo's 'star trek'. It was a similar age of growth and innovation. It was then followed by the 14th, prodigious in its ability to spread the plague and wars. Europe lost a third of its population. 

Now Herr Krugman proclaims the right of military conquest in the name of the Teutonic Order as he faces the Golden Horde. 

Using undoubtedly as pretext that the rats came to Europe on those Genoese boats who docked in Alexandria or Constantinople and brought their ominous cargo to our shores from dirty Cathay! 

There you go! Casus Belli! Irrespective of if those rats be arab, iranian, paki/afghan, ching chong dang along, or banzai fukukongs. They are spreading the plague of galloping debt and instablity.

Can't have global instability, not good for DJ, USD/EURO bongs. Carthago delenda est! A heretic is a heretic is a heretic, and he's always from dirty Carthage spelt Cathay.

Tue, 08/16/2011 - 08:15 | 1564740 dcb
dcb's picture

I have been saying for a while he is loosing it, and this is ore confirmation. Alas, you can be very smart and be a bit unstable. think a beautiful mind, aspergers, etc. he has a specialization which he belies with all the faith of the pope, but he can't see the forrest for the trees and is unable to see the destruction of the middle and poor class his economic policies have caused.

Tue, 08/16/2011 - 07:28 | 1564633 æther
æther's picture

Oceania would never go to war against Eurasia since they are our allies against the -e-v-i-l- Eastasians. We'd go to war with them in a heartbeat.  Unless they offered us a deal to attack the Eurasians.......

 

Ahh, prophecy: http://en.wikipedia.org/wiki/Nineteen_Eighty-Four#Political_geography

Tue, 08/16/2011 - 07:15 | 1564603 Burticus
Burticus's picture

Krugboy just signaled that neo-Keynesian insanity has reached its limits.  At my age, I'm perfectly comfortable shooting it out with these @$$#0!e$, but would prefer not to risk my children's lives.  Uruguay, Paraguay and Chile are looking more attractive each day.  If it weren't for walking on my business (which the depression will probably destroy anyway), I would be gone already.

Got rope?

Tue, 08/16/2011 - 06:29 | 1564564 stant
stant's picture

alien bubble

Tue, 08/16/2011 - 06:24 | 1564561 zerohedgeJUNKIE
zerohedgeJUNKIE's picture

You know what? lets send Krugman on the frontline of the war that US is waging now and if he survives let's ask him again if negative inflation is good. This guy is nuts!

Tue, 08/16/2011 - 06:12 | 1564547 slackrabbit
slackrabbit's picture

Christ they're insane.

Its like all the ose people who talk about the Japan earthquake being good.

They should be the first to die for their cause!

Tue, 08/16/2011 - 05:20 | 1564523 latentdissident
latentdissident's picture

The guy said "i always considered myself a free market keynesian". Excuse me?!?!?

Tue, 08/16/2011 - 09:17 | 1564902 Azannoth
Azannoth's picture

In Germany all politicians(a the majority of population) describe them selves as 'free market socialists' and you know what ?

no1 laughs about it people here think it's a valid statement

And capitalism is an outright dirty word, you won't make many friends here openly calling your selft capitalist

Tue, 08/16/2011 - 22:01 | 1564505 honestann
honestann's picture

Oh, I forgot that I figured out Krugman a long time ago.

Krugman is in a multi-year campaign to be the next chairman of the federal reserve!  Unless RonPaul is elected, what president wouldn't just love to replaced the second most egregious money-printer in the universe with the most egregious money-printer in the universe?

Krugman, give it up!  The fed is on its way out, and you with it.

Tue, 08/16/2011 - 04:30 | 1564495 honestann
honestann's picture

Krugman is a blatant outright self-admitted criminal.  Just because he doesn't say it in those words, doesn't mean he doesn't say it for everyone [with half a brain] to hear.  Amazing what total morons rise to the top.  As they say, scum rises.

The only sense the Krugman argument contains a whiff of truth is that many technologies have a great many applications, and technologies developed for military purposes are no exception.  However, to follow up with a conclusion that "war is good for the economy/country/world" rather than "technology is good for the economy/country/world" demonstrates conclusively that Krugman is either a blatant, intentional, criminal-minded liar, or has an IQ below 70.

Or both.

Tue, 08/16/2011 - 08:16 | 1564743 The Limerick King
The Limerick King's picture

Let's ponder Paul Krugman's IQ

More Critical Thinking is due

Three digits, perhaps

But a slower synapse

Means that most of his thoughts turn to goo.

Tue, 08/16/2011 - 05:44 | 1564537 Sambo
Sambo's picture

Both.

Tue, 08/16/2011 - 04:21 | 1564490 navy62802
navy62802's picture

What a joke. How do you know when an economic philosophy has utterly failed? When its poster child (who has a Nobel Prize, no less) advocates for a faked alien invasion to spark the economy. I mean WTF??? Is this the real world or the dream world? I think some people would be forgiven if they thought they were just dreaming after watching that piece. How can you take someone like this seriously? He should be laughed right out of his profession.

Tue, 08/16/2011 - 05:46 | 1564540 Sambo
Sambo's picture

Nobel prize is a useless piece of candy given to immature, attention grabbing morons who think they have IQs exceeding 200.

Tue, 08/16/2011 - 03:08 | 1564443 Temporalist
Temporalist's picture

LOL If it happened on an episode of the Twilight Zone it must be good!

That people listen to that hairy econo-gremlin is reality turned true Twilight Zone.

Tue, 08/16/2011 - 09:07 | 1564869 Gully Foyle
Gully Foyle's picture

Temporalist

"LOL If it happened on an episode of the Twilight Zone it must be good!"

Well there was this.

http://x-files.wikia.com/wiki/Pilot_%28The_Lone_Gunmen%29

While he and the other Lone Gunmen attempt to steal a computer chip, Byers receives news of his father's death and the trio soon find themselves unraveling a government conspiracy in which an attempt to fly a commercial aircraft into the World Trade Center would result in increased arms sales for the United States of America.

 

We know how well that went.

Tue, 08/16/2011 - 03:08 | 1564437 Poofter Priest
Poofter Priest's picture

Generalities are the expression of a weak mind.

 

Man....you have lots of them.

 

Jack off

 

This is for post # 1564347 AnAnon-

Tue, 08/16/2011 - 04:15 | 1564486 AnAnonymous
AnAnonymous's picture

Generalities are the expression of a weak mind?

So it means that the US citizens generalities can be captured by a weak mind.

Speaks tons about the quality of US propaganda.

Tue, 08/16/2011 - 02:52 | 1564427 CEOoftheSOFA
CEOoftheSOFA's picture

The notion that WW2 ended the depression is mistaken.  The unemployment numbers improved during the war, but the increase in economic activity was a result of increased federal debt which is unsustainable, and therefore doesn't count as a recovery.  The economy had a sustainable recovery after the war when there was an increased level of exports due to everyone else being blown to smithereens.  We could have taken advantage of that without actually going to war. 

The same in the 1980's.  The economic recovery was partially due to a quadupling of federal debt, so the recovery was partially unsustainable. 

 

Tue, 08/16/2011 - 12:34 | 1565762 Liquid Courage
Liquid Courage's picture

Yes, excellent points for sure, but there's another thing to add to the mix: the savings rate during the war rose to over 25% ... pent-up demand and money - NOT debt - to spend makes a powerful combination.  See a chart of the Savings Rate here: http://www.calculatedriskblog.com/2009/09/pimco-personal-saving-rate-to-...

Of course in the Bizzarro World of Keynes and his minions the exact opposite view of savings is held. That our so-called "best and brightest" can't see any other way than mass murder and destruction on a vast scale to correct the problems they've created is nothing less than a disgrace. Oh, wait ... he just wants to create a fake crisis ... what a prince of a guy. When logic leads to clearly insane conclusions, is it not time to - as a famous woman once said - "check your premises"? To fail to do so even in the face of potentially horrific outcomes is - there's just no other conclusion - insane.

Tue, 08/16/2011 - 04:42 | 1564494 navy62802
navy62802's picture

In fact, Tom Woods has a great lecture on specifically this topic. I'll see if I can find a link.

Here ... http://www.youtube.com/watch?v=3SNW0os5HpU

Tue, 08/16/2011 - 03:07 | 1564442 coffee_sponge
coffee_sponge's picture

Excellent points. In reality, the economy didn't begin to really take off until the new Republican Congress, elected in 1946, forced the end of much of the New Deal's economic regimentation, reigned in out of control unions with the Taft-Hartley Act, and cut taxes, in addition to other reforms.

Tue, 08/16/2011 - 02:39 | 1564414 coffee_sponge
coffee_sponge's picture

Only an establishment buffoon like Krugman would suggest that channeling productivity into things designed to be blown up on a battlefield can somehow make us wealthier.

 

Following Krugman's (il)logic, maybe we could once every year torch our homes and all our belongings. Then, the government can create $1 million in fiat currency to pay each of us to rebuild everything again. BRILLIANT! Full employment and we spend ourselves rich in the process!

 

What a dumbass! The stunner is there are people actually who take this moron seriously.

Tue, 08/16/2011 - 02:00 | 1564355 DaBernank
DaBernank's picture

In his next article he will say that if we kill everyone at age 67 we could save social security. Krugman has gone full retard. I'm almost starting to feel sorry for him. Naaaaaah, he's just an idiot with a big pulpit.

Tue, 08/16/2011 - 02:05 | 1564366 mcguire
mcguire's picture

there is nothing new that krugman is saying... it was all said in the "report from iron mountain" in 1967...  

i encourage everyone to read this, if you havent.  it is said that it has been "debunked" as inauthentic, but if you read it, you will certainly judge it to be the real thing:

http://www.teachpeace.com/Report_from_Iron_Mountain.pdf

EVERYONE SHOULD READ THIS!!!

Tue, 08/16/2011 - 06:36 | 1564570 falak pema
falak pema's picture

Done! TY. Awesome and machiavellic...But what's new under the sun? Its the collateral...more bangs for the buck! Planned obsolescence of livestock on grand scale...all genders, all varieties, no exceptions.

Tue, 08/16/2011 - 01:50 | 1564339 three chord sloth
three chord sloth's picture

I think we in the West are in the end time of a 40 year era of increasing malinvestment. In an environment of massive malinvestment, all new debt, no matter what it is spent on, only produces a fake sugar high, followed by a crash. The losses in that crash are bigger than the minimal gains made while the new debt is run up.

I think we need a depression. Not as some sort of kharmic balancer, but simply to clear the never-gonna-be-paid-back mountain of debt, and to maybe get the people's feet back somewhere near planet Earth again... both the elites and commoners alike.

Keynesianism hasn't worked, and cannot work, in the outsourcing, globalized debt-ponzi we call the modern-day West.

Tue, 08/16/2011 - 02:02 | 1564361 AnAnonymous
AnAnonymous's picture

That is just drivel.

Depression, recession, all words that only cover the engine phenomenom: expansion.

The US had already had a end of expansion experiment when the expansion scheme into the Indians land, the colonization of the Indian lands came to an end the harshest way possible: no more indian lands to expand into.

It matured in the Great Depression. Which was not the terminal point though as it was still possible to expand in the rest of the world.

Today, the world is global. With the grand fiasco called Space Conquest, US citizens have told two things at least:

they knew that the present times were coming.

they were able to change their ways.

Next is known, it will follow the expansionist book. US cheap propaganda cant cover for that.

Tue, 08/16/2011 - 02:01 | 1564354 gangland
gangland's picture

 

Neo-Keynesianism has not worked, Keynesianism worked perfectly until 1980 and Reagan.

Tue, 08/16/2011 - 09:29 | 1564950 Diogenes
Diogenes's picture

You obviously didn't live through the seventies or you couldnt say that with a straight face.

Keynesianism only works temporarily or as Keynes himself put it, in the long run it is a disaster but in the long run, we are all dead.

 

Tue, 08/16/2011 - 02:12 | 1564380 DaBernank
DaBernank's picture

One could say 'Reagan' but one would have to ignore the 1970s.

I prefer to say: Keynesianism might have worked before an integrated and globalised world and the rise of China. 'Stimulus' in the US now creates jobs and economic growth in China, Keynesianism is still working so very well. Keynes stated in the German edition of his theory that a closed, centrally-planned economy was really the only place he could see his theory working at all.

Tue, 08/16/2011 - 02:23 | 1564391 AnAnonymous
AnAnonymous's picture

One could say 'Reagan' but one would have to ignore the 1970s.

No. The 1970s are the moment the US had to come to terms with the fact oil extraction could not grow up to the skies. It was somehow limited.

A fact expansionists had denied until the moment they could no longer deny it.

It is how US made propaganda introduces mistakes.

Expansion gifts are a possible promise in an open space (hence the wish to expand into space)

In a closed space, well, expansion enters other stages.

So it is the opposite conclusion to the one achieved when mislabelling expansion as something called keynesianism. 

Tue, 08/16/2011 - 03:01 | 1564387 gangland
gangland's picture

DaBernank,

agreed (1971 gold window shuts, viet nam goes on for 5 more years, new york white flight, nyc almost bankrupt, enter salomon brothers bond arbitrage desk and the rest is history), got a little too partisan simplistic there, thanks for the check.

Tue, 08/16/2011 - 03:05 | 1564440 AnAnonymous
AnAnonymous's picture

Tied to oil and ultimately expansion. The US would have run out of gold before the world had run out of oil. The credit based economy allowed in a new round of expansion.

Etc... Windows dressing.

Tue, 08/16/2011 - 02:06 | 1564368 AnAnonymous
AnAnonymous's picture

No. What has worked is expansion.

Anything attached to it to cover it will de facto works because expansion works.

It is a petty trick by the US citizens propaganda army.

The nineteenth US century was a story of expansion. This expansion, US citizens call capitalism.

The post WW2 period was a story of expansion. This expansion, US citizens call Keynesianism.

The core phenomenum: expansion. Calling expansion fubarism will mean that fubarism works when expansion works.

Tue, 08/16/2011 - 01:38 | 1564326 AdahPrice
AdahPrice's picture

Seen on a bumper sticker: "My dog is smarter than Krugman."

Tue, 08/16/2011 - 01:56 | 1564347 AnAnonymous
AnAnonymous's picture

It is possible.

Not surprising though. Krugmann is a US citizen. US citizens are expansionists.

And when expansion enters the stage when expanding is less and less possible, expansionists usually can not admit that the major issue lies here: less and less expansion.

It is time, as it is typical to expansionists for crazy explanations, for crazy solutions. Because the reality is harsh to expansionists, their nature pushes them to expand and they can not expand.

The very fact that US citizens are duplicitous and usually dont admit they are expansionist wont help.

One can expect more of the same.

Alas for expansionists, the turning point was the big fiasco named the space conquest, which returned a negative.

It also tells something else: the very fact that expansionists (US citizens) knew the current time was going. They knew the world was finite and that their expansion mantra would lead to deep troubles so they tried to beat the finite Earth dimension by expanding into Space.
Grand fiasco. Which did not lead them to change their mind, they have kept expanding in spite of the known end.

They knew, they did nothing to change their ways.

The US citizens nature is eternal.

Tue, 08/16/2011 - 14:31 | 1566288 viahj
viahj's picture

you go on and on and on about "US Citizens Nature" but tell me Mr An, where in the world outside of tribal Africa, South American and Indonesian rain forests, are there any other "citizens" who aren't expansionist?  China?  HA!

Tue, 08/16/2011 - 01:25 | 1564302 tom
tom's picture

This is the basic flaw of Keynesian theory, so stupid and so simple, it's hard to believe that's all there is to it. They are so focused on their measurements of the economy, namely GDP, and so removed from the real economy, that they are actually capable of believing that war makes people wealthier. I don't mean winning and capturing resources, which does make one wealthier. I mean the actual act of fighting.

In conventional GDP accounting, producing a tank boosts GDP by however much it costs to produce a tank. Imagine it proves to be a crap tank, and gets stuck in the mud and blown up the very next day. You would have to say that tank was a terrible waste to produce. But in conventional GDP counting, it was as valuable as it was expensive, period. Keynesians habitually completely gloss over this basic flaw of GDP accounting and contend that anything that boosts GDP is inherently good for the economy.

Another important flaw of GDP that Keynesians ignore is how it accounts for investment versus intermediate production. The cost of production of intermediate goods that are fully consumed in the making of final goods is subtracted from the sales price of the final goods. But the cost of investment in capital goods that are partly used up in the making of final goods are never subtracted from the sales price of the final goods. If you do subtract the capital depreciation, you get net domestic product, or national income if you're starting with GNP instead of GDP. NDP and national income are measures of an economy's value creation. GDP is not as it includes a lot of double-counting.

How this matters is when assessing the value of a white elephant investment. Since a white elephant has no useful life, its subtracts from NDP or national income as much as it cost to produce. In GDP, however, a white elephant is counted as a positive, as much as the investor paid for it. Keynesians typically ignore this flaw of GDP, and assume that building white elephants must be good for the economy because it boosts GDP.

 

 

Tue, 08/16/2011 - 03:27 | 1564454 Pay Day Today
Pay Day Today's picture

The flaws you are talking about are more related to neo-classical macro-economics than anything else. The Chicago school has been in absolute charge over the last 30 years, not the Keynesians.

Tue, 08/16/2011 - 10:02 | 1565055 tom
tom's picture

Bzzzt. Totally goofball answer.

GDP was introduced in 1934, and its very similar sister measure GNP is older still. GDP school isn't neo-classical, Chicago school or Keynesian, it's just classical.

However the issue isn't whether GDP has flaws. All economic measures have flaws. The issue is whether one ignores the flaws and fools oneself into thinking that anything that improves the economic measure improves the economy.

GDP's key flaws are:

- It double-counts the value of capital investments by not subtracting them from the value of the produced goods that consume those fixed investments

- It counts unutilised capital investments as having value equal to their price.

- It treats durable goods identically to non-durable goods, not recognizing any difference in value between two durable goods with similar prices, one of which lasts 20 years and one that lasts 6 months.

- It makes no distinction between production and consumption that people want and production and consumption that people are obliged to undertake. GDP regards joy rides and commutes to both be expressions of wealth, when the latter is actually a cost. Likewise the production of military equipment and the services of soldiers is treated the same as production of airplanes for tourism and the services of airlines, although military expenditures are (perhaps necessary) costs.

Life is complicated and there is no way to accurately measure wealth creation with any simplistic, one-rule-fits-all formula. The point is one needs to understand GDP's flaws and keep in mind that many things that boost GDP destroy wealth. That is where Keynesians routinely go wrong. Looking at WWII's GDP growth and imagining it was a time of wealth creation is incredibly stupid. And yet Keynesians routinely do just that.

Tue, 08/16/2011 - 08:54 | 1564748 falak pema
falak pema's picture

did the chicago school invent bare, back room plays with HFTs (hard fisting tantric-algorithms)?

It brings a new dimension to puts and calls on peer to peer PD plays, outside the official bourses inside those insidious, lurky, murky dark pools.

Tue, 08/16/2011 - 04:21 | 1564488 gangland
gangland's picture

 

yup, well done.

Tue, 08/16/2011 - 01:39 | 1564328 gangland
gangland's picture

 

neo-keynesianism is quantitative, whereas keynesianism includes qualitative as well as quantitative analysis.

hence, neo-keynesian models do not/cannot capture irrationality, while being in themselves very illogical, if not irrational, in expressely rejecting qualitative analysis.

Krugman is a neo-keynesian.

Tue, 08/16/2011 - 01:21 | 1564291 moonstears
moonstears's picture

Does Krung-Man the buffoon economics guru have a single idea of his own? What a piece of fuck!

Read on and be amazed at what you'll find fellow ZHers(p.s. note the year published) :

http://projectcamelot.org/Report_from_Iron_Mountain.pdf

Tue, 08/16/2011 - 02:07 | 1564369 mcguire
mcguire's picture

ah, glad you posted this, i put this above.  everyone should read this!!!

Do NOT follow this link or you will be banned from the site!