Why Paul Krugman Should Go Back To 5th Grade

Tyler Durden's picture

Submitted by Michael Shedlock via MishTalk.com,

Economist Paul Krugman is whining for more fiscal stimulus, his favorite pastime by far. Krugman’s target this time is Japan.

Let’s take a look at Krugman’s arrow theory, then politely smash it into the next galaxy.

Please consider Abenomics and the Single Arrow by Paul Krugman.

Some disappointing numbers on Japanese GDP, and the usual suspects are out there denouncing Abenomics and calling for structural reform, the universal elixir. And the evidence that structural reform is the answer is …


What I believe to be the real lesson of Abenomics so far is the limits of monetary policy. There were supposed to be three arrows — monetary policy, fiscal expansion, and, yes, structural reform. But really only the monetary arrow was fired.


Overall, fiscal policy in Japan has actually gotten tighter, not looser, since Abenomics began, mainly thanks to the consumption tax hike; other measures didn’t offset this much.


So all the weight rested on unconventional monetary policy, which did succeed in depressing the yen and pushing up stocks, but hasn’t been enough to generate a convincing boom or rise in inflation.


And that appears to not be enough, just as the ECB’s actions haven’t been enough without fiscal support. Never mind the third arrow: what we need is the second.

Decades of Stimulus Failed

Japan has actually had decades of stimulus. And every month Japan announces more. Bloomberg View columnist Noah Smith says Japan’s New Stimulus Is Just the Same Old Thing.

This week the government of Prime Minister Shinzo Abe proposed a new fiscal stimulus package. It is moderately sized: about $45 billion in U.S. dollars this year, and about $60 billion in low-interest loans, to be followed by slightly less next year.


That move might win a few halfhearted cheers from Japan’s battered consumers, but it’s unlikely to have much of an effect. First, it’s just another in a long series of such moves, none of which have done much to jog the country out of its long, grinding stagnation.


Bloomberg News’s Maiko Takahashi and Isabel Reynolds have a great chart showing a quarter century of Japanese stimulus bills, including a breakdown of their announced sizes and their actual spending amounts:


Japan Spending


Businesses and consumers have come to expect this regular flow of government spending — having experienced it nonstop for over two decades, they’ve already accounted for it in their investment and consumption plans.


But there’s another, even bigger reason why this stimulus isn’t going to do much to juice Japan’s economy. The economy is already at full employment.


Demand-side measures, by their very nature, rely on putting unused resources to work. Idle factories and unemployed workers are matched, thanks to the flow of government spending that works its way through the economy.


Japan’s employment rate now stands at a historic high. Almost 73 percent of the population aged 15-64 have jobs. In the 1980s, the rate was under 68 percent. There are simply very few Japanese people left to put to work.


Fiscal stimulus is not supposed to work very well under those conditions. Studies of fiscal multipliers — a measure of the effect of government spending on gross domestic product — typically agree that return is much lower when unemployment is low. So we should expect this new bout of spending to get very little bang for the buck.


In the meantime, the new spending will actually undermine one of Abe’s most overlooked accomplishments — fiscal sustainability.


So what should Japan do instead of continual fiscal stimulus? At this point, there’s really no option except to focus on worker efficiency. Japan’s labor productivity has been essentially flat for a decade. Monetary and fiscal stimulus have put everyone in Japan into jobs, but they aren’t doing the kind of work that takes full advantage of their skills. Productivity-focused reforms — improving corporate governance, liberalizing labor markets and opening up protected domestic markets — are the best move, even though they will take years to have an effect.

Lesson for Krugman

Please consider a flashback to the 2009 New York Times article Japan’s Big-Works Stimulus Is Lesson.

The Hamada Marine Bridge soars majestically over this small fishing harbor, so much larger than the squid boats anchored below that it seems out of place.


And it is not just the bridge. Two decades of generous public works spending have showered this city of 61,000 mostly graying residents with a highway, a two-lane bypass, a university, a prison, a children’s art museum, the Sun Village Hamada sports center, a bright red welcome center, a ski resort and an aquarium featuring three ring-blowing Beluga whales.


Nor is this remote port in western Japan unusual. Japan’s rural areas have been paved over and filled in with roads, dams and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180 percent of its $5.5 trillion economy — while failing to generate a convincing recovery.


One lesson Mr. Geithner has said he took away from that experience is that spending must come in quick, massive doses, and be continued until recovery takes firm root. [Quite frankly that is idiotic because logic dictates that as soon as the stimulus stops the recovery will die as well.]


“It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”

[Yes indeed – Do something useful. But who can determine usefulness other than the free market?]


In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office. The spending peaked in 1995 and remained high until the early 2000s, when it was cut amid growing concerns about ballooning budget deficits. [Deficits be damned. Spend more says Krugman].


Economists tend to divide into two camps on the question of Japan’s infrastructure spending: those, many of them Americans like Mr. Geithner, who think it did not go far enough; and those, many of them Japanese, who think it was a colossal waste.


Beyond that, proponents of Keynesian-style stimulus spending in the United States say that Japan’s approach failed to accomplish more not because of waste but because it was never tried wholeheartedly.

Bubble Blowing Beluga Whales


Never Enough

With full unemployment, roads paved and repaved to nowhere, and bubble blowing beluga whales, just what the hell is Japan supposed to waste money on?

Curiously, Krugamn says it doesn’t matter. He once proposed a fake aliens from outer space scare as the solution to stimulate the economy.

But roads and bridges and bubble blowing blowing beluga whales are surely better than fabricating space aliens or paying people to dig ditches and others to fill them up again.

The problem is, it’s hard arguing with economic illiterates like Krugman. He can (and will) say “spending wasn’t enough”.

One can never prove him wrong. The implosion of Japan would not do it. His built-in excuse would be Japan did too little, too late.

Economists in Need of Remedial Education

Just once I would like Krugman to address in his model what happens when the stimulus stops. He cannot and he won’t because he has no answer.

The average 5th grader understands it’s absurd to pay money for something guaranteed to be useless, but the average Keynesian economist doesn’t.

Krugman would do himself a favor if he threw away what he thinks he knows about economics and went back for a nice 5th grade education.

Comment viewing options

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

Hello, Krugman.



Stuck on Zero's picture

Krugman's idea of stimulus: Bleed the middle class of everything and hand it all to the billionaires. 

Manthong's picture

The only problem with broken windows Krugman is that his gray whiskers are longer than he is tall.

eclectic syncretist's picture

How many Ivy League Economics Ph.D's does it take to figure out that punching a few numbers into a computer and running a printing press for a couple of hours isn't sufficient to stimulate an economy comprised of millions or even billions of people? More than the world has apparently. What happened to our educational system that it's putting out people who are this stupid?

Krugman and his ilk apparently can't see the forest for the trees, which is the optimistic take on his lack of understanding of economics. The more pessimistic possibilities are he's deluded himself or he's lying.

Vampyroteuthis infernalis's picture

Keynesian thinking is the favorite of crooked politicians everywhere. You temporarily stimulate the economy and it cost you NOTHING in the short term. Bingo! You are reelected and life is good. Never mind the future, those dumb ass kids can pay for it.

Max Hunter's picture

We are taking the wrong approach here.  We should support these ideas and encourage printing.  This would hasten the reset that we all know must take place and since we are all geniuses able to foresee it, we should be able to profit from it.

PrometeyBezkrilov's picture

So you can make a few conclusions from this fact. Number one is that the whole Noble Prize scheme is run by shysters. Number two, they give out prizes to shysters (read Krugmans of the world) for more credibility in order to cover up for bigger shysters (such as the controllers of the Federal Reserve or ECB)

Shemp 4 Victory's picture

Number 3: If Krugman is going to make it through grade 5, it will have to be in the Special Ed class.

remain calm's picture

Krugman sleeps naked with his pet cats. Enough said.

Philo Beddoe's picture

That is his only way of getting pussy. 

remain calm's picture

Thats only because his mother wanted a surrogate.

junction's picture

Did someone say "real estate bubble"?  When the American real estate bubble really implodes, all those hedge fund buyers of apartments on Billionaires Row at 57th Street in Manhattan will start walking away from their no-money down 100% financed pied-a-terre apartments.   

Lordflin's picture

I can think of a couple of destinations for Krugman. Somehow the fifth grade does not immediately come to mind...

TalkToLind's picture

In Krugman we trust.

J Jason Djfmam's picture

They could clean up that festering Fukushima.

Here2Go's picture

No Wait! Here's a better idea! Let's Have The Olympics!

Doom Porn Star's picture

Krugman is a very absorbant guy.  A sort of human sponge.

He would be perfect for moping up nuclear excretement...

Schmuck Raker's picture

I think it best to keep Paul away from the children. Don't you agree?

Philo Beddoe's picture

Yeah, the would probalby beat the shit out of him and steal his lunch money. 

monad's picture

He offered me his lunch money sir. He said it was fair.

ChemtrailPilot's picture

The government should put up a few hundred billion dollars to repeatedly bury Paul Krugman in a ditch and dig him back up again. How about it, Congress?

bruinfan's picture

I don't think Krugman is stupid.  I think he knows that what he is saying is not true.

Draw your own conclusions from there.

cowdiddly's picture

In reality, Krugman is just an insignificant ass clown who's way overpaid paycheck depends on his not understanding

In the end he will be begging for copper coins from whores.

Edit: (not much different than what he does now.)

KickIce's picture

What the average Keynesian does know is that his salary depends on defending the status quo.  He's selling out his soul and fellow countrymen but probably rationalizes that by thinking that if I don't do it someone else will.

NoWayJose's picture

If someone wants to pay me a million dollars if I tell them to 'spend even more' - then I guess I would say the same thing!

111111111111's picture
111111111111 (not verified) Aug 16, 2016 10:16 AM

i think he should go back to pissrael. but what i really think he should go into an oven.

Spungo's picture

I'm a huge fan of Krugman because I'm now a member of the outer party. I'm also fully invested. Doing dumb shit like printing trillion dollar coins throws most Americans under the bus, but I would benefit from it. w00t

monad's picture

Krugman needs to volunteer in South Sudan. Until he gets wise.

S Spade's picture

krugman = nytimes, googles, facebook, hollywood, network media and cable providers = academia (misnomer) = democrat party/cpusa...all engaged in a power play that engages in disinformation to transform our nation into a one party state.  cloward piven their road map.

adonisdemilo's picture

Somebody(idiot ) must be paying money to you, you dumbfuck, and you're bloody useless.

51.9Percenter's picture

We need QE for the people. Put 2k in every families bank account and tell them to pay down their debts first and then spend it on Western made goods. 

SomethingSomethingDarkSide's picture

What I would give to have him go for an Elevator Ride with Ray Rice..

sgorem's picture

"MOAR STIMULUST!!!" Cried the almost forgotten relic krugman as he wanders from one cheap gig to the next carrying his ill gotten nobel medal. the same worthless nobel prize as the clown in the whitehouse(?) will shuffle through the 'hood shouting, "yo! looks at me and mine piece price! nuffin butt dope & chains...........

VWAndy's picture

  In Bartertown we may get to watch him eat his cat. Id pay real money to see it.

just the tip's picture

i think shedlock should go back to fifth grade.  nothing to do with kman.

Sandmann's picture

Not clear why Krugman or Bernanke or Greenspan or Summers are thought to have any of the answers. Seems to me they are in fact the problem

Infield_Fly's picture
Infield_Fly (not verified) Aug 16, 2016 11:36 AM

Krugman sucks Hillary's cock full time.


He is only a part time economist.

FlKeysFisherman's picture

Oy vey, shut it down.

Phillyguy's picture

The US emerged from WWII as the world’s wealthiest and most powerful country, a position it maintained until the mid-1970’s. At this point, US corporate profits began to decline, the result of increasing competition from rebuilt economies in Japan (benefitted from US wars in Korea and Vietnam), Europe (Marshall Plan) and later China. In response to this structural economic decline, US government/corporate policies: 1) cut taxes for the wealthy and attacked labor (firing of PATCO workers; Reagan), 2) cut assistance to poor families, out-sourced jobs (NAFTA) and deregulated finance (repeal of Glass Steagall and passage of Commodity Futures Modernization Act of 2000) under Clinton. 3) Bush II came into office in 2001 and promptly introduced more tax cuts for the wealthy and following the 911 terrorist attacks, committed US taxpayers to pay for $ multi-trillion wars in Afghanistan and Iraq, and following the financial implosion of 2008, spent $ 800 billion from the Treasury on bank bailouts. 4) Obama has continued Bush II policies, spending ~ $5 trillion of the FEDs QE program to continue propping up (still) insolvent banks as supplying unlimited amounts of ultra-cheap money to TBTF corporations for stock buybacks and M/O deals and $ trillions more on wars now stretching across the ME.  

World capitalism has continued to stagnate/decline since the 2008 financial crash, which has been partially masked over by continuous Central Bank intervention. As recently pointed out by David Stockman- since the 2008 financial crash, there been an “orgy of corporate borrowing” with much of these funds recycled into secondary markets for existing assets via “financial engineering” made possible by ultra-cheap money supplied by the US FED. To put this in perspective, since 2010, US companies have spent circa $6 trillion on stock buybacks and cash M&A deals. (See: The Fed’s Third Mandate and the Destruction Of Honest Finance by David Stockman Jun 23, 2016; Link: davidstockmanscontracorner.com/the-feds-third-mandate-and-the-destruction-of-honest-finance). Capitalist economies cannot grow without continuous business investment, which provides decent paying jobs and purchasing power for working people.


1. The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy by Yanis Varoufakis

2. Capitalism and Its Current Crisis by Prabhat Patnaik; Link: monthlyreview.org/2016/01/01/capitalism-and-its-current-crisis

3. Monopoly Capital: An Essay on the American Economic and Social Order by Paul A. Baran and Paul M. Sweezy

Mountainview's picture

The decline started with Grünspan.

SwiffFiffteh's picture

Ahh, you crazy-loon lerftards are all the same.

"Capitalism s-sucks!!"


"B...because not everyone....g-gets rich, so there's, like, inequality and stuff! It's not f-fair!"

"Inequality" in and of itself is not a bad thing. Life is full of inequalities, no amount of social engineering or government playing Robin Hood can ever fix that.

The real measure is whether or not the Standard of Living per person has increased. Which it has. On nearly any scale you care to examine it. The "poor" in the U.S. have riches and wonders beyond the wildest dreams of even the most decadent rulers of the past.

But ignoring all of that(I know you will anyway)...you all love to go on shouting about the "evils" and "flaws" and "failures" of Capitalism, which turn out to be centered around problems that arise where true free-enterprise capitalism has been choked and stifled by so much government interference that it no longer can be truthfully called capitalism(so of course, you do). And even with all these erstwhile flaws and failures, what you are all essentially saying is "Capitalism is not perfectly awesome all the time everywhere! O, da humanity!!"

But of course, this implies you want ultimately to abolish Capitalism alltogether and replace it with something else.

With what, if I may ask? What economic philosophy are you proposing we adopt in place of Capitalism? Some Marxist farce that has failed utterly and devastatingly every time it is tried? Or something brand new, never before tried, totally unknown? ....to replace the economic philosophy that launched the human race up the scale of ubiquitous wealth and technological achievement so fast we went from horse-and-buggy to man-on-the-moon in less than a century?

Can't wait to hear your response, I'm sure it will be as propagandalicious as your original comment.


Contrariologist's picture
Contrariologist (not verified) Aug 16, 2016 12:10 PM

Would love to see just how much debt-based "stimulus spending Krugman is doing to stimulate the USA economy...I bet he is sitting on cash and gold.

Tsunami Wave's picture

I see you used a photo from the movie 'Syriana'. Nice touch (Since it obviously looks like Krugman). Interestingly, George Clooney's character dies from getting droned in the end - Mind you this movie was made back in 2005.

cheech_wizard's picture

One bullet, one dead imam, err, Krugman...(but what is the difference really, both are prostelytizing all the time.)

Standard Disclaimer: https://www.youtube.com/watch?v=P5Qs8dHthqM

Constitution_Bitches's picture

He ain't that stupid, he KNOWS he is part of the great Global financial rape.

He knows he is complicit in transferring Trillions and Trillion of wealth from the people to his select circle jerk buddies.

Krugman should be hung for his role in the utter financial ruin he has perpetrated around the Globe.  

pebblewriter's picture

"Just once I would like Krugman to address in his model what happens when the stimulus stops."

The problem is that QQE can't stop. Since the BoJ and GPIF own so much equities outright and through ETFs, Japan can't stop supporting them without expanding their current losses. It's an equity trap that any 5th grader could have seen coming.