Submitted by the inimitable Gonzalo Lira
There’s a saying in Spanish: Por la boca muere el pez. “The fish dies by the mouth”.
Nobel economics laureate Paul Krugman has a recent op-ed piece in the New York Times which goes an awful long way to showing that he is a complete and utter imbecile—or the worst sort of cheap huckster imaginable.
In the piece, titled “1938 in 2010”, Krugman argues that 1938 was similar to 2010, in that the Federal governments’ stimulus program—then implemented by FDR—was insufficient to pull the country out of the Great Depression. Krugman argues that this is similar to what has happened to the Obama administration—Krugman has forever been arguing that the Obama stimulus package was “not enough”.
This in itself is not objectionable—in fact, I think policy disagreements are a good thing. They lead to ultimately better solutions, if all sides of a policy debate allow that opposing sides might have very valid points. Krugman’s very valid point is, unemployment in the current Global Depression is severe—therefore, the quick-fix of fiscal stimulus might be best, in order to assuage people’s suffering.
But then, in order to make his point that more stimulus is needed, Krugman crosses the line:
In Krugman’s analysis, 1938 was different from 2010: “Luckily” (most definitely in quotation marks), World War II came to Europe in 1939, and to the U.S. in very late 1941. In Krugman’s analysis, the War saved the U.S. economy. It allowed the Federal government to go into monstrous fiscal debt, in order to fight the war with Nazi Germany and Imperial Japan. This isn’t novel or controversial.
But then, Krugman misleadingly claims the U.S. government “borrowed an amount equal to roughly twice the value of GDP in 1940—the equivalent of roughly $30 trillion today.”
It’s a sneaky asseveration, partly because it sounds plausible—everyone knows the Federal government went into huge debt to finance WWII—and partly because it’s technically accurate: United States’ GDP in 1940—before Pearl Harbor—was $101 billion, and by the end of the war, 1945, the Federal government had borrowed $250 billion. Apply simple math: That’s more than twice 1940’s GDP—closer to 250% of the gross domestic product. Of 1940.
But Krugman is fudging the facts—1945 GDP was $223 billion. So the fiscal debt by 1945 was not “twice the GDP”—it was 116% of GDP. Comparing 1945 debt levels to 1940 GDP numbers isn’t apples to oranges—it’s flat-out misleading.
If you’re going to make a comparison, current debt-to-GDP ratio is much more accurate, in seeing how far the U.S. Federal government went into debt during that period. If we look at the period of the Great Depression and World War II, this is what we find:
(Gross Public Debt, 1930–1950. The blue band is Federal government debt, the red band is state debt, the green band is local debt. Source is here, for both charts and raw data.)
As can be readily seen, the U.S. Federal government debt never surpassed 45% even at the height of the Great Depression. When it peaked in 1946, gross public debt never crossed 130%—and that was after fighting the largest war in human history.
The situation in the U.S. today is nowhere near the same—except in terms of fiscal debt:
(Gross Public Debt, 1970–2010. Color scheme is same as above. Source is here, for both charts and raw data.)
Federal government debt is just shy of 100% of GDP. If we include state and local debt, gross fiscal debt is tiptoeing to 120% of GDP—and now Paul Krugman is saying that even more debt should be piled on.
According to Krugman: It worked in 1945, so it must be good now!
Krugman—obviously—used misleading data points in order to sell his policy prescription. He denies the incredibly different situation the United States finds itself in now, with where it was in 1938. Furthermore, he misleadingly fudges data, mixing 1940 and 1945 data, in order to prove his point.
I will not fall for the trap of inferring that Krugman is arguing in favor of total world war, in order to save the U.S. economy—I think some commentators who are making that inference are driven by mean-spiritedness towards Mr. Krugman.
But I will state—categorically—that Krugman’s misleading use of data to prove his point is something a sophomore eccy student would pull: Not someone who expects to be taken seriously.
If that were his only sin in the piece, then it might be excusable. But then, Krugman makes a truly despicable statement: “Deficit spending created an economic boom [in the post-War years]—and the boom laid the foundation for long-run prosperity.”
Krugman is an imbecile—or he is deliberately distorting history in order to sell his spend!-spend!-spend! bromide like a cheap salesman goosing a distracted customer.
As everyone with even a passing knowledge of post-War history knows, literally the rest of the world was a heap of rubble in 1945—only the United States was untouched by bombs and mortar shells.
The prosperity the United States experienced in the two decades after World War II had nothing to do with deficit spending, and everything to do with the fact that it was the only industrialized nation still standing after a total world war—so the rest of the world was forced to buy from the U.S. because there was no one else left to buy from.
Deficits had nothing to do with it.
Krugman is too smart not to know this—I cannot really believe that he would be ignorant of this basic post-War history.
Therefore, it’s obvious to me that Paul Krugman will say literally anything in order to support his prescription of increased Federal government spending. Not even facts and brute history matter to the man. In a very real sense, Krugman is now Glenn Beck, only with a doctorate in economics, and a hysterical fear and hatred of austerity, rather than terrorists.
I used to take Krugman seriously—often I disagreed with him, but at least I thought he was honestly arriving at his conclusions. But after this piece, I find myself dismissing him with contempt: In his urge to sell his policy prescription, he has sold out his integrity. There is literally no lie or falsehood he will not stoop to, in order to “win” the argument.
Like the fish of the Spanish aphorism, Krugman has killed himself by his mouth.