Saturday, October 29, 2011

Paul Krugman is Wrong, Wrong, Wrong

Economics, as I say often, is not a morality play. As far as creating aggregate demand is concerned, spending is spending – public spending is as good as but also no better than private spending, spending on bombs is as good as spending on public parks.
Economics is not a morality play but spending on bombs is NOT "as good as" spending on parks. This is not a trivial side issue but the core of the problem. Spending on the wrong things ultimately defeats the purpose of Keynesian stimulus. Keynes knew this. It's a shame Krugman doesn't know his Keynes.

2 comments:

  1. This troubled me when I read it, too; but for a completely different reason - I think.

    Approval of spending on bombs is falling for some version of the broken window fallacy, no?.

    Bombs are inherently destructive and puts civilization in some sort of a hole - unless the bombs are simply warehoused for ever.
    Spending on, say, infrastructure, is constructive and enables both current and future economic growth.

    This doesn't even consider differential multipliers.

    Cheers!
    JzB

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  2. Yes, it's also broken window fallacy, with a vengeance. There are so many things wrong with this. It's wrong, wrong, wrong. See the Kalecki, post for example.

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