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.


  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.


  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.