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Thursday, July 2, 2009

A Second Stimulus?

Paul Krugman used the occasion of the latest jobs numbers to continue peddling his idea that one stimulus isn't enough.

Nobel-Prize winning economist Paul Krugman said the nation is on course for a "prolonged jobless" economic recovery unless the Obama administration steps in with a second round of government stimulus money.

"The fact of the matter is that the unemployment rate is much worse than the administration contemplated or that most people expected," Krugman told ABC News. "So the economy is much weaker than we thought it'd be, meaning, in fact, it could use more stimulus."

Krugman reminds me of one of those frat guys that puts a drink in your face even after your twelfth shot. To him, the irresponsibility of running up massive deficits is entirely beside the point. The answer to irresponsible massive government spending is in fact more irresponsible and massive government spending.

In fact, Krugman has repeatedly referred to anyone that worries about the consequences of these massive deficits as "fear mongers".

Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike.


But does the big inflation scare make any sense? Basically, no — with one caveat I’ll get to later. And I suspect that the scare is at least partly about politics rather than economics.First things first. It’s important to realize that there’s no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.

So if prices aren’t rising, why the inflation worries? Some claim that the Federal Reserve is printing lots of money, which must be inflationary, while others claim that budget deficits will eventually force the U.S. government to inflate away its debt.

The first story is just wrong. The second could be right, but isn’t.

In the world of Paul Krugman, governments can borrow and spend with absolutely no consequence. Furthermore, when borrowing and spending doesn't produced the desired effect, you just borrow and spend some more.

Krugman is both naive and delusional. He's naive because he lives in a hypothetical world. So far, the government hasn't even spent $100 billion of the initial $787 billion. We could pass a $5 trillion stimulus and it wouldn't make a difference since the government can't really spend it all that quickly. In Krugman's theoretical world, the government quickly spends trillions and those trillions filter into the economy. In the real world, governments deal with bureaucracy and red tape. As such, they spend money at a rather slow pace. Before we get a second stimulus, wouldn't we want to spend the first? Maybe, rather than demanding we pass more legislation, Krugman should demand that the government start spending the first legislation a bit more quickly.

Krugman is delusional in that he thinks he is "moving the debate". He's only moving the debate among his friends and colleagues in the world of punditry and academia. Beyond that, no one is seriously considering another stimulus. The public hates the first stimulus. There would likely be a mutiny if there was a second. Furthermore, the same Paul Krugman that also supports cap and trade and health care reform also wants the Congress to take up a second stimulus. When, exactly, does he think they will have time?

There is now the beginnings of commentary urging a second stimulus. Krugman is certainly the leader of this school of thought. Here's another column calling for the same thing. The administration has been coy regarding the matter. They need not be. Everyone should understand one thing, THERE WILL BE NO SECOND STIMULUS.

As for Krugman, he would be totally insignificant and not worth of mention if it weren't for the fact that he has a Nobel Prize, teaches at Princeton, and has a place of respect in the MSM. As such, is allowed to peddle this nonsense with almost no one challenging him in the basic ways I just did. It's unlikely that in any of the plethora of interviews he will do will anyone ask him how he plans on having the government spend all this money when they can't seem to spend the first stimulus. Because he has a position of respect, he's allowed to peddle this garbage with little scrutiny among his friends in the media.

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