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Paul Krugman’s Spend-Spend-Spend Fantasies

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Posted on July 3 2010 8:00 am
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New York Times columnist Paul Krugman argues in his op-ed column on Friday, entitled “Myths of Austerity,” that there is no rational case for fiscal austerity in today’s global economic climate:

Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination

Aside from the fact that the “policy elites” in Washington – right up to President Obama himself – are touting fiscal stimulus as more important a priority than getting the public debt under control, Krugman is the one engaging in fantasies of economic recovery through even more robust deficit spending.

We have tried the government stimulus route for more than a year. It has turned out to be an abject failure.

The official government unemployment figure for June declined slightly to 9.5% but only because more than 600,000 people gave up looking for a job in June and were therefore not counted in the official Labor Department unemployment figures.

Private payrolls rose only modestly in June, below expectations. There was a net loss in overall non-farm employment of 125,000 — the largest decline since October — as 225,000 temporary government census workers lost their jobs. Maybe we need a census every year if Obama’s economic plan is to succeed.

An even more disturbing number is the percentage of the overall working-age population in the labor force, which fell last month to 64.7% — near a 25-year low.

Obama had promised last year that unemployment would not rise above 8% if his stimulus package were passed.  It did pass, but now he is trying to convince us that, since we could have been at a 15% rate of unemployment if there had been no stimulus, his stimulus program is a success.  You couldn’t make this stuff up.

What Krugman and his like-minded progressive economists refuse to acknowledge is that we are approaching a an unsustainable milestone – our public debt is rapidly increasing towards 100% of our nation’s Gross Domestic Product, which hasn’t been seen since the end of World War II.

The following graph, appearing on the Marktaw.com website, illustrates the disturbing trend, which is getting worse every day.

debt percent gdp

The prosperity that really took hold during the 1950s was made possible by the sharp cuts in government spending and the pruning of the national debt.

By the time that President John F. Kennedy took office in 1961, the economy had begun slowing down. JFK’s remedy was an across-the-board tax cut, not reliance on higher government stimulus spending. Ronald Reagan took us out of the Jimmy Carter economic disaster with the same across-the-board tax cut remedy. The Clinton years were marked by sound economic stewardship that, after the Republicans took control of Congress in 1994, led to surplus budgets. George W. Bush cut taxes again without off-setting spending cuts, producing deficits which were too high. However, the well-timed tax cuts helped save the country from economic collapse in the immediate aftermath of 9/11.

But now Paul Krugman is trying to convince us that bringing the debt back to or above record historic levels vis a vis the GDP through much more government spending (on top of the record deficits that Obama has already added) is the right prescription for our ailing economy today.  Economic poison is more like it, which just may kill us.

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