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Keynesian Insanity Defence Against Austrian Austerity

Economics / Economic Theory May 31, 2013 - 10:36 AM GMT

By: Mike_Shedlock

Economics

I just finished reading The Smith/Klein/Kalecki Theory of Austerity by Paul Krugman and I believe it is the most disingenuous piece he has ever written.

Krugman comes out blazing with the statement "Noah Smith recently offered an interesting take on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice."


He then cites various sources who suggest "business interests hate Keynesian economics because they fear that it might work".

While halfheartedly dissing a similar thesis in Naomi Klein’s Shock Doctrine, Krugman goes on to say the "thesis really helps explain a lot about what’s going on in Europe in particular."

Paul, Please Be Serious

The first problem I have with the article is Krugman knows damn well that no Austrian-minded economist on the planet supports what is commonly, and mistakenly (on purpose) referred to as "austerity".

Please take a look at what Austrian economists want vs. what the nannycrats in Brussels delivered.

What Austrians Want
  • Lower taxes
  • Less regulation
  • End of Fractional Reserve Lending
  • Sound money
  • Smaller government
  • Work rule reform
  • Pension reform
  • Free trade
What Brussels Delivered

  • Higher income taxes
  • Higher VAT
  • Proposed financial transaction taxes
  • More regulation
  • No free trade
  • Little if any work rule reform
  • Little if any pension reform
  • Reluctant (at best) cuts in government jobs
  • Reluctant (at best) cuts in government spending
  • No sound money
  • No end of fractional reserve lending
  • Bailouts at taxpayer expense

Insanity on Steroids

Krugman and others parade that mess as "austerity". It's not austerity. Rather, it's insanity on steroids, and every Austrian economist on the planet knew it would not work.

Yet, month in and month out we have to listen to the likes of Krugman saying or implying "I Told You So".

Well, la de frickin' da. I told you so too. And so did thousands of others, Keynesians and Austrians alike.

Krugman would have you believe it's austerity as implemented vs. Keynesianism. Well, it's not, and he knows it, because any thinking mind knows tax hikes in the middle of a recession is insanity.

Idiots Do Idiotic Things

I do not know for sure why the idiots in Brussels forced those measures on Greece, Cyprus, Spain, Portugal, or Ireland, but the most likely explanation is simply "idiots do idiotic things".

To jack this into a belief that politicians did these things out of fear Keynesian policies might work is more than a stretch of the imagination, it's preposterous.

About Those Keynesian Solutions

No, Paul, we do not fear Keynesianism or Monetarism will work, because theory and practice alike say neither will work. If they did work, Japan would not be a basket case after 20 years of trying.

I have asked this simple question of Krugman for what seems like a decade "When does it stop Paul? When?"

Krugman has never answered, but one can presume "never". Japan is supposed to keep on spending money it does not have on wasteful projects "until it works". The US supposedly needs to do the same.

The average 7th grader knows that paying people to dig holes and then others to fill them back up again is economic idiocy, but the average Keynesian doesn't.

With Japan leading the way, we are about to witness the results of such foolishness, but the comfort to the US is Japan will blow up first. Will that change Krugman's mind?

Hardly. And I have an ironic suggestion: Krugman does not want to try Austrian solutions out of fear they might work.

Given the world has tried his methods and they have failed, what else should one believe?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2013 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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