If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in 18 months -- Paul Krugman
Conrad 'Connie' Brean: What's the thing people remember about the Gulf War? A bomb falling down a chimney. Let me tell you something: I was in the building where we filmed that with a 10-inch model made out of Legos.
Stanley Motss: Is that true?
Conrad 'Connie' Brean: Who the hell's to say?
Stanley Motss: The President will be a hero. He brought peace.
Conrad 'Connie' Brean: But there was never a war.
Stanley Motss: All the greater accomplishment.
-Wag the Dog, 1997
Are Krugman and the stimulates finally cracking? It sure looks like it.
Mr. Nobel recently cited a Wag the Dogesque episode of the Twilight Zone to make his case for more fiscal stimulus. It seems he is confusing how a war build-up affects an economy, which really amounts to nothing more than simple resource allocation measurement, with the effects of a war on the economy.
That would be Affect versus Effect Professor….
The massive build-up on its own had no effect on the economy; it was the totality of the war that did. The build-up did nothing more than affect the statistics that economists use to track the economy. These data are descriptive, but when viewed out of the context of the actual war that followed, also utterly worthless.
What Krugman is arguing for is the type of blind faith and easy decision making often associated with times of war. He wants that type of political resolve and unanimous popular support yesterday. That way we (he means he) can quickly address today's challenging economic problems. Very Noble on his part, but not exactly practical when you consider he seems to be assuming that we can collectively identify our economic enemy. In times of war the enemy is clear, in times of peace it isn't. If you could convince all of America by tomorrow that high speed rail lines would fix the economy, I can assure you that, regardless of the deficit, we would have high speed rail in under a year. But what happens if after the rail line is complete demand doesn't live up to expectations? Krugman seems to think he doesn't need to answer this question or any other economic stimulus related question like it. He just wants to spend and see what happens…
See, what Krugman doesn't seem to get is that the economically significant aspect of the WWII build-up was that there ACTUALLY was a World War. America prepared for a World War, and then fought a World War. That's about as efficient as resource allocation is going to get. If the global economy spent the next 18 months preparing for an alien attack and it never arrived, we would be in for one epic economic hangover. (If you are having trouble coming up with a real world example, take a look at the economy of N. Korea. Kim Jong Ill is still waiting for his alien invasion, and the North Korean economy is still waiting for its growth.) At which point Krugman would be able to see how the economic data is affected when an anticipated invasion never materializes. What would he recommend to plug that hole, a build-up for an even bigger alien invasion?
And does the Professor realize that WWII wiped out 4% of the World's population. That's like erasing the entire United States today. Wars reduce factors of production, notably labor and capital goods, by wiping them off the face of the planet. There is a cost to such destruction, and it is born by those who live through the war and the reconstruction (assuming they survive) that comes after it. There are a lot of people excited about investing in Iraq today because growth is expected to be robust for years to come, but that isn't doing the forty-year old Iraqi who graduated college during the first Gulf War much good. Is he supposed to get excited about having power, fast food, movie theaters, and a steady job in the future? He had all those things before his Country fell apart. Hiroshima is a nice place to live today, but imagine being 30 years old and living there in 1946.
What was that Nobel prize for again…
Krugman's economic policy suggestions are becoming so outrageous that the only place they can be taken seriously is Hollywood.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.