Hoping Krugman’s Interview is One of the Final Death Pangs for Excessive Keynesianism



I’m not going to add or subtract anything from this commentary on Princeton professor Paul Krugman (wait, O YES I AM) – but he really went over the top with this one:

Zero Hedge – Krugman

Apparently, Krugman was interviewed by a German newspaper where he blasted the head of the Bundesbank (Axel Weber) and the German government for trying to control spending and balance their budget while the Euro zone is still in a recession. Of course as a super Keynesian, Mr Krugman believes that governments should borrow and spend out of recessions (as if spending about 20% of our tax revenue on debt interest isn’t enough). I can understand why he feels this is right – it worked in the past supposedly, but he fails to give credit for underlying macro growth trends for the past 60 years of economic growth. He, like many academics who never run real money, a real business, or a real life, believes in the ‘omniscience’ of central bankers and government officials.

Mr Krugman even went as far as to hint in his interview that if Germany continued to cut their budget and control spending, and caused a furthering in the recession in the near term which might cause the Euro to fall further, that the US Congress would “retaliate” and that he would support these measures:

(from the Wall Street Journal) Krugman also told Handelsblatt he wouldn’t rule out sanctions against Germany if it continued to rely on its export-driven model. “If the euro falls to parity with the dollar, the Europeans are going to be surprised by the demands that will come out of the U.S. Congress, and I would support that,” he said.

Why would he say that – threatening another country in their newspaper – what if the Chinese Premier came here and threatened the US economically in the NY Times? What was he thinking? (China may do that someday when they’re stronger – it wouldn’t surprise me).

Furthermore, Germany already HAS past experience with the devastation of excessive money printing (see the story of the Weimar Republic here) which brought about the end of an elected government and opened the door for Hitler. They’re not interested in this type of result:

People brought wheelbarrows of this to buy a loaf of bread

Germans want no part of inflationary policies which is why they object to the excessive bailout of Greece and the European Central Bank’s efforts to print money and buy government bonds. In fact, if the troubled European economies don’t take steps to control their spending, I could see a day when Germany would leave the EMU. In fact they have such a good reputation for prudence I would sell my US dollars and buy the German mark if it were to return.

Even though there is a strong history of the dangers of excessive money printing, as outlined in the Wikipedia link above about the German Weimar Republic, Paul Krugman believes that the US, along with Europe in a coordinated action,  should spend themselves into oblivion and that the Fed and ECB should crank the printing press into hyperdrive in order to get us out of this recession. Interestingly, the Germans don’t agree. Here is a response to Krugman’s comments from Wolfgang Franz, a German government economic advisor (again from the Wall Street Journal – this is an AWESOME QUOTE):

Wolfgang Franz, who heads the German government’s economic advisory panel known as the Wise Men, tore into Krugman — and the US — in an op-ed in the German business daily Wednesday, titled “How about some facts, Mr. Krugman?”

“Where did the financial crisis begin? Which central bank conducted monetary policy that was too loose? Which country went down the wrong path of social policy by encouraging low income households to take on mortgage loans that they can never pay back? Who in the year 2000 weakened regulations limiting investment bank leverage ratios, let Lehman Brothers collapse in 2008 and thereby tipped world financial markets into chaos?” he wrote.

First off, any non economist can figure out that trying to solve America’s problem of too much spending and too much debt with more spending and more debt is a ridiculous idea – that may have worked for a short while in the past but will lead to a massive implosion when the bills come due. But this is what Krugman argues for.

And anyone who has studied Japan, where they have had multiple stimulus plans and spending, with debt at twice the level percentage-wise as the US, and which still has a dull economy, knows that you can’t print and spend to success. If moneyprinting were the key, Zimbabwe would be the richest country in the world (see more about Zimbabwe’s money printing and attempts at price control here).


If you want more background on Professor Krugman, go to the New York Times page and search any of his articles (he is a regular contributor there).