May 12, 2013
Krugman theoretically right, but still wrong!
New York Times Columnist, Paul Krugman has superb academic qualifications. After all, he is currently Professor of Economics and International Affairs at Princeton, and Centenary Professor at the London School of Economics. On top of all of that he won a Nobel prize in Economics in 2008.
While not coming close to being as academically qualified as the good professor, I did have a 38-year career mainly in executive positions in five different industries. Thus, I spent my career implementing theories in "the real world". I often observed the ideas of some very smart people failing miserably because, while theoretically sound, they simply didn't work. After all, isn't a theory by definition an idea waiting to be tested?I
On April 28, Krugman had an article in the opinion section of the New York Times advocating increased borrowing and spending, as stimulus to spend our nation out of its current economic malaise. Having heard the "would any reasonable family do this" question, he goes to great efforts to point out differences between a family continuing to borrow when deeply in debt, and a government doing the same.
The two biggest differences I see between a family and a nation's government with too much debt are: 1. A family's debts are usually discharged at the death of those who created them. A government, on the other hand, can always pass debt on to future generations. 2. While families cannot print more money, or borrow almost unlimited amounts, a government can. These government options though do not come without potentially negative side effects.
I somewhat agree with his beliefs our government should not risk reducing borrowing and spending as long as our economy remains so fragile. However, I would like to see reductions in wasteful government spending which is so prevalent. But, not reducing borrowing and spending is far different from his suggestions to massively increase both. As the old saying goes: When you find your self deep in a hole, the first rule is to stop digging...not dig even deeper!
I believe Krugman's advocacy for expanding government borrowing and spending is based on two flawed fundamental beliefs.