Ep. 34 What the World Needs Is More Spending

7 May 2016     |     Tom Woods     |     15

Surveying the economic stagnation in Europe, all Krugman can come up with is an alleged need for more government spending.

Krugman Column

The Diabetic Economy,” May 2, 2016

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  • CristobaI

    Loving the Contra Krugman’s podcasts, gentlemen.
    Thank you!

    Krugman and progressive Libs that are pushing for more and more spending realize that increased spending contrasts sharply with the their supposed need to prevent human actions from destroying the planet, right?

  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    Keynesian economics pictures a healthy economy as one on a permanent Heroin drip.

    Austrian economics pictures a healthy economy as one that results from meritorious efforts first, where pleasure results from merit demonstrated, rather than from merit pretended.

    It is true that liberty is precious — so precious that it must be rationed.

    Russians are too kind, they lack the ability to apply determined methods of revolutionary terror.
    ~ Vladimir Ilyich Ulyanov

    Lenin was sent into Russia by the Germans in the same way that you might send a phial containing a culture of typhoid or cholera to be poured into the water supply of a great city, and it worked with amazing accuracy.
    ~ Winston Churchill

    The monstrous evils of the twentieth century have shown us that the greediest money grubbers are gentle doves compared with money-hating wolves like Lenin, Stalin, and Hitler, who in less than three decades killed or maimed nearly a hundred million men, women, and children and brought untold suffering to a large portion of mankind.
    Hoffer, Eric (1976), In Our Time.

  • RobertRoddis

    Contra-ContraKruman #1: I think your overall argument is FAR WEAKER than it should be because your underlying narrative is so far stronger than the Keynesian gobbledygook. The Keynesians cannot point to that magical episode in history where the market failed on its own. In fact, if you push them on the topic, you can generally induce them to pitch a fit. “Our Own” Daniel Kuehn has demonstrated that the 1920 depression was precipitated by government spending and Fed shenanigans. The problem was not caused by any failure of “the free market”.

    The austerity depression of 1920–21 During WorldWar I federal expenditures ballooned and although the new income tax was able to partially finance the war effort, most of the financing was done through federal borrowing and by the highly accommodating monetary policy of the Federal Reserve. The role of the Federal Reserve at this time was expressed unambiguously by the New York Federal Reserve Bank Governor Benjamin Strong, who told a Congressional committee in 1921 that ‘I feel that I, or the bank at least, was their [the Treasury’s] agent and servant in those matters’ and further added that the wartime inflation caused by the low interest rates maintained by the bank were ‘inevitable, unescapable, and necessary’ for prosecuting the war(Strong, 1930) [emphasis added}


    After the war, such policy was “sharply curtailed” as was government spending leading to the predictable bust:

    However, after the war ended the deficit spending of the Wilson administration and the expansionary policy of the Federal Reserve were sharply curtailed to bring a halt to the inflation. By November 1919 the Wilson administration balanced the federal budget, slashing monthly expenditures by almost 75% in a matter of months.4 The New York Federal Reserve Bank raised the discount rate by 244 basis points over the course of eight months, with other Reserve System banks following suit. Shortly after these austerity measures were taken, the 1920–21 depression was under way. Postwar industrial production in the USA peaked in January 1920 as the economy moved into a major depression, with production levels dropping by 32.5% by March 1921.5 This loss in output is second only to the Great Depression in American economic history (Romer, 1999), although its duration was considerably shorter. Declines in output were matched by precipitous drops in employment and the price level. The proximate cause of the 1920–21 depression was a deliberate fiscal and monetary retrenchment following World War I.


    Unless the market fails, there is no need for government intervention to cure a problem that does not exist. The Keynesians cannot show that the market fails requiring their alleged cure.

  • RobertRoddis

    Contra-ContraKruman #2: Not only does the market not fail, but where is the evidence from the Keynesians that the market requires an external source of “momentum”? Where is the evidence that markets have “momentum” or lack itr? Their claim or insinuation that the market is like a 6 year old learning to ride a bike without training wheels and needs a push to get going is baseless and preposterous. Challenge them on it.

  • RobertRoddis

    Contra-ContraKruman #3: Just about the very first thing I ever learned about Keynesianism was Hayek saying it was a totally ad hoc “dressed up”policy recommendation specifically for Britain in the 1930s. It was in no way a “general” theory. We should pound them on this daily.

    Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.

    Now, his first argument was wages must come down. Then he found that was politically impossible, so he must find another way. Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use. It involves a complex economic argument and all he concluded was that – well, we must inflate, in short.

    Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:

    “Oh, don’t mind. My theory was frightfully important in the 1930s. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.

    Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation. The only thing I blamed Keynes for is to making his theory more attractive and effective, he called it THE general theory. In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.

    Mr. Buckley: It was an ad hoc…….?

    Mr. Hayek: It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.

    Mr. Buckley: Like Nixon.

    Mr. Hayek: No, no. (laughter).



  • Enema Of The State

    There is nothing to worry about. When the insulin stops working they can amputate our legs and everything will great!

    btw, it’s not fair to ask Krugman to look in the mirror, he has no reflection.

  • RobertRoddis

    Despite Tom Woods and the Woodrow Wilson “Stroke of Luck”, Krugman vouches for the analysis of “Our Own” Daniel Kuehn:

    Yesterday I mentioned that they’re still flogging the old line that Warren Harding proved that austerity works. I linked to my old demonstration that the 1921 economy was nowhere near the liquidity trap, and that there was substantial monetary easing, making comparisons to the current situation nonsense.

    Daniel Kuehn has more. it turns out that the Austrians/Austerians have their timing all wrong:


    Where’s the market failure guys?

  • Keegan Idler

    I don’t think Krugman would think that an infinite amount of government spending is good. Is there a single time that Krugman has advocated less spending? Is there some society somewhere that Krugman has pointed, saying “There. That is too much.” Or since he thinks we need to ramp it up in the bust, has there been a time during any boom that he has said that we should cut back?

  • Adrian Gutierrez

    Government spending and supposed Investment (in the form of government spending, i.e. when the Fed monetizes the debt by purchasing bonds) are forms of capital consumption. Hence, anyone supporting any form of government involvement in the economy is a statist and Socialist. I’m with Mises, and I’d certainly do what Rothbard did if the story was ever retold. There’s never any room for compromise from true Austrians:

  • got_g

    Tom mentioned making a book out of misses.org articles, I have a solution for you 🙂

    Here is how you do it :


    here is how a scrubbed pdf looks like :


    ..Have you encountered a nice site with alot of useful content, which you would like to have in your personal book library. Yeah … me too. With some luck and little bit of coding I would show you how to extract information from HTML pages and consequently build a PDF file out of them.
    A prerequisite to this is that the site has uniform structure, which now-days most of the sites do.

  • CristobaI

    “Krugman wants to take money from the private sector and give it to the public sector.”

    If government and central planners are so effective and omniscient why can’t they outperform the individual?

    Bernie Sanders wants a college education to be free…

    I want to be able to go to work for free.

  • http://againstjebelallawz.wordpress.com/ Enopoletus Harding

    Estonia has hardly even recovered beyond its 2007 peak. It’s doing way worse than the U.S., but also better than the PIGS. Lithuania did better than either Estonia or Latvia.

  • Objective Light

    I’m only sixty seconds in, but sometimes I think you guys assume Krugman is a much better guy than he actually is. Maybe he’s just lying and not wrong.

  • Objective Light

    Murphy go for the jugular!!! Even if it was falsifiable they wouldn’t admit it.

  • Nathan Titus

    Bob made a point near the end of the episode: krugman and his posse have been trying these policies for 8 years.and the economy hasn’t healed. How long do they need to go on for?
    Well the article actually answers that….right in the title. The point of the policy isn’t to heal the economy but to keep the policy going. A diabetic will need insulin all their life.