Regarding this recent BBC article Abenomics
First, isn’t it time to admit that Paul Krugman is a total freaking “spend all you want, we’ll print more” ideologue, and an insolent propagator of idiocy who — with some regularity — shames the Nobel committee for selecting him in 2008?
“Don’t like what’s trending? Try more spending.”
“Out of cash, and that sounds rash? Borrow like there’s no tomorrow.”
Historically speaking, at least in the US, flat prices to slight deflation were the general rule in this country until we had the Fed. Why? Easy: as we became more productive and more efficient, many prices naturally fell.
So, what’s good about that scene? It encourages saving and postponing reward. If you save a dollar today and it buys $1.01 worth of stuff next year, then why buy something if you don’t really need it?
This model avoids bubbles — like the tech bubble that burst in 2000-1 and the housing/stock bubble that burst in 2007-9. It promotes investing only in things that have a good chance of paying off. It encourages careful investment and due diligence.
How many people invested in things they didn’t understand during the roaring 1990s and then again after 9/11 when the market went way up again?
I’m not saying inflation is bad. I’m saying planned inflation is bad. It has the opposite effect. It encourages buying NOW, since something you might want will almost assuredly be more expensive next month. It encourages investing NOW, since the market is a bull and running away from you. In short, it encourages less due diligence and more spontaneous buying and investing, since your savings are constantly losing money. It discourages saving.
I’m not saying government profligate spending is bad. I’m saying that spending for the sake of spending — with faith that “the multiplier effect” will save us— is bad. The US Federal government’s investing in dams in the 1930s is still paying off today! And building the interstates system resulted in cheap truck-based transportation of goods from almost anywhere to anywhere in the country for almost 60 years now.
The myopic belief that government spending leads to economic prosperity is partly rooted in the misguided belief that FDR’s New Deal spending and the even more massive spending during World War II led to the economic rise to powerhouse status of the halcyon 40s, 50s and 60s.
FDR had his own recession in 1938. The thing about massive government spending to stimulate the economy is: you don’t really know when to stop. In the meanwhile, the spending has generated countless powerful special interests who are, literally, addicted to that money. When FDR backed off a bit, the Depression sat upon us once again.
World War Two gave us a wonderful economy? Let’s see. Couldn’t buy a new car, new tires for that car, or a new house. Couldn’t buy nylon stockings. Nor anything made with rubber or steel.
Gasoline was rationed to four (that’s 4) gallons per week. Drivers were strongly encouraged to limit speeds to 35mph. (the Victory Speed!)
Food? Strict rationing on meat, sugar, and cheese. Even butter. Shoes. Coffee. The list is almost endless.
This was economic prosperity? Sure everyone had a job and was making money. What did they spend it on? A lot of it went right back to the government to purchase War Bonds. There were seven major Bond drives during the war. And they saved. They saved for the time when that pent up demand could be freed.
So what led to great half-century of US economic dominance that followed? Was it Eisenhower? Was it the unions? Was it the 90% marginal tax rate on high earners? No, no and no. When all those saved up dollars finally went to buy the cars, the houses, the nylons, the shoes, the bicycles, the dresses and slacks and coats and caps … where did they go?
Those dollars went to the only place they could go. To companies — and their employees and share holders — based right in the United States. Why? Because every other country that we know of who produces these products today were either non-producing Third World countries then (China, India, Viet Nam, Indonesia), or they had been bombed such that their industry and infrastructure were non-existent.
It’s time to call out Inflationists like Krugman — he who has called for an imaginary alien invasion to get the governments of the world to spend, spend, spend; he who called for the Fed’s Greenspan to inflate a housing bubble to get us out of the (mild) economic malaise we were in in 2000-2001.
Here’s to the future. We certainly can’t go back to the past. Prost!
Joe Girard © 2013
My main essay link is still at: Essays