Krugman a “Political Hack,” Making Things Up As He Goes

by Victor Sperandeo

“Economics is the science of means to be applied for the attainment of ends chosen.”

The above quote is from Ludwig Von Mises, a founder of the Austrian School of Economics, a school of thought which mirrors my beliefs. It implies that “how” you solve problems (what political philosophy is to be used) is an (idealogical) choice, as well as an economic one, and “how you attain a goal,” demonstrates what your political beliefs are.

Politics is a branch of philosophy of “how people in society should live.” This is achieved through:

— Capitalism, or freedom: a social system based on individual rights including property rights which is all privately owned. It assumes free markets without government influence. To say “laissez-faire” Capitalism is redundant. What regulates markets from the free market is the courts and the police when fraud is involved.

— Socialism, or a great amount of Government control of the economy, and ownership of the means of production;

— Facsism, believes in the Nation over the individual, and “control” of the means of production, but not in owning them.

— Marxism (Communism) believes in no individual or property rights, and are led by group decision, e.g., the politburo, but generally led by a strong statist, e.g., Mao Zedong or Joe Stalin;

— Dictatorship: led by one with no liberty or rights to the people, e.g., A Hitler-type.

The fact that Paul Krugman calls himself an economist is a facade because he really is a political hack for a progressive (read Socialist) future for the US. His view of “how” to solve economic problems is by taking away your liberty, by government controlling every aspect of your life, and confiscating your earnings and capital by force. He cares virtually nothing of creating huge debts, and deficits. In the long run Mr. Krugman is promoting, in effect, (hyper)inflation or bankrupting the US. The debt is not an issue to Mr. Krugman, “because we owe it to ourselves” ?!

Logically then, he must believe someone who buys a government bond with his own capital, which the government then spends on an anonymous person (to buy support for power). But then when the government can’t pay it back with the same purchasing power, it’s ok – as inflation does not matter because the government really owns all the money / capital anyway – not the individual – as the tax system has shown. At which point he says “we owe it (the debt) to ourselves ” he means as a “Collective society” not a Capitalist one, concluding the fact people have no property rights.

I call this theft and moral plunder. It concludes in passing the debt to future generations to be dealt with and I my opinion is the highest form of immorality.

An example, and perhaps the dumbest financial idea Mr. Krugman (or anyone in history) has pushed is saying the government should mint a 1 oz platinum coin, and put a fiat value of $1 trillion on it. Today it would be intrinsically worth about $1691.30, not $1,000,000,000,000.00 !! This coin would be deposited by the Treasury into a FED account, and the Treasury would draw on it to spend federal reserve notes (fiat paper) as it desired. His ending comment in a New York Times editorial pushing the idea was. “Mint the darn coin”. (!)

This is truly an amazing fantasy of how to create paper money, using this ridiculous “Madoff like scheme” is the height of how government, with the help of a Noble Prize winner, can destroy a country. When you give government, by way of the Fed, a monopoly over the discretion to control the amount of money and the level (cost) of credit (a Karl Marx recommendation) you end up with ideas like a $1 trillion coin. The Fed passed on this obvious scam of an idea, as they would rather print paper the old fashioned way- using QE’s, which is far more difficult for the public to understand!

Lastly a simple contrast in beliefs is the “lack of demand” that is never mentioned on the differences between Keynes and Von Mises is as follows: A Keynesian would say that currently the lack of “aggregate demand” is due to Bush financial crises, and government must spend to make up for it. An Austrian would say the problem is caused by “Originally Interest” (OI) which is driven by Obama policies which are pushing people to hoard cash, i.e., postpone buying. The definition of OI is the ratio of value assigned present goods versus future goods, or what each person or entity decides to save or spend based of their view of the future.

The Paul Krugman view of deficits (and debt) is we need more of it, and it’s not a concern.

Moreover the direct problem is not the debt, as it will never be paid, but postponed or inflated away. It’s the indirect problem of the interest that has to be paid. Interest rates are 22% of their last 52-year average (approximately 1.4% today). To show how impossible the debt has become to service, if you employed all the temporary workers and unemployed workers and paid them 30% above the median income or $65,000 a year, and all those 23 million people paid $10,000 each in taxes, or $230 billion, the deficit should be reduced?

However, if interest rates rise 1.5% on $16.5 trillion “stated” debt the $230 billion becomes $0 net revenue to the government. If interest rates rise to the average 52-year rate or 6.17%, the budget deficits added by just interest payments rises by $1 trillion without any other spending ! This problem can be understood by a high school senior who is proficient in math, but obviously not a Yale, MIT, nor graduate and a London School of Economics and Princeton Professor who is a Nobel Prize winner.

The fact that Mr. Krugman uses as his proof that the markets are accepting his “debt doesn’t matter” premise for the last several years with low interest rates, and no crises, (which is due to fear of Gov’ts fiscal polices) is not the point — as when one gets cancer you don’t die right away.

The fact is all this printing and borrowing is an unsustainable cancer.

For example if debts don’t matter then why did 1920 Germany develop into hyperinflation? The velocity of money was virtually identical to US today or 1.5 versus 1.6 in the US (M2), today. Germany had created a huge debt in fighting WW I, and after the end of the war on November 11, 1918, with reparations, they could not pay the debt and the interest. They began to lose the ability to borrow and raise taxes. Taxes were so high that even “under penalty of death” did not matter people would not pay. However they also had a printing press (unlike Greece today).

In 1920 Germany began to print Reichmarks to pay the debt and interest. The velocity of the money rose to 12 in 3 years. Stated differently, the German money supply turned over once a month in 1923 instead of 1.5 times a year in 1920. The bell rang and people lost confidence in bonds and the currency. Today the US is like 1920 Germany. Printing (fiat money) via QE’s and debt are icreasing at “increasing rates” while bonds and the dollar are generally declining, and taxes although being increased, while (to date) tax collections have declined as a percent of GDP even though the recovery started in June 2009.

Today the US Fed buys between 70-85% of all the debt floated by the US since QE2. My speculation is that as early as 2014, reality will provide the evidence Mr. Krugman needs to show him 2+2 is always 4. The debt will turn into 100% printed money, i.e., total monatizing of the debt, and thereby hyperinflation will begin to occur in the US. The freedom based of the US “Constitutional Republic” will begin to accelerate to its end as we know it.

Please note: I reserve the right to delete comments that are offensive or off-topic.