Paul Krugman Proves Economics Isn't the Dismal Science; It's Just Dismal
Economics has long been called 'the dismal science.' One of the myths around the origin of this name goes back to the economic ideas of Thomas Malthus. Malthus believed that human ingenuity was no match for an increase in human population. Malthus - with mathematical precision that would make a physicist blush - predicted a future of collapsing living standards, mass starvation and huge swathes of mankind living no better than animals. As is the case with most economists, his conclusions were all wrong. As is the case with economics as a field of inquiry, Malthus' ideas - bad as they were - continued to live on. Even today, Malthus still has many ardent admirers who insist that he was not incorrect, just early (by 200-years and counting). The most well-known of these ardent admirers is Dr. Paul R. Ehrlich of Stanford. Ehrlich, along with his wife, wrote, The Population Bomb, in 1968. The book - which does little more than use academic sophistry to advance eugenics and mass sterilization - predicted that hundreds of millions of people would starve to death in the 1970s.
Because of the ideas of cranks like Malthus and Ehrlich, it was accurate to call economics the dismal science. However, with a new generation of economists taking the field of study in new - and transparently incorrect - directions, economics is no longer the dismal science. It is just dismal. In the vanguard of this generation of economists taking the field in completely bogus directions is one of the most indefatigable, Paul Krugman of the New York Times.
Krugman recently tweeted the following - which pithily captures the entire scope of his economic outlook.
Debt is money we owe ourselves.
Debt is money we owe ourselves.
Debt is money we owe ourselves.
Debt is money we owe ourselves.
In these 240, (or less), characters Krugman describes everything that is wrong with modern economics and the keystone fallacy upon which all modern economic theory is built; the confusion of money with wealth.
Krugman has argued that economic downturns can be solved by preparing to fight a completely mythical war against even more mythical aliens. (1) Krugman fails to understand that creating money out of thin air to pay people to build 'ray guns' doesn't make society any wealthier. Ray guns have no economic utility, and expending resources to build them is completely counterproductive. The fact that his fellow economists are unable to draw this transparently obvious conclusion is a damming indictment of today’s society and intellectual environment. Indeed, if there really are aliens, our society does collapse after losing a war to these aliens and the aliens should stumble across Krugman's economic writings, then the aliens will be forced to conclude that the ultimate undoing of mankind was its collective stupidity – the same malady that did in the mastodons in the tar pits.
Krugman's economic ideas - whether they manifest themselves as the unalloyed good of increased debt levels or going into debt to purchase the weapons of war - are, perhaps, best proven incorrect by comparing them to the real sciences. I am a mechanical engineer and the hallmark of any engineering disciple is the concept of trade-offs. An increase in one thing that is desirable, inevitably introduces some countervailing effect that produces something that is undesirable. For example, with all air-breathing engines there is a constant desire to make sure that all the fuel is burned. One way to achieve this end is to introduce more air into the engine to ensure that the fuel can better mix with it. However, as more air is introduced into the engine, the production of a pollutant, NOx, is increased. Because air is comprised of 79% nitrogen (N2), all the extra air leads to more 'oxides of nitrogen' being produced. Engineers are thus forced to balance the two competing goals to achieve some sort of optimum, but not perfect, solution.
For Krugman and his modern economic theories, no such optimization is required. There is no problem that can't be solved by more money. For Krugman it is a given that the government - and government is always the font out of which Krugman's economic solutions flow - has great amounts of real economic wealth at its disposal. According to Krugman, government can merely dispatch this economic wealth at its leisure to solve any problem. Hans Sennholz describes the obvious fallacy with Krugman's economic ideas as follows;
"The doctrine is as old as it is fallacious. It is built on the ancient myth that the stimulator and the spender, i.e. government, is an entity outside and above the economic process. That it owns something that is not derived from its subjects, and that it can spend this mythical something for full employment and other purposes. In reply, we must again and again repeat the truism that government can spend only what it takes away from taxpayers and inflation victims.." (2)
The notion of their being a constant trade-off between borrowing more money and what that money is being borrowed for can also be seen in the banking wisdom of the past. Before Federal Reserve bailouts and the Fed creating several trillion dollars out of thin air to purchase toxic assets from banks and other financial institutions via quantitative easing, banks were very cautious about lending money. Banks paid very close attention to what would be done with the money that was being borrowed. Because of the interest rates banks charge to lenders, the money had to be used to, somehow, increase the capacity of the borrower to repay. In the words of Henry C. Alexander of the Morgan Guaranty Trust Company, "Increased borrowing must be matched by increased ability to repay. Otherwise, we aren't expanding the economy - we're merely puffing it up."
In complete contrast to Alexander's common sense banking wisdom, Krugman makes no distinction on what money is being borrowed for - or even where the money will come from. This is what passes for economic wisdom today. I don't know what the mastodon's excuse for ending up in the tar pits was. Whatever it was, it must make more sense than listening to crackpots like Paul Krugman.
Peter Schmidt
Sugar Land, TX
October 06, 2019
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ENDNOTES:
(1) Paul Krugman, Dunce Biography, http://www.the92ers.com/dunce/paul-krugman
(2) Hans F. Sennholz, Age of Inflation, Western Islands, Boston, MA 1979, p. 35