I am in New York at the moment but word reaches me from friends in the City who attended Paul Krugman’s talk at the LSE last night. I am told there was a very long queue ‘a bit like the one at the iPad launch [at] an Apple store’ but that his talk was ‘empty of details’ ‘woolly’ and that he offered ‘no evidence [to support] his theory. ‘He only repeats that we have to get out of depression now and spend our way out.’
Krugman is an ideologue not an empiricist.
He’s another believer in the magic money tree which will just enable us to spend our way out of this crisis. He shares that view with idiots like the Spanish authorities who thought that they could issue government bonds to Bankia in return for equity and Bankia could then deposit the bonds with the ECB for cash. You can see better conjuring tricks at a child’s birthday party.
There is also the small point that if you take the UK as an example, we have so far had GBP500bn of deficit spending, GBP325bn of Quantitative Easing, and interest rates have been at a 300 year low for over three years and the economy is still in recession. Krugman’s call to do more of this breaches Einstein’s axiom that to keep repeating the same action whilst expecting a different outcome is a definition of insanity.
The only way out is to cut state spending back to where it was 10 years ago-in the UK that’s a reduction of one third. What is it that the government didn’t provide 10 years ago that you can’t live without? Nothing. Then you can cut taxes and that will stimulate economic growth. Individuals and companies that earn the money are much more efficient at spending it than governments, so why not leave more of it with them? If you don’t believe that you are either a) mad and/or have no experience of real life; and/or b) are ignoring the statistic that between March 2000 and March 2010, individual and government debt increased by £3.11 for each £1 increase in GDP. Plus if you cut back the size of the state you can relieve business from the growth of regulatory interference.