If You’re in a Hole … Stop Digging!

Credit: Koka Sexton (CC)

Maybe it’s the new book. Or maybe because he’s arguably the most-vocal economist of this generation.  Either way, he’s everywhere.  And it’s not just his daily posts at The New York Times that are raising eyebrows.

He’s on CNN, MSNBC, CNBC, National Public Radio and many other media outlets.  Not to mention countless print publications here and around the globe.  Maybe he’s getting all this attention simply because he has a Nobel Prize for economics.

Well, more specifically, why he’s all over the media isn’t the issue — it’s WHAT he says when he’s on. And one recent appearance illustrates the issue perfectly.

Ready, Set … Deflect!

Dr. Paul Krugman was recently joined on “BBC Newsnight” by noted venture capitalist Jon Moulton and Andrea Leadsom, a conservative member of the UK Parliament.  And right after the parties were introduced … it only took about a minute and a half before the two sides let their disagreements be known.

At issue: austerity as a tool for resolving the current economic crisis.

Ms. Leadsom’s first response was to call Dr. Krugman’s views “reckless.”  And Dr. Krugman was happy to return the volley, suggesting Ms. Leadsom was disingenuous about finding a fiscal solution.

I have to be honest.  Trying to refute Dr. Krugman’s arguments in real time is no easy task.  He is so smart … and so well-studied that it’s hard to level the playing field — notwithstanding the fact he has “Nobel Prize-winner” as a moniker.

Most difficult is Dr. Krugman’s ability to deflect questions and reframe them to better fit his philosophical framework. But I have to hand it to Ms. Leadsom, because she didn’t shrink back.

Ms. Leadsom expressed astonishment that someone as highly regarded as Dr.Krugman could think the answer to the current financial crisis lies in borrowing MORE money.   She went on to say if you’re in a hole … and you’ve overspent … spending more and more is not going to help.  In essence, stop digging.

And Dr. Krugman used this to segue into his patent argument of the liquidity trap — or “my spending is your income and your spending is my income.”  Here’s a great illustration of the liquidity trap from Decca Aitkenhead of The Guardian.

“Krugman offers the example of a babysitting co-op, or circle, in which parents are issued vouchers they can exchange for babysitting hours. If all of the parents simultaneously decide to save their vouchers, the system will grind to a halt.

“‘My spending is your income, and your spending is my income. If both of us try to slash our spending at the same time, then we are also slashing our incomes, so we don’t actually end up saving more.’

“We could issue more vouchers to everyone, to make them feel ‘richer’ and encourage them to spend – which would be the circle’s equivalent of quantitative easing. But if everyone is determined to save, the parents will hold on to the extra vouchers, and the circle still won’t work. This is what’s called a liquidity trap, ‘and it’s essentially where we are now.’”

But the bigger issue surrounding Dr. Krugman’s arguments is the way he interjects them into the dialogue.  In response to Ms. Leadsom’s “stop digging” comments, he said …

”There are a lot of ways to answer that but the main thing to say is … If you try to have a situation which everyone is trying to slash at the same time …”

Let me help you to translate that last statement. Krugman is, in his own roundabout way, saying, “Let me tell you what I want to tell you … and not answer the question you just asked me.”

In other words, he’s not taking his own advice – he’s in his own hole filled with words, and digging deeper!

We Need Solutions, Not Smackdowns

It’s here in the interview (which you can watch online here) where I believe Dr. Krugman is being disingenuous.  He makes his argument by painting a picture where all who oppose him want to slash spending at the same time.  But this is far from accurate.

The recent McKinsey & Co. study I wrote about in “Why a Sound U.S. Dollar Truly Can’t Happen Without You” shows that the reduction of deficits has a clear cycle through the economy … first in the private sector … then the corporate sector … and then the government.

Broadly speaking, Dr. Krugman’s economic views — if instituted as reforms — would result in more regulation of the financial sector, increased measures for equality, and massive increases in government spending.

All of which would increase the size of the public sector!

In contrast, Mr. Moulton and Ms. Leadsom both agree that real economic growth comes from the private sector, not a LARGER public sector. Hence the rub between the ideologies.

Now I’m not saying that more regulation of the financial sector isn’t needed. And perhaps it would change some of the inequality as well — at least on Wall Street.  But I do take issue with the notion of more spending … ad infinitum.  Which Dr. Krugman continues to espouse.

Lastly, the final glaring difference for these two opposing sides is that Dr. Krugman has a bully pulpit … everywhere he goes.  From his columns in The New York Times, to his countless media appearances around the globe, it’s time we had a very vocal counter-argument to him.

Otherwise,  his so-called reckless views could actually become reforms.

But don’t take my word for it.  Click here or the picture below to check out the clip from “BBC Newsnight.” And make sure to leave a comment and let me know what you think.



(See original post at the Campaign for a Sound Dollar.)


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