Paul Krugman’s plan to stimulate the economy with an alien invasion

Well, it’s CNN. What do you expect?

Newsbusters explains what is wrong with Paul Krugman’s plan to stimulate the economy based on an episode of the Twilight Zone.


PAUL KRUGMAN, NEW YORK TIMES: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.

I mean, probably because you want to put these things together, if we say, “Look, we could use some inflation.” Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what fhe basic logic says.

It’s very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal.

If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better –

ROGOFF: And we need Orson Welles, is what you’re saying.

KRUGMAN: No, there was a “Twilight Zone” episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don’t need it, we need it in order to get some fiscal stimulus.

It’s important to note that Paul Krugman’s plan is actually better than Obama’s plan, because Obama doesn’t have a plan.

The Newsbusters piece explains what’s wrong with stimulating the economy with an alien invasion, as seen on the Twilight Zone TV show.


But more importantly, let’s look at the numbers involved to really get a sense of what Krugman advocated here.

The money unsuccessfully thrown at the Depression prior to World War II was staggering. From 1929 to 1939, government spending tripled from $3 billion a year to $9 billion.

And yet unemployment at the end of 1939 was still 17.2 percent.

Not a very good advertisement for Keynesian economics, is it?

Now imagine that kind of “stimulus” today. That would mean the current $3.8 trillion budget would have to rise to $11.4 trillion which would generate about $9 trillion of debt a year.

What do you think would happen to our credit rating and our dollar then? Wouldn’t be pretty, would it?

Yet that didn’t work in the ’30s – a fact that most liberals other than Krugman still contest – so the Nobel laureate is advocating that we spend like we’re being attacked by space aliens in order to get to the level of outlays during World War II.

Total federal spending in 1940 was $9.5 billion. By 1945, this had risen almost tenfold to $93 billion.

Such an increase in today’s budget would create a deficit greater than $30 trillion per year making our dollar and our Treasuries totally worthless.

[…]Consider too that the lasting stimulative quality of even the World War II spending is up for debate.

The National Bureau of Economic lists a recession that began in February 1945 that lasted until October of that year. This recession happened despite the federal government spending almost tens times as much as it had only five years prior and 30 times more than in 1929.

Once again, not a very good advertisement for Keynesian economics.

But let’s take this a step further, for NBER’s recession numbers might be too conservative. According to the Bureau of Economic Analysis, the Gross Domestic Product shrank by 1.1 percent in 1945, a staggering 10.9 percent in 1946, and 0.9 percent in 1947.

Again, this was after the largest explosion in federal spending in our nation’s history, and this is what Krugman is advocating we repeat.

So what is stimulus spending? Stimulus spending is when you take money OUT of the hands of people who create jobs, and put it into the hand of people who the government thinks deserves that money more. Let’s see who the government thinks deserves the money more than employers.

CBS News reports:

ABC News reports:

And this one features a real economist:

Obama promised that if we let him redirect $864 billion dollars from taxpayers to other people he chose, then that would make unemployment stay below 8%. So did all that “stimulus” keep unemployment below 8%?

The stimulus was worse than doing NOTHING AT ALL
The stimulus was worse than doing NOTHING AT ALL

(Click for larger image)

Let’s learn some economics and find out why that happened.

Economics in One Lesson

Perhaps it is time to review Henry Hazlitt’s book on basic economics “Economics in One Lesson”. Let’s look in chapter 4, which is entitled “Public Works Mean Taxes”.

Excerpt from that chapter:

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

And consider Chapter 5 as well, entitled “Taxes Discourage Production”.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

And the results we see today are consistent with the predictions of basic economic theory.

George W. Bush cut taxes in his first term and created 1 million NEW JOBS. On the other hand, Obama transfered BILLIONS from the private sector to the public sector, where government waste is rampant. Government spending is a job killer. Obama might be a nice man, but he is just wrong on economics and business. What we should have done is elected someone who doesn’t repeat the mistakes made in other countries, like in Japan where massive government spending failed to stimulate the economy. We just need to look at where the ideas of Paul Krugman, Fareed Zakaria and Barack Obama have been tried – like in Spain and Greece – and see whether all of this government spending led to economic prosperity and a low unemployment rate. I know that it makes them feel good to think that they are responsible for punishing those who work, and rewarding those who don’t work. But maybe we should look at the results of their policies and decide that we just can’t afford to sacrifice the entire economy to make three people feel good about themselves. As far as I can tell, Keynesian economics has never created jobs whenever it’s been tried – although it does make the liberal elite feel superior to job creators. It works to do that.

2 thoughts on “Paul Krugman’s plan to stimulate the economy with an alien invasion”

  1. When I first saw the Krugman headline on news outlets, I had to re-check my web address bar to see if I was reading ‘The Onion’.

    On a side note, I used to think there was prestige in nobel prize nominations.


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