Thursday, December 3, 2009

The Nobel Prize winning New Keynesian, cheerleader of government intervention, Paul Krugman, wrote in 2002, "To fight this recession, the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." ... WTF! What kind of an economist thinks it's a good idea for the Fed Chairman to create any kind of financial bubble? And why isn't he now telling the real story of how the bubble was created? Human frailties such as greed were really just symptoms, or maybe manifestations, of the disease. The disease was easy monetary policy by the Fed that fueled malinvestment in real estate. Furthermore, when an inhouse economist from a firm that stands to make hundreds of millions from said bubble calls for one, most journalists would be skeptical. Paul Krugman is not most journalists. This man just doesn't get it. If you subsidize something you will get too much of it. That means less investment will go to other areas. Now he calls for massive government intervention in health care and job creations. What will that do? Well, I don't have any Nobels laying around but I think we can expect health care to inflate more rapidly than it would otherwise and we'll see businesses encouraged to invest in labor at the expense of R&D. Since R&D expenditures correlate positively with increased production and productivity determines wages, the American worker should expect to be poorer. So as Krugman ramps up his cheerleading for another stimulus package from the Benevolent One, I'd like to say on behalf of the American worker, Thank you.

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