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Stimulus or heroin fix?

Economy

The myth that the Great Depression was a market failure that could have been prevented through stricter regulation and fiscal expansion is alive. Never mind that FDR won the 1932 elections by bashing Hoover as a reckless spender and a control freak. Some believe that the Depression would have ended earlier had Roosevelt maintained his spendthrift course during his second presidential term.

Week after week, month after month, Paul Krugman relentlessly warns his so-called liberal New York Times congregation that the new government administration has no alternative courses of action, that we should authorize Washington to keep spending against all common sense and historical experience. If there is one mistake that President Obama cannot afford to make, it is fiscal austerity. Krugman's arguments, as usual, amount to little more than sophistry.

What is so boldly lumped into the term "fiscal austerity" has two distinct elements. Taxation and spending are worth investigating separately. It is obvious that higher taxes are an economic suppressant under any circumstances. It is true that when central banks bring interest rates down to zero, monetary policy loses its supposed ability to stimulate growth. But that alone is not a proof that we need a fiscal defibrillator. Instead of spending on our behalf, Big Brother should remove his hands from the pockets and throats of productive Americans.

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Krugman's bottom line is deeply flawed. He has it all wrong because of his belief in the Free Lunch fairy, an unfortunate side effect of taking too many macroeconomics courses back in the 1970s. Yes, we have problems, but a "shortfall in private spending" is not among them. Right now we suffer the consequences of government-promoted overspending in one sector of the economy. This simply means that policy-induced market distortions have misled us to under-invest in other sectors.

Fact: The economy is in a downturn because it was mismanaged. Now they want us to believe that a new team of experts can balance our growth by wisely picking new recipients of government largesse? Like a mad scientist in an old cartoon, Krugman is trying to prove that the terrible consequences of accumulating too much private debt can be offset by accumulating even more public debt. How fortunate that he does not have a child with alcohol addiction, or he may try to cure him with heroin.

Alex Tokarev
Alex Tokarev

Alex is the chair of the Department of Business at Morthland College in West Frankfort, Ill., and teaches at Northwood University in Midland, Mich. The native of communist Bulgaria fanatically supports the Bulgarian soccer team, Levski.

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