Our Only Choices as a Nation
Paul Krugman loves to promote gov't spending. He even wrote that our Great Depression was solved by the enormous spending on World War II (which I refuted here). Today I'm going one step further and look at what would happen if we did what Krugman asks.
The basic argument Krugman makes is simple - spend a ton of money (I'm certain $30 trillion wouldn't make Krugman blink an eye) creating tons of gov't work projects.
Let's make the following assumptions in favor of Krugman's idea:
1) Assume all the jobs are for infrastructure and not wasted paying Uncle Charlie $40,000 to count the frogs in his backyard pond.
2) This huge influx of money will put everyone back to work (let's argue unemployment drops below 2%).
3) Only modest inflation ensues (<3%).
4) Demand for U.S. debt stays strong
5) The stimulus is expertly withdrawn so that people are slowly laid off of the gov't payroll.
6) Banks remain solvent as housing prices rebound.
OK, so we've made some pretty big, fairy tale like, assumptions. But its important to make the Keynesians happy in their perfect world. Lets further assume this is done during a five year period, from 2011 - 2016.
So here we are in year 2016. The 15 million Americans are now back in the private sector - but where in the private sector.
Who's hiring them? Are Ford, General Motors and Chrysler competing so effectively against Hyundai, Toyota, Honda that they are hiring in droves? Is Tesla now employing 400,000 people?
Did Apple move its iPad factory to sunny California?
Did Zenith get bought back by an American investor and begin producing LCD's in Florida?
Is the insurance/health/service sector creating all the jobs without the productive capacity to support it?
The fallacy of Krugman is the belief that the economy can become self-sustaining. Unlike after World War II, when our largest trading partners watched their factories burn for four years, there is no place to put the American worker - not without the fundamental restructuring that HAS TO HAPPEN!
America has only TWO choices: 1) Reduce regulations, spending, taxes (but not as much as spending) and allow the country to restructure (yes, there will be pain) to eliminate the malinvestment that has accumulated over the last 20 years. Yes, my job is on the line as much as yours, but that's the tough medicine if you want a vibrant economy, and not a fake one.
Choice #2) As we did in World War II, we need to knock out our competitor. Nothing like a good war with China to eliminate their productive capacity.
There is a 3rd choice - slowly decline to a 2nd class nation that looks back at its past and asks feebly "How could all the smart economists have been so wrong"