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FreeMarkets (90.30)

Our Only Choices as a Nation

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September 23, 2010 – Comments (9)

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5) The stimulus is expertly withdrawn so that people are slowly laid off of the gov't payroll.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"

9 Comments – Post Your Own

#1) On September 23, 2010 at 11:05 AM, miteycasey (30.18) wrote:

+1 REC

Great post!!!

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#2) On September 23, 2010 at 12:12 PM, ETFsRule (99.93) wrote:

"OK, so we've made some pretty big, fairy tale like, assumptions."

Yes sir, you certainly have... especially #2. But if these types of straw-man arguments make you feel better about yourself, then by all means, go right ahead.

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#3) On September 23, 2010 at 1:31 PM, Dow3000 (< 20) wrote:

Hehe, you said $30 trillion.  +1

I would actually submit that I really doubt Krugman is this stupid...it is painfully obvious that he is paid off by a Rockefeller or someone else very high up in the CFR/government/central banking ring of douche bags trying to steal all our money into perpetuity

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#4) On September 23, 2010 at 1:41 PM, dargus (83.69) wrote:

You seem to believe the problem is a lack of demand for American goods reletive to foreign ones. How exactly does cutting regulations, spending and taxes remedy this situation? You think this will allow us to compete with foreign labor forces making pennies on the dollar? I think number 3 is the only solution in the scenerio you present.

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#5) On September 23, 2010 at 1:58 PM, rofgile (99.42) wrote:

If we would just repeal all of the Bush era tax cuts, the deficit is pretty much resolved.  Add in some cuts to military spending, and things would be pretty decent.

Some problems are spoken as if they are so intractable and difficult to change - but they are actually quite simple.

Fact is, we pay a lot less taxes than people did in the 50's in the US.  Has this lead to a miraculous economic growth and good lives for the middle class?  Nope.  Bush put through big cuts when he took office, and 10 years later the economy has been in shambles, not wildly successful and optimistic. 

Raise taxes, balance the budget, increase financial regulations, bring back estate taxes...

 -Rof 

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#6) On September 23, 2010 at 2:21 PM, edwjm (99.87) wrote:

Once again, three cheers for rofgile!

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#7) On September 24, 2010 at 5:52 AM, dbjella (< 20) wrote:

Raise taxes, balance the budget, increase financial regulations, bring back estate taxes...

What makes you think Congress will use this money to pay down our debt?   It seems to me that we didn't really have a tax revenue problem until recently due to the recession/depression.   Instead, we have a spending problem.  I am not sure what the "right" level of taxation should be, but it doesn't matter to Congress and the President(s).  What ever they want they get anyways despite money in the coffers. Report this comment
#8) On September 24, 2010 at 7:54 AM, dinodelaurentis (73.56) wrote:

I have said that war is the most likely outcome of our economy.... almost by design. Doing what makes sense or trusting Big business to "do the right thing" for american citizens is laughably simplistic and terribly unrealistic.

 I'll say the votes will go for "eliminating the competition"!

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#9) On September 24, 2010 at 10:05 AM, FreeMarkets (90.30) wrote:

#8 - Sadly, I agree with you.

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