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Peter Schiff - Keynesians Jump The Gun on Inflation



February 15, 2012 – Comments (6)

Advocates of government stimulus are running victory laps on recent developments that appear to vindicate their strategy. In particular, Paul Krugman compares the sluggish growth in Europe to the somewhat-less-sluggish growth in the US to prove that stimulus was more effective than austerity. Other economists are using government inflation measures to defend Fed Chairman Bernanke's easy-money policy. The only problem is, they're calling the race before the finish line is even in sight.

As usual, Paul Krugman overlooks basic economics (which, despite his Nobel Prize, is a science about which Mr. Krugman really knows very little). The reason stimulus is so politically popular is that it appears to work in the short-term. However, appearances can often be deceiving, as they are right now in the US. Stimulus merely numbs the pain of economic contraction, as the underlying trauma gets worse. Austerity might slow an economy down, but at least the wounds are able to heal. America has chosen the former and Europe the latter, albeit not quite as large a dose as needed. The fact that in the short-run Europe is suffering more than the US does not vindicate Washington's approach. On the contrary, this is exactly what is to be expected.

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6 Comments – Post Your Own

#1) On February 16, 2012 at 2:21 AM, awallejr (41.30) wrote:

Except it is nonetheless working.  When the private sector contracts, as it did, the slack must be picked up by someone else, and that is the Government.  The problem is that when the private sector thrives, the Government should reign in, which it doesn't seem to do (tho it did under Clinton for awhile).

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#2) On February 16, 2012 at 7:47 AM, dbjella (< 20) wrote:


How did Gov't reign in under Clinton? 

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#3) On February 16, 2012 at 7:23 PM, awallejr (41.30) wrote:

What I mean by rein in is to not continue with deficit spending. Personally the two Presidents I thought did a good job during my lifetime were Reagan and Clinton.  As an aside Nixon had the potential but he ruined any shot with his paranoia.

When the economy was hurting in the 1980s Reagan actually acted like a democrat and expanded the budget deficit.  Clinton, on the other hand, was enjoying for the most part a thriving economy and he went to trimming the budget deficit and actually had a surplus.  Then everything went to hell with Bush.

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#4) On February 16, 2012 at 7:43 PM, dbjella (< 20) wrote:

 "he went to trimming the budget deficit"

Did we really spend less? 


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#5) On February 16, 2012 at 8:03 PM, ETFsRule (< 20) wrote:

The "long-term" argument is frequently used by people like Schiff as a way of moving the goalposts. Unfortunately, he doesn't understand concepts like the present-day value of money, or the negative long-term effects of having people out of the work force for extended periods of time.

And, of course Schiff doesn't define exactly what he means by "long-term". He'll never have to admit defeat, because he has never made a specific prediction.

On the other hand, if the countries that turned to austerity were doing better, I'm sure he would have no problem claiming victory for his side.

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#6) On February 16, 2012 at 9:10 PM, awallejr (41.30) wrote:

Are you asking a specific dollar amount?  Becuse I am referring to spending a deficit when the private sector is contracting, and stopping deficit spending when the private sector is growing on its own and even applying any surplus to the overall accumulated debt.

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