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Pater Tenebrarum

http://www.acting-man.com/?author=6

is an independent analyst and has been active in the financial markets for 28 years. He writes economic and market analyses for independent research organizations and a European hedge fund consultancy. His articles are regularly published at the blog 'Acting Man'. The blog presents articles on the markets and the economy in a mixture of commentary on current events as well as on economic theory and history from an Austrian School of Economics point of view.

 

 

Paul Krugman Exposed by An Austrian Economist

Paul Krugman Exposed by An Austrian Economist

The folly and nonsense that is Paul Krugman appears to be unbounded. He does not understand, or at least rants as if he doesn’t, the basic principles of economics. But elementary mathematics comes into play when countries are tapped out. Europe and the US are essentially insolvent. Like Blanche du Bois, both stagger forward only on the kindness of strangers and the profligacy of central banks. Unfortunately the limits of both benefactors has about been reached.

Pater Tenebrarum has a devastating intellectual takedown of Mr. Krugman as well as an outstanding Austrian economic analysis of the current problems.

An example of the first is this paragraph (there are many more):

No-one should be particularly surprised that Krugman once again asserts that government is ‘not spending enough’ – that has been his song and dance seemingly forever. We say ‘seemingly’ mainly because he sotto voce condemned government spending when the previous administration engaged in it. So the Keynesian advice on deficit spending seems only applicable when the administration is not a Republican one. However, we don’t want to quibble too much over Krugman’s inconsistencies, which are in the main a result of his occupation as a political hack. We are here to quibble with his economics. As regards the Nobel Prize, it is routinely handed to people in support of interventionism and statism, so we think of it rather as a contrary indicator these days. Some good economists may occasionally receive a Nobel prize, but receiving the prize is not per se proof positive that the recipient is a good economist – it is more likely to signify that the recipient is considered palatable to the welfare/warfare state establishment.

Discussing Mr. Krugman’s “more government spending,” Mr. Tenebrarum dissects his logic, showing it to be faulty, and concludes:

… there can be no increase in ‘aggregate spending’ achieved in this manner [more government spending], since the only way the government can spend more is by either raising taxes or borrowing the money. In both cases the private sector’s ability to spend and invest is curtailed to the exact same extent to which the government’s spending power is increased. The third method is to inflate the money supply further (in reality a mixture of all these methods has been and continues to be employed). This is even worse, as it brings about all the attendant effects of inflation. In an economy that is already severely impaired by successive episodes of credit booms and the capital consumption they have engendered, this inflationary policy can at best bring a short term flare-up of economic activity that delays the slump but only makes it worse in the end, as even more scarce capital is malinvested and wasted.

In the process of analysis, Tenebrarum refers and applies Austrian economic reasoning and logic. He cites both Henry Hazlitt and Ludwig von Mises in his analysis, including this quote from von Mises:

 

“Now, the irredeemable perpetual public debt presupposes the stability of purchasing power. Although the state and its compulsion may be eternal, the interest paid on the public debt could be eternal only if based on a standard of unchanging value. In this form the investor who for security’s sake shuns the market, entrepreneurship, and investment in free enterprise and prefers government bonds is faced again with the problem of the changeability of all human affairs. He discovers that in the frame of a market society there is no room left for wealth not dependent upon the market. His endeavors to find an inexhaustible source of income fail.

There are in this world no such things as stability and security and no human endeavors are powerful enough to bring them about. There is in the social system of the market society no other means of acquiring wealth and of preserving it than successful service to the consumers. The state is, of course, in a position to exact payments from its subjects and to borrow funds. However, even the most ruthless government in the long run is not able to defy the  laws determining human life and action.

If the government uses the sums borrowed for investment in those lines in which they best serve the wants of the consumers, and if it succeeds in these entrepreneurial activities in free and equal competition with all private entrepreneurs, it is in the same position as any other businessman; it can pay interest because it has made surpluses. But if the government invests funds unsuccessfully and no surplus results, or if it spends the money  for current expenditure, the capital borrowed shrinks or disappears entirely, and no source is opened from which interest and principal could be paid. Then taxing the people is the only method available for complying with the articles of the credit contract. In asking taxes for such payments the government makes the citizens answerable for money squandered in the past. The taxes paid are not compensated by any present service rendered by the government’s apparatus.

The government pays interest on capital which has been consumed and no longer exists. The treasury is burdened with the unfortunate results of past policies.”