Tuesday, August 16, 2011

We need space aliens to get fiscal stimulus

That's what Paul Krugman says:

Question: if economic activity is focused on solving a problem that doesn't exist, does it really improve the economy?

Common sense tells us no; Paul Krugman tells us yes. The Nobel Prize winner is surely quite brilliant, but sometimes brilliance goes a long way in justifying things that make no sense.

World War II, it is said, got us out of the Great Depression. Just because World War II forced everyone to be employed doesn't mean it added value to the economy. Obviously the opposite happened: people died, and resources were spent on things which have no value except during war time.

So what did get us out of the Great Depression? It turns out there is an explanation that rejects both the New Deal and World War II as possible cures. Robert Higgs argues that 1946 was the turn-around year, owing not to the government spending during the war, but rather to a renewed faith in personal property rights and investment opportunities--the New Deal was over, and so was the war, both of which drew resources away from the civilian economy.

I am not an economist, but I am a firm believer in drawing conclusions about important political issues using good morals and common sense. If someone suggests that a deception may be useful in stimulating the economy, there's something wrong with his theory. If someone suggests that war can be good for the economy, there's something wrong with his theory. If someone suggests that digging random holes in the ground is "better than nothing," there's something wrong with his theory. All of these are violations of either our morals or good common sense, or both.

So no, I don't trust Krugman on this. We don't need space aliens.

(HT: Sheldon Richman and Mary Theroux, who has another post about WWII here.)

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