Monday, August 15, 2011

Why does Paul Krugman use a flawed economic model while insisting on more wasteful stimulus?

While Krugman might be right, he is being simplistic. There's an intrinsic softness to a lot of productivity numbers and he treats the statistics as above reproach. For example, the true value of certain sectors to the US economy is vastly overstated when comparing the nominal monetary value with the actual utility of those sectors: taking just three - military, healthcare, agriculture - are areas with significant distortion of nominal value from actual utility, meaning that select spending in those areas can actually be feeding value into a blackhole. Using one's gas pedal or brake has value only when there is traction between rubber and a real surface. To theorize about the efficacy of hitting the gas when on a false surface is pure speculative blindness. Perhaps, sadly, depressions are an inevitable aspect of a political economy (as opposted to just economy)realigning to a real balance between productive activity and utility. Krugman needs to specify selectivity and adjustment. Simply openning the monetary floodgates can actually postpone, and intensify, the "inevitable" without those corrective adjustments. It's not an "either-or" macro situation. The answer lies in selective and significant cuts, and selective and significant spending increases. It means a political reessment of economic utility.

No comments:

Post a Comment