In advocating Obama's stimulus package, Paul Krugman takes another swing at Milton Friedman by comparing Friedman's monetary theory to the fiscal policy theory of John Maynard Keynes (i.e., large-scale deficit spending by government). Krugman says that “[t]he failure of monetary policy in the current crisis shows that Keynes had it right the first time.” This does not logically follow, however, because the failure of one theory cannot prove the validity of another. Maybe both theories are wrong.
The evidence showing that the large-scale government spending of the 1930s did not get us out of the Depression should show that Keynes' theory was flawed. Claiming, as Krugman has done in the past, that it was the massive spending during World War II that ended the Depression is a flawed notion as well because a command-and-control economy of rationing, price controls, and military production is not economic prosperity. In fact, it wasn't until the dramatic drop in spending after war that the economy got back to normal.
Krugman has claimed that it was a failed ideology that got us into the current situation. I’m afraid that Krugman’s ideology may make matters even worse.
Thursday, January 08, 2009
Sent to the Raleigh News & Observer