Wesbury vs. Krugman
Today, on Bloomberg with Tom Keene, Brian Wesbury was asked about Paul Krugman. Wesbury said Krugman was wrong - government spending does not boost growth, if it did there would be no poverty in the world.

This was reported on BusinessInsider...here. BusinessInsider then reported that Krugman fired back...here...quoting this post at his New York Times blog. In it, he claims it all "depends on the situation."

Krugman says government stimulus is necessary when the "economy is depressed and monetary policy won't move to offset it." Let's see...either the Fed (or ECB) inflates or government must spend. Either way, he is asking for government intervention. In other words, he has no faith in free markets...none.

He then goes on to say that the US is in a "liquidity trap." There are two problems here. The first is that a "liquidity trap" is in the eyes of the beholder. Liberals (advocates of big government, like Krugman) see liquidity traps everywhere, especially when their allies are in the White House, and therefore always propose more government spending. Second, nominal GDP has been growing the past few years and lending has been rising in the past year, neither of which is consistent with a liquidity trap as we understand it. Krugman ignores the damage that is clearly evident all over the world from excessive government spending.

Between 1975 and 2011, France has averaged 2% real GDP growth and 8.1% unemployment. This is about the same as the US is experiencing now. Is this evidence of a liquidity trap? No, it's evidence of the burden of a redistributionist fiscal policy. The more redistribution a government attempts, the larger the burden of government, the slower an economy grows.

Krugman finishes off his relatively weak defense against Wesbury's point with a low blow, bringing up (for about the millionth time by liberal bloggers) the fact that Brian Wesbury was optimistic on the economy in 2007. This is a seventh-grade response (to be generous) and an ad-hominem attack in this situation. Please tell us a forecaster (especially one with a 30-year career) that hasn't missed a forecast?

We have said it many times before, but we suppose we need to say it again. We were too optimistic in 2007 and early 2008. We missed the panic – the first in 100 years. We could not imagine politicians making the mistakes that they did. Once Lehman Brothers failed we were convinced that a panic was underway. But then, in early 2009, when mark-to-market accounting was changed we became optimistic again. Since then, we have been resolute in our belief that the economy would continue to grow...and so far it has.

It will continue to grow unless Paul Krugman gets his way and government spending takes another ramp upward, or if tax rates are allowed to soar as scheduled on January 1, 2013.
Posted on Tuesday, July 24, 2012 @ 12:43 PM

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