Via Economic Policy Journal

Paul Krugman

Paul Krugman has gone over the edge.

He is recommending that if Joe Biden is elected president Biden should go on a spending binge:

 What should Joe Biden’s economic policy be if he wins (and Democrats take the Senate, so that he can actually pass legislation)? I’m pretty sure I know what his economists think he should do, but I’m not equally sure that everyone on his political team fully gets it, and I’m worried that the news media will experience sticker shock — that is, they may not be ready for the price tag on what he should and probably will propose.

So here’s what everyone should understand: Given the current and likely future state of the U.S. economy, it’s time to (a) spend a lot of money on the future and (b) not worry about where the money is coming from. For now, and for at least the next few years, large-scale deficit spending isn’t just OK, it’s the only responsible thing to do.

This, of course, is madness. It is distorting the economy and directing funds into the hands of government to disperse. 

Krugman apparently doesn’t see anything wrong with this. 

And he doesn’t want to stop his wild spending plan with COVID-19 related bailouts:

The need for big spending will not, however, end with the pandemic. We also need to invest in our future. After years of public underspending, America desperately needs to upgrade its infrastructure. In particular, we should be investing heavily in the transition to an environmentally sustainable economy. And we should also do much more to help children grow up to be healthy, productive adults; America spends shamefully little on aid to families compared with other wealthy countries.

He is not concerned about paying for all this: 

We’ve just seen that the U.S. government needs to invest large sums in the future. What about access to capital? The answer is that there’s a global savings glut — the sums individuals want to save persistently exceed the sums businesses are willing to invest. And this situation — private savings all dressed up with nowhere…

We’ve just seen that the U.S. government needs to invest large sums in the future. What about access to capital? The answer is that there’s a global savings glut — the sums individuals want to save persistently exceed the sums businesses are willing to invest. And this situation — private savings all dressed up with nowhere

Krugman is either misleading with the above quote or he isn’t a very good economist. 

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Savings are up but it is no savings glut. The Federal Reserve has literally printed trillions of dollars out of thin air to buy the debt issued by the Treasury in the last bailout round.

The vertical ascent in the chart above is the nearly $3 trillion the Fed has bought in Treasury securities since the start of the COVID-19 Trump bailout spending spree.

Krugman would want a Biden Administration to add trillions more under the phony claim that there are funds awash in the form of a savings glut pushing interest rates down and making funds available. Total coprolite!! 

It is all about the Fed printing money out of thin air. There is enough new money in the system now to push price inflation much higher in 2021. The country doesn’t need Krugman giving us Gideon Gono-style advice.

Someone should ask Krugman this question: Do you mean to say that there is a savings glut and the Federal Reserve won’t have to add trillions in Treasury securities to its balance sheet under your proposed spending plan?

RW