Paul Krugman’s alien version of Keynesian economics
Paul Krugman, a Nobel laureate Keynesian economist, is apparently so frustrated by the lack of support for an even larger second stimulus that he’s now saying on national television that an alien invasion of the U.S. might be just the thing to give the economy the boost it needs.
On Sunday, Krugman appeared on CNN. Speaking with Harvard economist Ken Rogoff, he gave the same economic advice that he has been giving for years–that more government spending would cause the economy to rebound.
Krugman quipped, “If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months,” he said. “And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better–”
“We need Orson Welles, is what you’re saying,” Rogoff interrupted.
“There was a ‘Twilight Zone’ episode like this in which scientists fake an alien threat in order to achieve world peace,” Krugman said. “Well, this time, we don’t need it, we need it in order to get some fiscal stimulus.”
Krugman, like most liberal economists, believe that the economy improved while massive amounts of money was spent during the Depression and with the buildup of national defense during World War 2.
However, the money spent during the decade of the Depression, prior to World War II tripled spending from $3 billion a year to $9 billion. But unemployment at the end of the thrities was still 17.2 percent.
Not very good example for Keynesian economics. If the U.S. tripled spending from the current $3.5T today, we would have to spend $11.5T, which would increase the annual deficit to over $9T per year. It didn’t work in the thirties and it will not work today.
So, Krugman suggests that we spend like we’re being attacked by space aliens in order to achieve the level of spending that occurred during World War II. By 1945, the spending was ten times bigger than it was at the end of the ’30s - over $90B.
Despite the spending, the GDP decreased by 1.1% in 1945, 10.9% in 1946 and again decreased the following year. Also, not a very good endorsement for Keynesian economics, but this is the solution that Krugman says the country needs to repeat.
Do you think that aliens have already visited Earth and replaced a few of our Keynesian economists?