Tuesday, August 16, 2011

The Real Problem With Krugman's Alien Remarks

I have read on some other blogs and been contacted by readers of this blog about Paul Krugman's remarks on CNN that if we started a massive military spending increase to protect us from a possible threat from an invasion by space aliens, then that would end our economic problems. Some have discussed this with the hinted or explicit interpretation being that Krugman believes that we need a massive increase in military spending because the threat of an invasion by space aliens is so great.

But that is a very misleading interpretation. Krugman doesn't in fact say that spending increases are needed to stop space aliens from taking over this planet. In fact in his hypothetical scenario he says that we will eventually discover that the belief that it was necessary was a false alarm, yet discover that the false alarm was good for the economy as it caused us to increase government spending. What he says is simply then the classic Keynesian principle that any spending is good, even if it is for such obviously useless purposes like digging up holes in the ground and then filling them up again (Lord Keynes' classical example) or prepare defenses against non-existent threats from space aliens (Krugman's new example).

The problem is thus not that Krugman exaggerated the threat from space aliens as he didn't do it, just as I haven't exaggerated the chanse of trade relations with space aliens when I have pointed out that an aggregate trade surplus or deficit for the world as a whole is impossible unless we start trading with space aliens.

The problem is instead first of all that he overlooks the lessons from the "broken window fallacy" and secondly that production of useless or unnecessary things are well, useless and unnecessary meaning that even if total production was increased it wouldn't be a good thing. Since it doesn't do any good, we might as well have handed out the money to the workers who were supposed to do these useless things without the useless things being actually performed, meaning that it makes no sense to view these useless activities as progress.


Blogger Hawkeye said...

Here's how Krugman learned his theories:

3:45 AM  

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