Monday, November 01, 2010

Accounting Rules

Sigh, Paul Krugman again. Put a house in the middle of his path and this damn fool will walk right into it. In the “faster than a speeding bullet” category, this man gets the “shoots self in foot” award.

In a blog article Saturday talking about accounting rules, he says,

1. Those who pay down debt must do so by spending less than their income.
2. For the world as a whole, spending equals income.

It follows that

3. Those who are not being forced to pay down debt must spend more than their income.

Well, not exactly. That is the conclusion which Paul prefers, perhaps, and his usual method of argument is that his preferred postulate is the only one which is evenly remotely possible, but in reality, his is not the only possible universe. Assuming that his first two “rules” are correct, there are a number of possible outcomes for number three, one of which might be,

3. World income decreases because those who are not being forced to pay down debt cannot spend more than their income.

The fact that Paul Krugman does not like that outcome does not mean that the outcome is not possible. In fact, I would suggest that it is a more likely and reasonable outcome than the one Paul Krugman posits.

The world income decreases because it was not real income in the first place. It was inflated by the expenditure of borrowed money, which is now having to be paid back. The world income is decreasing because it being forced to abandon the artifice of spending borrowed money. Do you not get that, Paul? No, obviously you do not, because you are insisting that the income be re-inflated by the re-injection of yet more borrowed money; money simply borrowed by a different entity.

Those who are not "being forced to pay down debt" are in that position because they are in the habit of not spending more than their income. Why, with the example of the disastrous results of spending more than one's income staring them in the face, would they start doing so now? They are likely to look at those who are having to do so and say to themselves, “Oh good God, I’m not putting myself in that position by borrowing money.”

A government, which is what Paul wants to do all the deficit spending, is not likely to take that position because a government cannot look or think at all, but the populations which control such governments might be capable of doing the looking and thinking in behalf of such governments. That’s assuming that said populations do, in fact, control such governments and that there aren’t too many people in that population who… Never mind.

I'm not actually arguing that government stimulus spending is an altogether bad idea, I'm just saying that Paul Krugman is utterly incompetent at making arguments which prove it. I tend to think that spending for the sake of spending is idiotic, but that spending in the form of the direct creation of jobs would be useful. And, no, I can't prove it.

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