Friday, April 06, 2012

Ivory Tower Thinking

Paul Krugman is at it again. The problem with these ivory tower thinkers is that they think in terms of what will “help” their fictional “economy,” some arbitrary set of numbers called the “Gross Domestic Product,” rather than how policies will affect the daily lives of men and women who are working and feeding their families. The man is an idiot.

In his column today, Krugman renews his call for the wonderfulness of inflation, asking “would a rise in inflation to 3 percent or even 4 percent be a terrible thing?” and answering his own question with, “On the contrary, it would almost surely help the economy.” He goes on to describe in glowing terms the wondrous benefit it would bestow upon “the economy.”

His first claim is that it is the burden of debt “overhanging consumers” which is restraining them from spending and that, “Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need.” Let’s examine the validity of that in the real world.

I would actually question his premise to begin with, as I suspect the major factor keeping consumers from spending has less to do with "debt overhang" than with the fact that they don’t have jobs, or if they do, they have jobs which pay lousy wages. Inflation isn’t going to change that.

There is also the fact that, while inflation diminishes the burden of that debt in theory, it doesn’t do so in actuality unless wages go up and we know from historical fact that wages are not tied to inflation, they are tied to the rate of employment, so without increases in wages the degree of burden of that debt is utterly unchanged.

Finally, since the cost of the daily necessities of life, food, clothes and gas, are more costly when inflation is driving them up and wages are unchanged, the difficulty of paying that debt is greater, so the burden of that debt is actually increased. That’s how full of shit Paul Krugman is.

Then he considers the business environment and opines that because the corporate world is sitting on huge piles of cash that, “the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment.”

Paul is not content to sit in his ivory tower imagining that he can know how a working person lives, he also sits in his ivory tower imaging that he can know how a businessman thinks, and he utterly fails at both endeavors.

Spending money on stuff that you don’t need because you think that your money might be losing 3% of it’s theoretical value would be incredibly stupid business practice. I have cash that is earning me 2% interest but losing value due to 3% inflation, so I’m going to buy some equipment which will be doing nothing for me, earning nothing, but still be losing real value at 3% inflation and book value at 30% depreciation. Brilliant.

The only thing that is going to make businesses invest and hire is if they see indications that the economy is actually recovering and that such spending will result in additional production and profit for them.

The “economy” that Paul Krugman thinks he knows so much about in his little book-lined library is not some theoretical set of numbers, it is men and women working for a living and making daily practical decisions pursuant to that end. He wants to sit there and reward debt and punish savings because that helps his precious numbers, but it has precisely the opposite effect on the flesh and blood workers for whom that debt and those savings are the stuff of life. The retirement savings of millions have been decimated by the recession, and he wants to erode them further by inflation in the name of "helping" his precious "economy."

Paul Krugman is not only an idiot, he is an asshole.

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