Sunday, May 13, 2012

Credit = Cash

A commenter pointed out that I seem to really like Paul Krugman, since I write on him an average of once per month. I’m not sure that “like” is the operative word, which should have been obvious even if he didn’t read my articles. The titles alone (which he listed) should have clued him that “like” would not be the operative word.

To up my average a bit, in his discussion of what Britain should be doing Paul Krugman is propounding today that cash and credit are the same thing. It’s a useful theory for people who have no cash, of course, and who are fiscally reckless, but it’s actually insane unless you are planning on never paying back the borrowed money.

He is critical of the British government’s cutback on spending and then says, “There might conceivably be a justification for this policy if Britain were facing an intense cash squeeze. But it isn’t — it’s able to borrow very cheaply.” I don’t know how to read that other than that cheap credit equates to available cash. It used to be that economic theory used borrowing as an alternative to cash, but Krugman has now established that spending is the goal and it doesn’t matter whether one is using cash or credit.

He does the same thing with American consumer spending, by the way. He, like the government, has given up on job creation, so he’s trying to get the banks lending again so that consumers can go back to spending borrowed money in order to restart the economy. It’s not working because consumers are still too deep in debt to borrow any more money and banks don’t want to lend money to people who don’t have jobs.

In his piece today, Krugman goes on today to say that, “by shortchanging infrastructure now the Cameron government is saving only a trivial amount on interest payments.”

He would be a perfect sucker for those car ads that tell us we can save $1000 by buying a new Ford today from Al Smucker’s Ford. My response was always that I’m going to save $30,000 by not buying a new Ford at all. He is suggesting that roads and bridges cost only the “trivial amount on interest payments” because the actual cost of them is put on the credit card and is not real money.

Except that it’s the same as cash when you want to buy things, but whatever you bought with it only costs whatever the interest is on the loan. He should sell cars.

And he says that “lunatics are running the economic policy asylum.”

1 comment:

bruce said...

The aforementioned commenter ALWAYS reads your posts, as well as the Krugman articles referenced. It should be apparent to a blogger so richly endowed with snark such as yourself that you like Mr. Krugman simply and only because he provides you with blog fodder.

Keep up the good work. The world needs alternative viewpoint, riposte and occasionally snark and sarcasm.

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