Krugman Destroys Straw Man
26 January 2009
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Paul Krugman claims to "debunk some of the major antistimulus arguments" ("Bad Faith Economics," January 26). Alas, he ignores the most compelling arguments against the "stimulus" - such as the one that recognizes that massive increases in government spending are too likely to be laden with pork and infected with political viruses to do much good.
More important is the argument built on the understanding that the fundamental problem isn't a lack of aggregate demand but, rather, resource misallocation caused by prices being out-of-whack relative to each other. The only way to solve this problem is to let these relative prices adjust over time so that resource allocation becomes more sustainable. "Stimulus" spending will only thwart these adjustments. The economic turmoil may be masked in the short-run, but only by ensuring longer-term harm.*
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
* See, for example, Mario Rizzo's blog post here:
http://thinkmarkets.wordpress.com/2009/01/21/the-macroeconomic-knowledge-problem/
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Paul Krugman claims to "debunk some of the major antistimulus arguments" ("Bad Faith Economics," January 26). Alas, he ignores the most compelling arguments against the "stimulus" - such as the one that recognizes that massive increases in government spending are too likely to be laden with pork and infected with political viruses to do much good.
More important is the argument built on the understanding that the fundamental problem isn't a lack of aggregate demand but, rather, resource misallocation caused by prices being out-of-whack relative to each other. The only way to solve this problem is to let these relative prices adjust over time so that resource allocation becomes more sustainable. "Stimulus" spending will only thwart these adjustments. The economic turmoil may be masked in the short-run, but only by ensuring longer-term harm.*
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
* See, for example, Mario Rizzo's blog post here:
http://thinkmarkets.wordpress.com/2009/01/21/the-macroeconomic-knowledge-problem/
Posted by Don Boudreaux on
Wednesday July 1, 2009 at 7:12am