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Paul Krugman: Raise Taxes, Spend More, and All Will be Well

According to Paul Krugman, who wrote in The Return of Depression Economics that governments can solve almost any crisis simply by printing money, declares that California easily could solve its present crisis by raising taxes.

First, he goes into the “real” cause of the trouble: Proposition 13. The only problem is that it was passed more than 30 years ago and California has balanced many budgets since then (and that includes the 2/3 majority in the legislature needed to raise taxes). Thus, if Prop 13 were the cause, why has California not been in crisis sooner? The Great One has no answer.

Second, he points toward the current situation, and claims that our nation’s current crisis can be “solved” by raising taxes:

Last week Bill Gross of Pimco, the giant bond fund, warned that the U.S. government may lose its AAA debt rating in a few years, thanks to the trillions it’s spending to rescue the economy and the banks. Is that a real possibility?

Well, in a rational world Mr. Gross’s warning would make no sense. America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.

However, Krugman has his own “Goldstein,” the Republicans. Yes, even though Democrats have huge majorities everywhere, the very presence of a few Republicans still is the reason that governments cannot act “rationally” and give us steep tax increases and provide all of the things Krugman demands government “give” us:

But that (a modest tax increase is all that is needed) presumes that we’ll be able, as a political matter, to act responsibly. The example of California shows that this is by no means guaranteed. And the political problems that have plagued California for years are now increasingly apparent at a national level.

To be blunt: recent events suggest that the Republican Party has been driven mad by lack of power. The few remaining moderates have been defeated, have fled, or are being driven out. What’s left is a party whose national committee has just passed a resolution solemnly declaring that Democrats are “dedicated to restructuring American society along socialist ideals,” and released a video comparing Speaker of the House Nancy Pelosi to Pussy Galore.

This makes no sense. If a party is out of power, then how can it be responsible for the current policies? You see, all of the wild spending in California (and this country) has nothing to do with what is happening now. No, the only problem that we face is that government does not have enough money to spend. “Solve” that problem, and everything else falls into place.

I have nothing good to say about the Republicans, whose policies have led us to the edge of the cliff. However, since taking absolute power, the Democrats not only have resumed the march over the precipice, but are demanding that we increase our steps to double-time.

So, to date, Krugman has advocated even larger deficits than what are being run, the printing of more money, large tax increases, and huge increases in government spending. And he calls that “responsible.” Well, I call it madness.


Contact William L. Anderson

William L. Anderson is a professor of economics at Frostburg State University in Frostburg, Maryland.

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