The Newspeak of Paul Krugman – Destruction is Creation

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In his September 28 New York Times blog post, Paul Krugman announced that “economics is not a morality play.” That turn of phrase is his way of defending the idea that in unusual times, such as the sort of deep recession we are in, we can get strange relationships between economic cause and effect. The result is that actions which we might find highly distasteful can have positive effects. Thus we cannot afford to be overly concerned with morality if the goal is to get out of the recession.

Specifically, Krugman defends the claim that World War II got us out of the Great Depression, because “this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.” Even spending on something destructive like war, he argues, is what is needed to solve the problem, especially when the “political consensus for [domestic] spending on a sufficient scale” is not available. In Krugman’s version of Orwell’s Newspeak, destruction creates wealth, and war, though not ideal, is morally acceptable because it produces economic growth.

Thankfully, we can get behind his Newspeak to see the fallacy of his economics. To believe that spending – any kind of spending – is the cure for what ails us is to ignore the subjective nature of wealth and the microeconomic basis of economic growth in favor of an absolute reification of economic aggregates such as GDP and unemployment. Spending trillions of dollars fighting a war can certainly bring idle capital and labor into employment, driving up GDP and lowering unemployment. But this does not mean we are any wealthier than we were before.

Wealth increases when people are able to engage in exchanges they believe will be mutually beneficial. The production of new goods that consumers wish to purchase is the beginning of this process. When instead we borrow from future generations to spend on goods and services connected not to the desires of consumers, but rather to the desire of the politically powerful to rain death and destruction on other parts of the world, we are not allowing individuals the freedom to do the things they think will make themselves better off. And we are certainly not extending that freedom to those killed in the name of our economy-enhancing war. At a very basic level, the idea that any kind of spending is desirable overlooks the fact that spending on war (and, I would argue, public works as well) actively prevents people from enhancing their wealth through production and exchange linked to consumer demand.

Employing people to dig holes and fill them up again, or to build bombs that will blow up Iraqis, will certainly reduce unemployment and increase GDP, but it won’t increase wealth. The problem of economics is the problem of coordinating producers and consumers. This coordination happens when we produce what consumers want using the least valuable resources possible. That is why it is wealth-enhancing to dig a canal using earth-movers with a few drivers rather than millions of people using spoons, even though the latter will generate more jobs.

Sending soldiers off to war is a waste of human and material resources, and is almost by definition wealth-destroying, no matter what it does to GDP or unemployment rates. The only way one can view economics amorally, as Krugman wishes to, is if one is only concerned with total GDP and not its composition. However, it is the composition of GDP, in the sense of how well what we’ve produced matches consumer wants, that ultimately matters for human well-being. It’s easy to create jobs and generate spending, but those do not constitute economic growth, and they are not necessarily indicators of human betterment.

So yes, Professor Krugman, it does matter how we try to get ourselves out of depressions. The world is not upside down and vices aren’t virtues. War isn’t peace and destruction isn’t wealth-creation. The real solution to digging out of a recession is to remove the barriers to the free exchange and production that actually comprises wealth- creation. Borrowing trillions more from our grandchildren to spend on building the equivalent of pyramids or on blowing up innocents abroad only digs the hole deeper. And when one is reduced, as Krugman is, to saying we “needed Hitler and Hirohito” to get us out of that hole in the 1930s, one has abandoned morality to worship at the altar of economic aggregates.

No critic of free-market economics can ever again accuse us of being irrational and immoral when it is Paul Krugman who says destruction creates wealth, and war is an acceptable second-best path to economic growth. Don’t let Krugman’s Newspeak fool you: War and destruction are exactly what they appear to be. To argue as Krugman does is to abandon both economics and morality. Big Brother would be proud.

Steven Horwitz
for The Daily Reckoning Australia

The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
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Comments

  1. Excellent article Steven.

    Krugman talks non-sense if he sees that a war by or with the US would solve the US’s economic wars.

    It might well have been fine, for the US when mighty Great Britain took on the Germany, or when Iran fought Iraq, and the US sold into either side, or even at times both sides of those wars. Better yet, when those wartime economies either sought capital, or the quick and ready cheap disposal of their national resource, say colonies and oil.

    But the picture is certainly blurred when it is US soldiers marching through the Guadalcanal scattering their intestines, limbs and blood on the economic enhancing battle ground.

    I am not sure that Krugman would point to benefits in this case.

    Yet the destruction stimulates growth is a theme often re-awoken and envigourated. As when a overflowing Lake Pontchartrain, over-filed by hurricane Katrina, swept large parts of the city of New Orleans down the Mississippi.

    “Good, good, all good…” the dilly Ebeneezers wrung their callused paws, “needed infrastructure, needed homes and missing lives will all need to be rebuilt. Good, good, all good for the economy – you know!” was their stupid refrain.

    “Oh yeah?”

    ————————————oOo————————

    I love the Pyramid building simile.

    Lord and first baron Johnny Keynes, in an earlier lifetime, must undoubtedly have been an economic advisor to the ancient courts of the Pharaohs.

    “Build Pyramids m’lords” He’d rant.

    “All good, good, good!” He would most likely further to have enthused…

    “Oh yeah?”

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  2. Yep, if Prof Krugman reckons what the US needs is a ‘good’ war to get itself out of the hole, may I suggest that they start the ball rolling by having California nuke Texas or suchlike this time round?

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  3. The nickname ‘Freddy Krugman’ doesn’t begin to capture the full horror of this man’s evil.

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  4. You guys are talking past each other. You say Krugman is advocating war, war = destruction, ergo Krugman advocates destruction. Your “aha” is that “destruction” caused by war cannot equal “wealth creation.” Maybe not at the 100,000 foot level where the earth’s final balance sheet resides, but the war and deficits undoubtedly were helpful in creating and preserving wealth in many “micro” segments and locations, especially in the US, which did not experience the direct destructiveness of WW2.

    “Wealth creation” is a worthy goal, but even if your critique of Krugman and Keynes is airtight the fact that they are wrong does not make your “wealth creation” policy right except, again, at some stratospheric “final” level. The issue is how to deal with an extraordinary financial contraction. It appears that you see the present destructive force of economic contraction as a good thing, but Krugman would say that this form of destructiveness is dangerous and shold be opposed. You are both right. Pick your poison. Stimulus is a short run thing to oppose contraction and in its absence contraction may accelerate. “Wealth creation policies” i.e. austerity seems like doing nothing and seeing what happens. Deflation is not a bad “wealth creation” device for the holders of cash in many parts of the microeconomy, but how long does it take before the “long term” arrives for the economy as a whole? As Keynes said, “in the long run, we’re all dead!”

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  5. That stratosperic final level may not be as remote as we would like to think or hope. We are living and multiplying like lemmings in a world of finite resources. What’s left over requires an ever increasing chunk of energy to exploit. Now, if all this ‘useless’ economic activity that the Krugmans of the world advocates merely wasted resources that’s infinite, that would have been… well, unfortunately wasteful. When we are dealing with finite resources, we really need to consider whether we as a collective, can afford to squander what little of it is left. Keep in mind that there isn’t a natural ecological system in the world that is not under either severe stress or already stressed beyond repair.

    If I look at the big picture I see a world, a part of which has lived way beyond its means for so long that it feels unflinchingly entitled to a standard of living that was never viable or sustainable. And of course the rest of the world is essentially aspiring to do the same.

    Sustainable growth is an oxymoron. Like fornicating for virginity, you can either have one or the other, not both at the same time. So instead of facing the reality of finite resources, the world becomes zombified. And the zombies will do anything to maintain the status quo – robbing, stealing and pillaging – until there is nothing left to rob, steal or pillage. Their alternative is simply too ghastly to contemplate. Expecting people to give up a single one of their basket of benefits? Are you out of your friggin’ mind!!!

    This has been going on for a long time and we are merely beginning to become more acutely aware of the shock waves as the Western world is grinding to a halt after having hit the reef. (Gold does not rise or fall. Everything else does. You get the picture now?)

    We can only do either one of two things: stop growing and create a sustainable society or grow until we start to eat each other. Can you see the former happening? I wish I could.

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  6. Hi AdW

    Tim Flannery’s new book, “Here on Earth” is a good read about what may happen to earth in the future. It’s not all doom and gloom but basically says we will be forced to change.

    Until then maybe we should try to live the change we want to see. Hopefully it will catch on.

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  7. I am living the change I would like to see, though not due to my effort.
    Its mid October in sub tropical Australia and I am freezing my arse off and wet to boot.

    Jokes aside, The big picture might be more optimistic than the above comments.
    Families in the coastal cities of China are having 1 or less children, even though they are able to have more. Another example of affluence breeding well, non breeding.
    emergent technologies like good batteries and cheap solar power etc have much potential (not like the 40 year wait to get to this stage with solar systems).
    despite the capacities and nuclear proliferations, the world has not blown up like I was convinced it would in the 1980’s.
    The internet is speading info in a way not seen before which I think is a good thing.
    space travel beckons, but like Elton John sang in Rocket Man, I think its (still) going to be a long long time. that will put paid to finite resources for the most part. there’s plenty of stuff out there.
    I like to look at the demise (but not collapse) of the US as a global redistibution of power. In the end we will all be equal, more or less. (sounds like a contradiction, I know). How often do we hear “good luck for the Chinese and Indians”. not much I think.
    Easy in todays Oz economy and this amazing weather to say “She’ll be right”. In the long run we are all bonza, or gonza(lol),
    ..mmm only 3 glasses of red today for this rubbish.

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