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Sound Money and World Peace vs Inflation and Alien Invasion

Posted by
August 16, 2011
in Blog

Paul Krugman chooses the latter.

“We could use some inflation… [but] it’s very hard to get inflation in a depressed economy, but if you had a program of government spending plus an expansionary policy by the Fed you could get that… If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and inflation and budget deficits took secondary place to that, this slump would be over in 18 months.  And then if we discovered that “whoops!” we made a mistake, there aren’t actually any space aliens we’d be in better [shape].  There was a Twilight Zone episode like this in which scientists the faked an alien threat in order to achieve world peace.  Well this time we don’t need it, we need it in order to get some fiscal stimulus.” – Paul Krugman

Leaving aside for the moment that price and wage controls, the rationing and shortages, and the drafting of millions of men during WWII, Krugman is still wrong that mobilizing for war pulled us out of the Great Depression (see: Bob Higgs). And now he wants aliens to invade the Earth. Well, to be fair, he just wants us to act as though they were.

But even in his perfect world where he takes command and control of the economy and money supply to mobilize the workers and end unemployment, when the alien invasion turns out to be non-existent we will be left with weapons and bases and armies we do not need.  This is what happens when you imagine “capital” to be homogeneous “lego-blocks.”  Although perhaps Krugman imagines that the next great economic boom would just come in the dis-assembly business.

In other words, in Krugman’s hypothetical it is possible to achieve world peace or inflationary fiscal stimulus and he prefers stimulus.  At least he stopped short of praising actual destruction and loss of life as a spur to the economy this time.

Image: africa / FreeDigitalPhotos.net