Krugman: Welfare is the Nation's "Seed Corn"

Monday, February 14, 2011
Krugman: Welfare is the Nation's "Seed Corn"
William Anderson

Paul Krugman must feel at times as though he is Horatio at the Bridge. He openly campaigned for Democrats last fall only to see the House fall to Republicans and for the Democrats to see their once almost insurmountable Senate majority fall apart. And now, the Republicans are calling for budget cuts and Krugman once again dons his battle gear.

Now, I absolutely agree with him that the military budget should not be sacrosanct, and most likely I would want more cut out of the Budget to Preserve the Empire than would he. (After all, Keynesians believe that military spending also serves as an economic "stimulus," even if they don't like what it accomplishes.) Any Republican who believes that the current level of military spending and military interventions overseas is sustainable is not someone who is willing to listen to reason.

However, Krugman does not seem to be particularly exorcised about the lack of Republican desire to cut military spending. Instead, he decides that a poll by the Pew Research Center really should be the centerpoint of economic policy. He writes:

...Americans were asked whether they favored higher or lower spending in a variety of areas. It turns out that they want more, not less, spending on most things, including education and Medicare. They're evenly divided about spending on aid to the unemployed and ­ surprise ­ defense.

The only thing they clearly want to cut is foreign aid, which most Americans believe, wrongly, accounts for a large share of the federal budget.

Pew also asked people how they would like to see states close their budget deficits. Do they favor cuts in either education or health care, the main expenses states face? No. Do they favor tax increases? No. The only deficit-reduction measure with significant support was cuts in public-employee pensions ­ and even there the public was evenly divided.

The moral is clear. Republicans don't have a mandate to cut spending; they have a mandate to repeal the laws of arithmetic.

In other words, since no one really wants to stop spending, let's just pretend that we have lots and lots of money, or that we can increase the national debt or just get the Fed to give us QE3, QE4, and QE5, which is the Going-Out-Of-Business Sale. In the meantime, Krugman really wants us to think that unless we have a vast welfare state, somehow our economy and our society will disappear:

The answer, once you think about it, is obvious: sacrifice the future. Focus the cuts on programs whose benefits aren't immediate; basically, eat America's seed corn. There will be a huge price to pay, eventually ­ but for now, you can keep the base happy.

Yet, if anyone has called for the eating of the economy's seed corn, it has been Paul Krugman. Because, in his view, capital simply "happens," then we don't have to worry about capital development, given that if we spend lots of money, capital magically appears.

To Paul Krugman, there is no difference between real wealth and the printing of money. As he wrote in The Return of Depression Economics, all it takes is for the government to end the downturn is just to print money. There is, he claims, a "free lunch" out there. What he does not say is that these are the very policies that destroy our real seed corn, our capital base.