Some Painful Reading Considering Japan's Experience Over the Past 20 Years is the Result of Policy that Parallels Krugman's Advise

from Ed Driscoll by Ed Driscoll:

Paul Krugman Embraces Fantasy:

At City Journal, Guy Sorman reviews Krugman’s new book, End This Depression Now! (If that’s a personal cry for help, I hear they’re doing wonderful things these days with Prozac and polo mallets, as another denizen of Manhattan would say) and concludes “The Nobel-winning economist embraces fantasy:”

“Ending the depression should be incredibly easy,” Krugman asserts. The government must simply spend more, because the American consumer is spending less. Borrowing from Keynes, Krugman argues that the crisis, having been provoked by a decline in private demand, can only be solved by an increase in public demand. This is “a moral imperative” (the book constantly zigzags between ethics and economics). Public spending would be not only efficient, Krugman contends, but ethical.

This inflationary solution, which Krugman calls “a feel-good experience,” has been tried before. It worked, he claims, during World War II, when arms-building programs lifted the U.S. economy out of the Great Depression. Half-jokingly, Krugman says that the threat of an alien invasion should suffice to motivate more government spending. But he knows well—or should—that President Obama has already tried to rekindle growth this way. He admits that the results were not impressive, but only because public spending didn’t go far enough and wasn’t sustained.

Krugman embracing fantasy? I just can’t see it myself:

It didn't work in WWII either.  There was a depression at the close of that war, not boom.  Boom did eventually follow that recession, though.  That was because WWII had destroyed the world's manufacturing  capability with the exception of ours and demand for rebuilding was, not surprisingly, high. We supplied that demand to the world.

If Krugman is correct that WWII's Keynesian effects got us out of the depression, then one of the requirements for Keynes to work is that with the exception of our nation, the world's production capacity must be destroyed.

That strikes me as a Keynesian Fail