Paul Krugman (known as St Paul among liberals) is at it again. In an article,
“Money for nothing”, Krugman makes the following case:
1) Investors and businesses aren’t spending right now and can’t find investment opportunities, therefore they choose to buy government bonds. In fact, they are buying government bonds to such an extreme extent that the interest rate on (inflation-protected) government bonds is now negative.
2) Therefore, as government bonds are in such great supply, governments should issue more bonds. Simply supply and demand, Krugman thinks; government should give the customers what they want. Also, as the money is free, there is no harm in doing this. Why not borrow when you get the money for nothing?
This argument really shows how clueless Krugman really is: By Krugmans logic, if humans are eating grass, then the only sensible thing to do is for the government to supply them with more grass. Instead, a non-keynesian would argue correctly that if people are eating grass, then the reason is because they don’t have real food. The sensible thing is providing food, not grass, as grass is something you eat not because you want to, but because you lack actual food (humans eating grass have been observed in North Korea among other places).
Government bonds is something that investors don’t willingly buy. They buy it, if there are no other investment opportunities (of course, almost every investor holds SOME bonds to diversify his or her portfolio). Krugman agrees with me on this, but he forgets to ask the question: Why are there no other investment opportunities? Why are employers not hiring, instead stuffing their money into negative-interest government bonds?
Could it be… because of destructive government policies? Because employers are worried about Obamacare increasing their costs? Because the US has a president who has constantly demonized them and implicitly made it his mission to destroy them?