You can't beat something with nothing - why Krugman and the Keynesians are winning
The centre-right must rediscover Austrian school economics or else fight the long retreat
The economist, Paul Krugman, is in London, promoting his new book - and the old idea that we can spend our way back to prosperity.
Forget austerity, says this Nobel Prize winning academic. Let's have economic growth instead. Quit trying to balance the books. Government should just spend, spend, spend.
Who knew growth could be so easy, eh? By Krugman's logic, countries whose governments' had run budget deficits - like Greece or the UK - would be performing better than those who had made more effort to balance the books - such as Australia, Switzerland or Canada.
Listening to Krugman, what struck me was not how daft his argument is, but how difficult the rest of us find repudiating such nonsense.
Krugman's idea of a massive, sustained fiscal stimulus is harder to dismiss if you are arguing that we need a massive, sustained monetary stimulus.
Krugman says we should print money and spend it. The Coalition says we should print it and hand it to the banks. Guess which argument is winning in the TV studios?
How can those who support the Bank of England's print-money-and-pray policy of Quantitative Easing call Krugman reckless?
Once again, Toryism is hamstrung by our lack of a coherent free market approach to money and credit. In the late 1980s, this meant we drifted away from monetarism into the ERM - destroying our reputation for economic competence in the process.
Today, having wrongly conceded that the government best knows how to allocate the supply of credit, we are defenceless against those who say the state best knows how to spend.
Instead of a serious rethink about our approach to money and credit, the Conservative party Treasury team has clung to a Treasury script written when Gordon Brown was running the department.
In Europe, left-wing parties are in the ascendancy. Why? Because if Euro corporatism is the only thing those on the right have to offer, they will lose. On this side of the Channel, if the idea that government fiat will fix the economy is all the centre-right has to offer, we lose.
Until the centre-right in Britain (re)discovers Austrian school economics, we are doomed to fight the long retreat.
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