While mainstream academic economists have thrown out one spending scheme after another in the name of promoting economic recovery, let us not forget those economists who work for other organizations, and who are supposed to understand how the economy functions. Today, I give you Michael T. Darda, the chief economist and director of research for MKM Partners, who declares in the Wall Street Journal that “Big Spending and Easy Money Will Produce a Recovery.”
This is an article filled with howlers worthy of Paul Krugman. Because I want readers to look at the whole thing, I give only a few snippets of “wisdom” from this guy:
Here we should look to three historical examples where aggressive monetary expansion was wedded to an aggressive fiscal policy: the U.S. during the mid-1930s, Germany through the 1930s, and Japan in the early 2000s. In each case there was a recovery, although policy errors led to significant setbacks. These episodes can help assess U.S. growth prospects, and the risks to a sustainable recovery.
What were those “policy errors”? We begin:
In sum, history suggests that a highly aggressive monetary policy married to a fiscal expansion will lead to recovery. The Treasury yield curve is steep and money supply growth has been rapid, a dynamic usually associated with an eventual pickup in economic growth.
However, an inflation-led boom is not a policy error, according to Darda. No, the “error” occurs when the government tries to do something about inflation. It also is clear that Darda has no idea what is the difference between a “real” economy that actually produces goods that consumers may want versus a “phony” economy in which people produce things that the state wants:
The German economy expanded rapidly in the 1930s, as large increases in government spending on public works, construction and rearmament were funded by deficits and easy money. The money stock grew at an average annual rate of 10% while government expenditures galloped by 30.7% a year. Real GDP expanded by about 10% per year. Unemployment disappeared. For a time the “German economic miracle” concealed Hitler’s homicidal intentions. Still, Germany suffered from stagnant wages and low productivity. Business profits and investment did well, but consumer-goods industries languished as wages were restrained by the state.
It is obvious that while he seems to be troubled by the fact that Germans were employed making war goods, nonetheless he is bound by the GDP measurements that declare: Germany’s GDP was up; therefore, the economy was in “recovery,” when, in truth, this was a ghastly example of a “recovery.”
So, we see that a “star” of the “professional” economists also subscribes to the nonsense of “Aggregate Supply — Aggregate Demand” fallacies that are so harmful to the economy. Maybe MKM Partners needs to hire Robert Murphy, who in my view is a real economist. He also could explain some things that apparently Darda is incapable of doing.