Blog author: jcarter
by on Wednesday, May 14, 2014

The gorilla-whale is back. And he’s here to stimulate the economy.

On Friday, theaters across the country will be debuting the fourth American remake of Godzilla (the name is a romanization of the original Japanese name “Gojira” — which is a combination of two Japanese words: gorira (‘gorilla’) and kujira (‘whale’). Over its opening weekend the film is projected to earn $78,000,000, and cumulative revenues of over $240,000,000. While that could be a generous stream of income for Hollywood, it’s a drop in the $17 trillion ocean that is the U.S. economy.

But what if instead of releasing the movie, the government were to convincingly lie to the American people about an imminent invasion by a 150 foot tall gorilla-whale? What would be the effect if the government said we must take action now to protect our way of life from the monster?

According to some liberal economists, it would lead to an economic boom. In defending President Obama’s stimulus proposal in 2011, Paul Krugman proposed a peculiar solution for economic recovery that is similar to an invasion by Godzilla:

“If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months,” he declared, arguing in favor of the president’s stimulus package. “And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better [off].”

Can you spot the economic fallacy being posited by this winner of the Nobel Prize for economics?

20467To ramp up these unnecessary defenses, the government would need to take money from current productive activity (in the form of taxes) or borrow from future productive activity (in the form of deficit spending) in order to fund the non-productive activity. The government spending is not creating new wealth, but merely moving it from productive uses to a non-productive use.

In his famous essay “That Which is Seen, and That Which is Not Seen” (1850), Frederick Bastiat explained why it is economically harmful to pay more for national defense than is needed:

We will suppose that we are in the village of A. The recruiting sergeants go their round, and take off a man. The tax-gatherers go their round, and take off a thousand francs. The man and the sum of money are taken to Metz, and the latter is destined to support the former for a year without doing anything. If you consider Metz only, you are quite right; the measure is a very advantageous one: but if you look towards the village of A., you will judge very differently; for, unless you are very blind indeed, you will see that that village has lost a worker, and the thousand francs which would remunerate his labour, as well as the activity which, by the expenditure of those thousand francs, it would spread around it.

At first sight, there would seem to be some compensation. What took place at the village, now takes place at Metz, that is all. But the loss is to be estimated in this way: At the village, a man dug and worked; he was a worker. At Metz, he turns to the right about, and to the left about; he is a soldier. The money and the circulation are the same in both cases; but in the one there were three hundred days of productive labour; in the other, there are three hundred days of unproductive labour, supposing, of course, that a part of the army is not indispensable to the public safety.

Krugman’s proposal—which is the based on the idea that almost any kind of  “stimulus” spending is good for the economy—is based on this flawed logic. Like most make-work stimulus proposals, preparing for an attack by Godzilla that never comes would harm, not help, the economy.

Using force to shift resources from productive uses to unproductive one is is antithetical to the approach Christians should champion. As Anne Bradley explains,

God has not just called us to preserve what he has given us, but to increase and grow it. Our job description as given in Genesis 2 is to:

• Be fruitful and multiply.
• Create rather than destroy.
• Use our ingenuity and talent to increase the sum of flourishing, not just preserve existing levels.

The Christian approach to economic growth — which tends to lead to increased human flourishing — is to be innovative, productive, creative, and responsible stewards of resources. That is why we can spend our hard earned money at the theaters watching the Godzilla movie, while it wouldn’t be God-honoring to waste his resources on unproductive government spending, such as defending against the invasion of gorilla-whales.


  • Bill Hickman

    Spending stimulus money on anti-Godzilla projects would be foolish, but it wouldn’t be “unproductive” in a depressed economy. By paying contractors to do the work, the government would inject additional money to the economy later to be spent at grocery stores, restaurants, movie theaters, etc. Krugman was making a cheeky point that, while governments should use stimulus to build useful stuff, the most important thing is that the stimulus money gets moving through the economy.

    Keynesian economists don’t claim that such stimulus spending is completely without cost. It must obviously be paid for with taxes or borrowing. But when the economy is depressed, unemployment is high, and interest rates are already low, Keynesian stimulus is probably the *least costly* remaining option. Our government can currently borrow money very cheaply. . The short-term and long-term costs of not enacting stimulus – mass unemployment, lost human capital, decreased economic output – are probably much higher.

    • http://Culture11.com Joe Carter

      By paying contractors to do the work, the government would inject additional money to the economy later to be spent at grocery stores, restaurants, movie theaters, etc.

      This is conflating “spending” with productivity. It’s true that Keynesians tend to think that what matters is the amount of money flowing through the economy. But as Bastiat would say, the spending is what is seen while what is missed (the loss of wealth) is what is not seen.

      Part of the problem is the erroneous assumption many have that everything changes when the economy is depressed and that we can apply a different set of rules. But what makes an economy grow is increases in productivity and wealth accumulation. That does not change, whether we are in a boom or bust cycle. Yet many people (e.g., Keynesians) seem to think that “spending” is a suitable substitute for productivity and wealth creation.

      the most important thing is that the stimulus money gets moving through the economy.

      Yes, that is Krugman’s point—and it’s completely mistaken. Whenever it’s pointed out that stimuluses don’t have the effect that their champions claim, the answer is always the same: we didn’t spend enough money.

      The short-term and long-term costs of not enacting stimulus – mass unemployment, lost human capital, decreased economic output – are probably much higher.

      I completely disagree about that. None of that is caused by or truly alleviated by more spending. As we’ve seen time and time again throughout history, it is not the spending that gets an economy back on its feet but increases in productivity. Stimulus can actually impeded recovery by shifting resources (by people and money) to less productive uses.

  • http://rdmckinney.blogspot.com/ Roger D. McKinney

    Nice take down of Krugman! If one subscribes to the “circular flow” economics then Krugman makes sense. All that matters is for money to circulate. But the circular flow model hides most of what happens in the economy. That’s what’s wrong with simplistic models like the circular flow and Krugman’s silly
    babysitting co-op model: they’re designed to hide the real economy and fool the gullible.

    But how does an economy grow in the circular flow model? It can’t unless the central bank prints more money. However, in the real world economies grow and people become richer through savings and investment. Rapid circulation of money, as Krugman recommends, can goose silly stats like the GDP
    but it cannot create wealth. WWII proved it.