Krugman, Aliens and Opportunity Costs

I mentioned in the meeting that Paul Krugman is probably the most prominent economist today that is consistently under fire for his “broken window” comments pertaining to deficit spending and expansionary monetary policy.

Money and resources that are used in infrastructure spending cannot be used in other areas of the economy – that’s the opportunity cost. Some economists counter Krugman’s logic and argue that when the market allocates resources, instead of the government, we reach a higher level of productivity and standard of living. The jobs that the government creates with its spending are the jobs that are seen. The jobs that would have been had the market allocated resources are those jobs that are not seen. One must consider both what is seen and not seen. That is one of Bastiat’s major points and hence, the name of his essay.

This debate is far from settled. Economists still have not come to a definitive consensus on the validity of deficit spending and infrastructure spending. I surmise the debate won’t be ending anytime soon, either.

An interesting response to Krugman’s Alien hypothesis can be found here.

steven

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