Capitalism vs. Socialism

My Debate With Paul Krugman

BY STEPHEN MOORE

07/15/2015 05:49 PM ET

Last week I debated New York Times columnist and Nobel-prize-winning economist Paul Krugman in front of 2,000 people at FreedomFest in Las Vegas. It was billed as the economic showdown of the year, and the major theme was socialism vs. capitalism.

Given the financial turmoil in Greece, Puerto Rico, Argentina and most of the eurozone, it would be hard to think of a worse time for Krugman to be defending big government.

That might explain why at the last minute he got cold feet and vetoed cameras in the auditorium. That was a huge disappointment because the debate should have been seen by hundreds of thousands of people. But some bootleg videos can be found on YouTube for those interested in watching the massacre — though I'm admittedly biased.

Still, the debate was cordial and particularly helpful in illuminating how the left sees the world working. Krugman is witty and sharp and a staunch advocate of nearly everything government does. He defended the Postal Service, ObamaCare, Medicare, the minimum wage and the welfare state — which he says is rapidly shrinking.

The first issue we squared off on was "stimulus." My point was that Obamanomics gave America the weakest recovery in at least three generations and is running $2.5 trillion in GDP and 8 million jobs behind the Reagan recovery.

Krugman's response was that the 2008 financial crisis was so catastrophic that 2% growth was the best we could expect. Except that even the Obama administration admits that the recovery turned out weaker with the stimulus than we would have seen without it.

During the debate Krugman called John Maynard Keynes one of the two greatest economists of all time. But when Keynesian economics was put to the test by Obama, it crashed.

My main attack was that socialism, progressivism, Krugmanism — whatever "ism" you call it — is in collapse everywhere: Greece, Portugal, Argentina, Puerto Rico, Connecticut, etc.

He had a tough time explaining the meltdown in Greece. It's a socialistic state that has high tax rates on the rich, generous welfare benefits, strong unions, a tight regulatory environment and all the other things Krugman preaches — and it's now functionally bankrupt.

He argued that the creditors are being too harsh and that there has been too much government austerity. But there is no Greek austerity. Government spending climbed to 59% of GDP in 2013 and is still at 49%. Debt as a share of GDP has soared to 175%. This is a spending splurge, not austerity.

Krugman is for a single-payer health care system and argues that socialist health care systems provide better health outcomes at cheaper cost around the world. My response was that third-party payer systems in education and health care are what's driving up costs and that health care premiums paid by families are rising way faster than Obama predicted. Where are the $2,500 in family savings?

Medicare is apparently the glittering success story of government, yet it's running unfunded liabilities in the tens of trillions of dollars.

Krugman was lamest in explaining the migration of a thousand people a day from blue states to red. Blue states follow Krugman's advice with higher tax rates, costly welfare programs, forced union laws and tort systems that reward trial lawyers over people and businesses. He did concede that land-use restrictions in blue states were deterring development.

His response to the far superior economic performance of Texas and Florida over California and New York, for example, was to argue that the migration is due to air conditioning. Most of the audience howled at that one, but he wasn't joking. Apparently people are moving from San Diego to Houston for the weather.

At the end of the debate we were asked what three policies would be best for promoting prosperity in America. I argued for school choice, personal accounts for Social Security and a flat tax. He argued for more power to unions to reduce income inequality. He wants to give more power to unions that have bankrupted the steel industry, the auto industry, the states, localities, public school systems and all of Europe. This is a remedy?

Krugman blamed Republicans, George W. Bush and capitalism for the Great Recession. But I couldn't resist noting that Krugman never wants to take responsibility for his own policy blunders.

In late 2002 he advised that "to fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment." And to do that "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." We got the Krugman housing bubble; the rest is history.

My big takeaway from the debate is that advocates of free-market capitalism need to aggressively call out the Krugman-Obama-New York Times-Hillary Clinton-IMF crowd for bringing misery and decline to so many places around the world with their wildly irresponsible debt and spending policies. They're on the run because their model is imploding right before our very eyes here in the U.S. and around the world.

Perhaps worst of all, their obsession with income inequality and spreading the wealth is only making the poor poorer, and driving the middle class downward, as even Clinton herself acknowledged this week. Krugman and his followers are on the losing side of history. No wonder he didn't want this debate televised.

• Moore is a senior fellow at the Heritage Foundation and part of the Investor Business Daily's Brain Trust.