Today, the champion—the uncontested champion of Orwell’s “truth”—is Paul Krugman, the 2008 Nobel laureate, Princeton professor, and New York Times columnist. For those who read his twice-weekly column or glance at his blogs and commentary elsewhere, it is like reading the latest pronouncements from the “Ministry of Truth,” and, like in Oceania, it seems that the masses believe the nonsense.

Had I not read Krugman’s column, I never would have known that Jimmy Carter, who began the modern deregulation movement, was a right-wing Republican, or that the solution to almost all our economic ills is for the government to raise taxes, borrow, and print more money. However, his latest missive has managed even to outdo the Ministry of Truth itself. Big Brother would have been ecstatic.

There is not enough byte space in the universe to refute Krugman’s latest pronouncement completely, but a couple of the most glaring holes can be discussed here.

As most readers know, the U.S. Dollar has been falling fast against other currencies and members of OPEC are balking at continuing to price crude oil exclusively in dollars. Instead, they have suggested a “basket” of currencies, as they realize that our government’s policies are likely to turn the USD into something like the Zimbabwean Dollar.

Enter Professor Krugman, who writes:

The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

Not so fast.  The USD is falling because the rest of the world understands that the USA no longer is a “safe haven” and investors looking elsewhere. When super investors like Jim Rogers tell us to get out of this country altogether, people need to listen. Rogers does not have a Nobel to his credit, but he is no crackpot and he fully understands (unlike some American Ph.D.s) that the U.S. Government does not create wealth with the printing press.

While it is true that a falling dollar does make U.S. exports cheaper, the question is what can we export other than commodities. The government’s environmental policies alone continue to raise the cost of manufacturing and we are being forced by the political classes to divert productive resources into failed enterprises like General Motors and the zombie financial institutions on Wall Street.

Alas, Krugman does not stop there. No, he claims that what our economy “desperately” needs is—get this—more “easy credit.” That is right; the very thing that gave us massive malinvestments and brought the U.S. economy to near-ruin is what we “desperately” need. As I have written elsewhere, this is like claiming that the best way to deal with alcohol addiction is to imbibe even more.

For all the talk that the government’s policies of bailouts, printing money, and borrowing at record rates have “prevented” a second Great Depression, the truth is that all the government has done is to give the illusion of recovery while setting us up for an even worse Day of Reckoning. By keeping the zombie entities afloat, the government continues to force even more malinvestments at a time when liquidation is the order of the day.

The Keynesian propositions of printing money and borrowing might be popular to the political and intellectual “elites” of this country, but they are utterly destructive in the real world. Unfortunately, we are being fed Orwellian “truths” at a time when what we need to hear is the unadulterated truth.

For the past 30 years, we’ve been told that government spending is bad, and conservative opposition to fiscal stimulus (which might make people think better of government) has been bitter and unrelenting even in the face of the worst slump since the Great Depression. Predictably, then, Republicans — and some Democrats — have treated any bad news as evidence of failure, rather than as a reason to make the policy stronger.

In dealing with the crude analysis that accompanies such Keynesian thinking, I use Krugman’s columns because he is the most popular exponent of that viewpoint. If one wishes to learn Keynesianism, read Krugman’s columns.

The Keynesian economic “theology” holds that only spending matters. Keynesians believe that it does not matter who does the spending, although it is preferable for government to do it, since politicians love to buy votes with other people’s money.

A recent quote in a Krugman column demonstrates this point. He claims that since private borrowing is down, even with the government’s current rapid accumulation of debt, overall borrowing is less than what it was during the boom. Thus he concludes the overt worrying of some over the massive increase in government debt is just another tale of woe from the “economic Cassandras.”

In other words, Krugman does not differentiate between private and government borrowing, even though business borrowing mainly is done for capital investment and government borrowing is done so governments can spend more than they take in with taxes. Keynesians seem to believe that the only benefit business borrowing provides is the spending that takes place, so if government does the borrowing and spending instead, then all the better.

Now to deal with the quote from Krugman’s column. Austrian economists do not respond negatively to what Krugman says because we “hate” government for “ideological” reasons (even though most of us look askance at government and its coercive ways), but rather because we understand the differences between private and government spending. They are not mirror images of each other, no matter what Krugman says.

In the Keynesian viewpoint, all assets and all capital are homogeneous. It does not matter if one spends money on a “bridge to nowhere” or invests in a new line of production; what is important is that money is spent.

Furthermore, in Keynesian thinking, as long as there are “idle resources,” then government spending — if it is enough and enough money is printed — ultimately can result in “full employment” of those resources. Why those resources might be idle in the first place is not up for discussion; the important thing is that government “stimulates” enough spending to put those resources back to work.

This is short-sighted and crude analysis. In the real world, capital matters, for it is in the development of capital that we make workers more productive, thus increasing individual wealth and the overall standard of living in a society. Capital spending is not just money dropped from a helicopter; it is undertaken for a specific productive purpose.

Austrians hold that typical Fed-created credit booms are not sustainable and that when once-productive assets become idle in the downturn, it is because the capital was malinvested. Granted, to understand the entire concept of malinvestment, one must be able to differentiate between the kinds of capital investment that can be sustained and what will have to be abandoned. Keynesians, unfortunately, have decided to ignore that kind of thinking or unilaterally to declare it “discredited.”

Yet when one applies simple logic, it is not hard to see which set of economic ideas should be discredited, and it is not the Austrian theory.