If we are going to look at the current, dismal economy and blame somebody’s policies for it, surely we can acquit Ron Paul. That doesn’t by itself prove that Ron Paul’s views are correct, but it certainly casts doubt on Krugman’s constant claims that he himself has been a beacon of clarity over the years with his accurate Keynesian modeling. FULL ARTICLE by Robert P. Murphy
Source link: http://archive.mises.org/15107/rise-of-the-free-market-zombies/
Rise of the Free-Market Zombies
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Krugman is trying to associate free market folks with zombies in preparation for the real zombies that will be coming out of their bankruptcy graves to steal wealth funneled to them via the Fed and Congress. The first really big ones Fannie, Freddie and GM along with the Fed member banks themselves were hidden by the media. But more are on the way, there is a slow going bust in the government sectors that will leave entire states: California, Illinois and New York come to mind, as well as cities: NYC, LA, etc all as zombies unable to pay their creditors living off of the Federal Government on money created by the Fed. Krugman is trying to set the terminology in an attempt to prove these zombie banks, companies and governments are zombies because free market folks are zombies.
I think a similar argument can be made about other issues related with the financial meltodown, beyond the macroeconomics of it all. Take fraud for example. Keynesians tend to blame the massive amounts of fraud on rabid banksters that were left to operate without any government supervision, but they fail to acknowledge that the incentives for fraud were fueled by the bubble psychology created by massive money printing. Besides that, a minarchist, free-market perspective allows for government to provide the framework for fair-dealing among market participants and enforce basic rules against fraudulent behavior. So basically what Greenspan et. al did was completely reverse the role that government should have according to a free-market perspective: they were way too active in creating moral hazard through guarantees, etc., and they did nothing in terms of fraud-prevention and punishment.
A quick lesson on credit rating agencies from Mish:
http://globaleconomicanalysis.blogspot.com/2007/09/time-to-break-up-credit-rating-cartel.html
Krugman’s take on this yesterday? It was the failure of free-market policies. He endorses an article where the author asserts that “Governments….[a]cknowledging that rating agencies were incompetent without doing anything to regulate them was inexcusable.”
http://krugman.blogs.nytimes.com/2010/12/22/arsonists-prosecuting-firefighters/
I looked this up a few months ago due to an article at HuffPost, but I think this point should be pushed, since the ratings agencies are a mess and a “private” one that people will like to point to.
“It is true that many opponents of massive deficits and money printing gave warnings of interest rates and price inflation that at best were premature…”
No worries; there’s still plenty of time for the predicted price rises to appear.
Price rises are appearing now, in the grocery store and utility bills. All the semantic arguments of ‘inflation’ and indices aren’t to prevent the increasing pain people are feeling (I’m not saying Mr. Murphy is making any semantic arguments).
You can’t eat little pieces of green paper and I’m sure they make sucky firewood.
and inflation is manifest in property price drops not happening, that otherwise would have, had it not been for for the centrally directed flood of money into this sector
Good old Krugman … he’s arguing that you can print and borrow money for the foreseeable future without any significant inflation or lenders demanding higher interest rates. He hasn’t seen these yet, therefore they will not occur.
Or to put it another way:
When interest rates do leap up and inflation skyrockets, don’t expect any mea culpa. He’ll blame everything on “speculators” and lack of sufficient regulation. He won’t be simply urging the government on to a socialist takeover of the economy but screaming for it, blaming “the right” for everything.
The only one puzzled is Krugman himself and his friends who do not understand the context of Ron Paul’s remarks. Yes, the financial and banking system “failed”, but it is (almost) as far from being a free market system as Krugman is from being a free market economist. Mr. Krugman, what is the right step to end this “free market” in banking? Yes, we know, it is a nationalization of all investments to combat the “paradox of thrift”. Well I think you will have much more work combating the “paradox of free market economists” during the upcoming decades, because the zombie movie is just coming to the cinemas!
Speaking of the GM zombie, check out this from the Chevy dealer around the corner from me. I have a GM credit card that earns points towards buying a GM car. I have $1500 I can apply to a GM car. EXCEPT the Chevy Volt, for some unknown reason:
http://www.lovemychevy.com/VehicleDetails/new-2011-Chevrolet-Volt-Hatchback-Glendale-CA/920064903
A mere $43,700 (plus another $4000 in sales tax in CA, plus license and registration). When all is said and done, the car for the masses will be nearly $50k. I guess all those farmers that got a check for $50k can buy one.
If they can force us to buy health insurance, what’s next, we all must buy a Chevy Volt?
I just don’t understand how anyone can claim there is a free market in the presence of a central bank. The very purpose of a central bank is to curtail the effects of a free market.
Many thanks for another excellent article Robert. However I feel your defence of Paul Krugman is misplaced. You say…
“It is true…that many opponents of fiscal stimulus and Quantitative Easing were warning of high interest rates and price inflation. These threats have not materialized (at least yet) and on that score Krugman understandably can pat himself on the back”
What Paul Krugman doesn’t understand (or doesn’t want any of us to understand) is despite the interest rates only being 3% we in the real business world are struggling to make even 3% profit which makes even a lowly 3% rate excessive. It follows also that, if my profit was only 1%, a 3% rate on my business loan would wipe me out.
The height of the interest rate is relative.
I quote von Mises in Human Action page 552,
“Public opinion has definite ideas about a “normal” rate (of interest), something between 3 and 5 percent.”
And on page 533….
“People are, in dealing with these problems (inflationist policies), for the most part misled by comparing merely the market rates of interest as they are determined on the loan market”
Yourself and the Austrian school were always, and are now, spot on.
A comment, if I may, that I hope is taken as constructive.
Murphy writes,
If this is the argument, then the argument suffers from a large lacuna in logic. Namely, we are in a period in which there are large pools of unused non-specific capital goods. So, if the government seizes control of these goods and uses them, they aren’t really (at this point in time) taking them away from the private sector in the sense that you mean it (as opposed to in the ethical sense). The private sector isn’t using them, and so it’s not so much of a problem of crowding out.
The real argument is that government use of these unused resources will not be used efficiently, and that government cannot use these resources efficiently because they lack the ability to coordinate through the price the profit/loss mechanisms.
Lol you’re not using your house (much) mind if I take it?
Note that I purposefully leave out ethical considerations. This is not an argument on whether or not wealth redistribution and taxes are ethical, it is whether or not economic theory (which is value-less) concludes that government expenditure is inherently unproductive and why.
Presumably those unused goods belong to someone. If thats the case then you’re arguing about taking someone’s property.
I have said this to you folks before and its time again.
THE CONCEPT OF THE FREE MARKET DOESN’T WORK WITH CONSUMER CREDIT!
the idea of consumer credit is the ability to charge more that the market will bear, that IS the only purpose of consumer credit and this flies in the face of the concept of the free market.
to put it very simply, the propaganda of the free market is nothing more than a replay of the fascist propaganda of world war II, you keep blaming the poor for the inability of the money lenders to enslave the masses as is your main agenda!
you can’t have a free market society with out removing the massive profits that the corporations make through consumer credit, and until you grasp this reality, you are doing nothing more then lieing to the people you push this propaganda on!
the main reason your concept is completely flawed is the idea that a free market allows heavy profit, this is completely false, the way the true free market works is the profit margin is EXTREMELY minimal, because of COMPETITION by producers for the purchasers of that market in a cash on the barrel for the product society, that is how a TRUE FREE MARKET WORKS!
If you want those of any inteligence to listen to your ways you have to give up the fascist idea of a ruling class and your desire to bring back caste systems, and yes folks, you are very transparent, and those born with a mind can see exactly what your up to and this is the reason that the only people that take what you say as reality are virtually retarded, as in the religious right of the United States!
Are you saying consumers should be forcefully prevented from voluntarily financing their voluntary transactions?
Consumer credit is abstaining from future consumption favor of present consumption.
Dave,
What you’re referring to is fractional-reserve banking. Consumer credit is just another example of that concept. If you’re claiming retail prices are reflective of consumer credit, I would agree. Just as housing prices are related to Fannie Mae, tuition prices are related to student loans, and so on.
PS>I think you misjudge most of the people who blog on this site (at least the ones I’m familiar with) and words like fascist, ruling class, retarded and much of your second and last paragraph are not going to gain their respect or reply.
Leave out the emotionalism and your points might be better understood and accepted.
“Buy at least 10, save $2 each” Do your part in stimulating the economy! Buy more stuff you do not need!
Mises happy, Krugman happy. Win-win.
Merry xmas!
I am so surprised (and dissapointed) that now even Austrians (Robert Murphy in this article) are not elucidating that we indeed have very inflated prices. Just because the the delta in the CPI (or any price aggregate) is unchanged, does not mean we do not have inflation. The fact is that is that absent all of the monetary inflation, prices would have declined substantially, and not just in housing or industries tied to housing. Propping up prices, or preventing them from falling, is every bit as inflationary as having prices increase. If Austraisn fail (and thus far they are failing) to get this message across, then this will go down historically as being the great failure of Austrian theory (which is precisely what the Keysians would like).
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