Paul Krugman is at it again. This time attacking Ron Paul and his Austrian economics (probably a very good sign). He claims that Ron is only consistent because he ignores reality. In fact, “reality” has only demonstrated the correctness of Ron’s views.
His first attack is on the idea that paper money is the root of all economic policy evil. Well lets do some history and ask the Romans, the French, the the British, the Germans, the South Americans, and any number of other people to consult their history and get back to us on that issue. The great economist Joseph Schumpeter wrote that even if one did not believe in the merits of the gold standard and was an advocate of big government that you would still want to have a gold standard in order to protect against the kind of economic mess that we find ourselves in today.
Krugman’s next line of attack–his evidence against Austrian economics–is that the monetary base has exploded/increased and the Consumer Price Index has risen very little. This is the type of “evidence” that one should only expect from your barber and a Nobel Prize winning mainstream macroeconomist.
First of all, the Consumer Price Index is meant to be a very inexact measure of the impact of monetary inflation on the purchasing power of consumers–and only that. Even here most economists question the validity and precision of the CPI. It was not intended to measure the entire impact of inflation on the economy, except by the “naive” quantity theorist.
Second, monetary inflation can impact various sectors of the economy and does so in an uneven fashion. One need only recall the housing bubble when home prices soared to record, unsustainable levels while the CPI remained “under control.” The CPI only measures “owner equivalent rents.” There all sorts of goods that have prices that can be impacted by inflation that are not included in the CPI, from famous art work, professional sports salaries, farm land prices, to goods exchanged in the underground and black market economies.
Third, the impact of monetary inflation on the overall economy takes time. Money that enters an economy moves from one sector to another and eventually throughout most of the economy. Anyone familiar with basic money and banking would know this. Anyone familiar with reading the business sector of the newspaper would know that banks have largely been “sitting on” the Fed’s increase in the monetary base and that most of the new money has really not even entered the economy yet.
There are many other reasons why Krugman’s “evidence” is nothing more than evidence of his own ignorance of basic economics. However, one important additional point needs to be made. The idea that increases in the supply of money (i.e. monetary inflation) leads to increases in prices (i.e. price inflation) is a theoretical statement and economists of all sorts express such statements in terms of ceteris paribus, or all other things held equal. Well, things are not exactly equal these days, are they Paul?
In fact, when an economy goes into a depression prices are suppose to fall. Prices, wages, rents, leases, and stocks are all suppose to go down so that resources can be reallocated to profitable uses. We saw this in a minor way with “cash for clunkers” and the “first time home buyers tax credits.” Falling prices increased sales for cars and homes. Falling prices are a key component of economic recovery. However, my point here is that prices would have been lower than they currently are were it not for monetary inflation from the Fed.
Had we not followed the advice of Krugman, Bernanke, Geithner, Summers, Paulson, Goldman Saks, etc. this economic crisis would have been over a long time ago. Instead we are forced to follow the madness of Paul Krugman and Ben Bernanke.
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A man that describes a price-fixed, inflationary babysitting co-op as a cathartic fable that (in the end) doesn’t even justify his beloved money-printing panacea is not fit to say what is or is not based in reality.
So apparently reality is very inconsistent? Paul, the only thing that is consistent is reality. That’s why Ron Paul is so consistent. Others are inconsistent because they toss their opinions to the winds of political gain.
Krugman says, “For Austrians see “fiat money,” money that is just printed without being backed by gold”
Really? Is that how Austrians define fiat money? What a clown.
I think these repeated attacks are nothing more than a incredible display of envy by Paul Krugman. You see he’s a Nobel Prize Winner and writer for THE paper of record and he can’t even get Democrats to spend more money than they did in the stimulus.
Meanwhile these Austrian “cranks” led by some doctor turned congressman Ron Paul are setting the entire terms of the debate on economics for an entire political party.
It hurts Mr. Krugman’s personal and professional pride that he can’t have the influence the Austrians and Ron Paul have. He can’t help but lash out.
Never-mind that Krugman advocated prescriptions caused this this horrible crisis: http://blog.mises.org/10153/krugman-did-cause-the-housing-bubble/
Thanks for linking to my article where Krugman calls for a housing bubble in the early 2000s.
I hope you will all Facebook, or whatever, this blog post.
Read it late (right now), but shared it all the same. Thanks a ton for writing this.
Paper money IS the root of evil BUT less than 2% of the US money in circulation is cash and half of that is outside the country. Paper money is mostly used by the Mob, dope sellers, tax cheats, and people who bribe Congress.
Electronic transfer money is not paper money and does not have the evil characteristics of paper money. Why not? Because electronic money is immediately traceable.
The major problem with electronic transfer is the major problem with paper money, same as the major problem with metallic money – CPAs who cook the books. I am generally against the death penalty except for CPAs who intentionally cook the books. Why are they never hanged? They cause more human woes than all the wars. They finance the wars.
CPAs who intentionally cook the books should be hanged in the public square along with their wives and children, left there until the crows clean their bones.
Pardon my ignorance, but what does CPA stand for?
Certified Public Accountant.
This is the first time I’ve ever heard that wars are financed by Accountants. LOL
Can’t Pass Actuary exams. Bazinga!
Definition of an Actuary – a person who didn’t have the personality to be an Undertaker.
Better we should hang the thieves who extort (viz., tax) the life out of individuals and the economy, and pillory those fools who allow themselves to be extorted by paying taxes without putting up a fight (resisting). Honest tax resisters don’t keep records so they don’t have books for CPA’s to cook. The ones who ought to be hanged on the public square are those who take, spend or consume (viz., benefit from) OPM (sounds like opium, is equally addicting, stands for other people’s money).
If during a recession prices fall, and the government prints money, one should not be surprised to find that prices remain stagnant. What will happen when prices stop offsetting monetary inflation by dropping? What will happen when market prices stabilize? Won’t we see inflation? Of course we will. Anyone with a neuron’s worth of economics knows that.
How or where was the money spent into the economy? More likely the money is in foreign banks. How does that run up prices in the US?
It was not just spent abroad. Don’t even try pretend that this is the reason the Keynesian lunacy failed. A lot of it was spent on bailing out US banks and that money is still there, as well as money funnelled into well connected corporations within the US. Already in the UK inflation is going out of control because of QE in this country, why should the US expect to be any different? What will happen when the US’s banks begin lending those trillions they are sitting on?
In fact, when an economy goes into a depression prices are suppose to fall.
Are SUPPOSED to?
Mark I reposted this blog post in response to Krugman’s “G.O.P. Monetary Madness” on the Google Plus Stream ‘Austrian Economics’. There’s a lot of Krugman/Keynsian types who’s posts aggregate there. If Austrian Economics is in any public post on Google Plus it will show up in that Stream. I tried to do my part in that Venue to respond and inform the Krugman/Keynsian’s. Stephan Kinsella is an active poster to Google Plus as well-
Kudo’s to Bill C
We all know Krugman’s New York Times Paper Trail. One day he will be irrelavent because of all his flip flopping. I’ve notice comments to Krugman Opinion pieces in the Times are taking him to task. The people challenging Krugman must be getting their ‘straight facts’ from Mises.org. Thanks to you and Murphy for ‘Passing the Ammunition’.
Krugman: A charlatan and a short-term thinker. Either in that way, or completely forgotten, is how he will end up in the future.
Mises and Rothbard, on the other hand, are now on the rise and will be remembered, long after Krugman is dead and gone, as champions of common sense of their times.
All these old hacks like Krugman, who refuse to wake up and see reality, will have to get old and die to make way for a new generation that is not completely ignorant of basic economics. Krugman, having brainwashed himself with bogus theories, is completely beyond hope at this point.
When I read the last sentence in his article — “Great Depression, here we come.” — I thought to myself: Sigh… He just doesn’t get it.
He’s a short-term thinker, yes, but it’s worse than that. He claims to be an economist, but I’ve seen no signs that he understands the idea that the economy is a system.
He attempts to explain everything with extremely simplistic, mechanical, one-dimensional causes. When he starts to venture into any topic involving the slightest bit of complexity, such as multiple causes and adaptation, you can see his brain shutting down. He hides his confusion by retreating into a murky, hazy vagueness, and refuses to come to any conclusions.
He does this because he has no workable theory, no experience outside academia, and believes that being unclear makes you sound smart.
Which is just what Keynes was like, too, not coincidentally.
Yeah. The saddest thing though is not Krugman himself but all those drones that actually take him seriously. Very sad…
I think Krugman is a very smart man who’s writing have been corrupted by his political preoccupations. It’s very evident that he is fairly insincere in his writings. I don’t think he’s as foolish as he thinks his readers are.
CPA?
That should be CPI, i.e. the Consumer Price Index
Krugman is a Keynesian epigone Keynes, like Hitler and Roosevelt. See: http://jesus-on-taxes.com/ON_PAUL_KRUGMAN.html
So why doesn’t Krugderp debate an actual Austrian economist instead of cobbling up a bunch of strawmen arguments that could be discredited with a simple google search and considering himself a great defender of the public interest for demolishing them? Why don’t you see him go on air or an email exchange against someone like Murphy, Woods or Garrison? I’m sure William Anderson is dying to tell him a piece of his mind.
Here’s why.
Now the Keynesians know better than to go on national TV against Austrians.
Krug video from 2009 extolling Belgium as an example of why the US could float 5-6 trillion deficits without much discomfort.
Howz that working out these days Belgium?
http://youtu.be/82PhLgaSnkA
“ignoring reality, clinging to his ideology even as the facts blah, blah, blah…”
This is not even substantive criticism. If I ever wrote something like this when I was in elementary school, the teacher would have marked it up with a red pen and demanded I cite an example or three. Gimme’ a break.
Great article, Mr. Thornton. A reader of OpEdNews.com decided to put up a link to Krugman’s garbage: http://www.opednews.com/Quicklink/Paul-Krugman–G-O-P-Mone-in-Best_Web_OpEds-111216-48.html
I put in a link to this article in the comments section & added a little something to the cutting & pasting from it:
“Inflation defined as prices rising by a certain per cent above 0, & deflation defined as prices dropping by a certain per cent below 0 is all wrong. If, because of the recession, prices should have dropped, say, 30% yet they went up by 4.5% that means that the inflation rate is 34.5% not a mere 4.5%. By this more realistic standard we’ve had a lot more inflation than Krugman admits (knows?).”
I prefer ron paul /austrian economics view of life, but if you take on fiat debts worth trillions… you can’t solve the problem by cutting spending and having people suffer for this, this is not right, this type of debt should be canceled first (at least most of it). Also you should go to a gold standard first, and then you can see deficit/debt as bad. But in a fiat system where money is created by the goverment as debt out of thin air, you can’t cut creation of “air” money and increase “air” wealth. You can’t forget the essential step… Any thoughts on this?
Thanks RCS. Fire at will!
Yang: “Suppose” to fall means “assumed” to fall, that is, in the absence of some other change going on in the economy. For example, prices are assumed to fall during a depression in the absence of massive fiat money inflation from the central bank. My statement, in other words, is not normative.
MARK THORNTON,
How about packaging this article as a letter to the Editorial Page Editor of the Chattanooga Free Press, P.O. Box 1447, Chattanooga, TN, 37401; fax 423-757-6383; email: letters@timesfreepress.com. Krugman’s same article appeared in today’s editorial page of the Chattanooga Times under the same title, “GOP monetary madness.”
A word of explanation: The Chattanooga Times Free Press resulted from the merger of the liberal-oriented Times and the conservative-oriented Free Press. The merged papers kept their separate identities and political persuasions on bifurcated editorial pages only, and Krugman’s column appeared on the Times’ page today (Saturday, 12/17) but it is more likely that the Free Press editor would publish your response. Coincidentally, the front page of the combined Times Free Press today ran a news story captioned, “Ron Paul backers push for more press,” which fairly well explains it contents, and a page 8A story entitled “Paul ads may alter Iowa race.”
As a voluntaryist, I’m not a supporter of Mr. Paul, but I do think Krugman’s distortions of Austrian economics in particular deserves a response wherever it is printed. Perhaps Mises would consider finding out what other newspapers publish Krugman’s NYT column, and send copies to the editors of those newspapers not only of this reply to this column but also to all future Krugman columns that elicit strong objections from Mises writers.
keep the faith…
http://www.youtube.com/watch?v=92ybf2L4Guw
Please read G. Edward Griffin’s book entitled The Creature From Jekyll Island. It reviews in detail the history of central banking in America starting with the renown Continental which was generated in order to pay the men who came forward to form the Continental Army which fought the British. They were promised that the Continental would be redeemable in the future but the promise was never kept.
It reveals the heroic efforts of Thomas Jefferson and the Andrew Jackson to abolish the National Banks which existed during their presidencies.
Griffin has a reputation for meticulous research. He details the secret meeting of bankers invited to the resort of J.P. Morgan on Jekyll Island in 1910 at which the Federal Reserve Act of 1913 was written.
Other enlightening books about inflation include Andrew Dickson White’s classic Fiat Money Inflation in France; The Case Against The Fed by Murray Rothbard; and Theory of Money and Credit by Ludwig von Mises.
The Ludwig von Mises Institute website has available all the works of von Mises and Rothbard online for free. These are the giants of the Austrian School of Economics about which Ron Paul speaks.
Alan Greenspan wrote a couple of articles which appear in Capitalism: The Unknown Ideal by Ayn Rand
Ayn Rand’s The Objectivist Newsletter 1962-1965 includes articles about Antitrust Laws irrationality, an Intellectual Ammunition Department and book reviews of books by von Mises and others. Worth getting!
Thanks Darren.
Ned. I did send it to them with permission to reprint.
Keep it up guys!
After liberal looters assassinate Paul’s character, they should have a clear shot for another 4 years of the best government union money can buy. About mid-way through Obama’s second term, the currency should collapse because the union plan is to print money to pay debt. This will cause a redistribution of poverty—not wealth. We will repeat Germany after World War I.
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