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Source link: http://archive.mises.org/9345/krugman-got-something-right/

Krugman got something right?

January 31, 2009 by

So, I’ve recently started following Nobel Laureate Paul Krugman’s blog. Naturally, he’s normally wrong – in particular about declaring that government should spend a lot of our money. So, I was shocked this morning. He had an entry condemning bailing out the banks.

Some highlights:
He called writing down troubled assets “recognizing reality”.
He even condemned “socialized losses, privatized profits”.

If only he didn’t follow this entry with one about the dangers of deflation…


Dennis January 31, 2009 at 10:04 am

“Some highlights:
He called writing down troubled assets ‘recognizing reality’.
He even condemned ‘socialized losses, privatized profits’.”

One can argue that Krugman’s correct assessment of these issues meshes well with his leftist statist ideology. The above examples represent great preferential treatment and subsidies to the financial services industry, an interest group with which Krugman is not particularly aligned politically. Krugman instead believes that this country needs to implement a gargantuan fiscal “stimulus”, most of which will obviously be funneled to the government projects and pressure groups that he strongly favors. Only when Krugman also renounces his long-held belief regarding the efficacy of fiscal stimuli, will I believe that his economic reasoning has fundamentally changed.

On a conceptual level, Krugman needs to recognize that an economic entity can not spend its way out of poverty; borrowing only postpones the unavoidable day of reckoning and creating the money only causes prices to be higher than they otherwise would have been. Krugman should read Hayek’s “The ‘Paradox’ of Saving,” which was written approximately 80 years ago.

For an excellent summary of Hayek’s essay see Robert Blumen’s “Hayek on the Paradox of Saving,” http://mises.org/daily/2804. Hayek’s full essay can be found in the recently published Mises Institute collection, http://mises.org/books/hayekcollection.pdf.

Betrian January 31, 2009 at 12:36 pm

Economics is a science that has been corrupted by various economist with political values with regard to power, paternalism, egalitarianism and socialism. Krugman is perhaps the most corrupted economist of our time.

Deefburger January 31, 2009 at 2:15 pm

I think the call for socialism in the followup comments is chilling. Only one respondent even mentions the role of the Fed in the troubles we’ve had. The rest just attack Wall Street. It seems like people are taking socialization for granted, as though it were a magic wand.

The elimination of civics from our classrooms has born fruit it seems.

heuristic January 31, 2009 at 2:52 pm

Krugman eerily reminds me of Peter Keating, a character in Ayn Rand’s novel The Fountainhead. He gets the prizes and the money and is a fake who passes off (probably, in this case) the ideas of (Austrian) others as his own without attribution.

Andy January 31, 2009 at 2:54 pm

What Dennis said.

Krugman believes we’re in a “zero bound” economy, liquidity trap, etc. He’s very skeptical of the efficacy of a fiscal stimulus through tax cuts. He’s trying to get Obama to go “over the head” of the tax cuts and credit pumping to direct government works. A New New Deal as it were.

Ben Bernanke is a follow of Friedman so he’s confident the Fed along with the Treasury can push the interest rate below zero through leveraged tax cuts (i.e. taxes paid through borrowing money).

When the stimulus fails to meet it’s objectives (and it will fail to meet them) Krugman has set himself up once again as a guru of economic foresight. He’ll always claim that in these market conditions direct goverment spending is the way to go. That’s the battle Austrians! We’re heading towards a New New Deal. We have to cut this off at the pass so to speak.

lester January 31, 2009 at 4:33 pm

as someone who has learned all the little I know about the field of economics from this and similar boards I find myself totally confused by his ideas. That whole language where protectionism is regarded as the basis of good economies and the drive for “full employement” as the goal. I’ve posted his columns places under the heading “please explain this paul krugman article to me”. I studied art in college and had to unlearn a bit but not a fraction as much as I would have had to if i studied economics,

Dennis January 31, 2009 at 7:33 pm

To clarify my previous comment, when I stated that Krugman supports a “gargantuan fiscal ‘stimulus’”, I meant that he supports direct government spending programs. Andy is correct in that Krugman does not believe that tax cuts have much, if any, “stimulative” effect. Krugman’s concept of a good fiscal stimulus is virtually entirely increased government spending.

Dick Fox February 1, 2009 at 10:19 am

The old guys in my home town would sit in the drug store and talk about things. Krugman is what they would call a fool in intellectual clothing.

His discussion of inflation is so typical of his ilk. He uses a definition of inflation that is totally unlinked to monetary policy, personal price preferences. Then he implies that the rational decisions of the people are “traps” and can only be dealt with by “government,” never taking time to understand that government is just a lot of people imposing their personal preferences on others at the point of a gun. Finally, he grasps on to a monetary solution to what has claimed is a psychological problem. Then he admits that there is no confirmation of his supposition that there is “debt inflation,” a myth that doesn’t exist, but he implies we need to spread more money around to counter this non-existent mythological creature.

If we take this short article by Krugman and attempt to understand how he defines deflation we will get at least 5 different definitions and none will be correct.

Oh how we are doomed when such a man is considered an authority.

Friedrich February 2, 2009 at 12:04 am

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