Friday, November 19, 2010

Yeah, Krugman, People Oppose QE2 Because They Want to See People Out of Work

One of the reasons that I continue to write on this blog has been Paul Krugman's constant contention that anyone who believes he is wrong does not really believe Krugman is wrong. The only reasons for opposing Krugman's statements, according to Krugman, is that a person is Really Stupid or, more likely, just plain evil.

Furthermore, I have watched him constantly rewrite the history of financial deregulation in which he has claimed that all of the deregulation occurred under Ronald Reagan when, in fact, most of the original work was done before Reagan took office, and under the direction of Democrats. I also have noted that deregulatory efforts of Congressional Democrats took place because the system at the time, dominated by internal markets, was too stratified and too inefficient to deal with the kind of investment that would be needed as high technology was rapidly advancing.

So, in reading Krugman's column today, I admit I am not surprised when he claims that the only reason that Republicans, China, and Germany are raising serious issues about the so-called QE2 is that they want to see other people suffer. (Yes, he does have a qualifying phrase, but I never have read anything by Krugman that has claimed that anyone who disagreed with him came by it honestly. At best, anyone who carries a contrary view does so out of absolute stupidity at best and venality at worst.)

He writes:
So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.

Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.
Now, I would say there is a good bit of hypocrisy, and I certainly am not going to shill for Republicans, given that they helped produce the Housing Bubble, although the Democrats that ran Congress from 2007 on certainly played their irresponsible role, too. A plague on both their houses! Moreover, when I read Sarah Palin's letter to the Wall Street Journal, I find it interesting that the same person who shilled for the TARP now has suddenly discovered "sound money." So, she was for monetary irresponsibility before she was against it. And I have no doubt that had John McCain been elected (and, thus, driving me to drink), he would be following pretty much the same course as Obama, except he would have diverted "stimulus" money to his supporters instead of Obama's -- and Palin would have been parroting the policy as McCain's VP.

However, when Krugman (and now Bernanke) and others claim that the current economic depression in this country is due to China's own monetary policies, then someone needs to go back to school. Henry Hazlitt wrote that inflation, which gives the "good effects" first (a temporary surge in buying and employment) and the "bad effects" later (higher prices, malinvestments, and unemployment) is like the "Dead Sea Fruit" which turns to ashes in one's mouth. He also wrote the following about the use of inflation, with the great inflation during the French Revolution (and the circulation of the infamous Assignats):
(The) world has failed to learn the lesson of the Assignats. Perhaps the study of the other great inflations - of John Law’s experiments with credit in France …; of the history of our own Continental currency …; of the Greenbacks of our Civil War; of the great German inflation that culminated in 1923 - would help to underscore and impress that lesson. Must we, from this appalling and repeated record, draw once more the despairing conclusion that the only thing man learns from history is that man learns nothing from history?
Of course, I am sure that Krugman would claim that Mr. Hazlitt simply wanted French people to be out of work. After all, it was Henry Hazlitt who carefully refuted Keynes' General Theory page by page and line by line. If Hazlitt, who knew the General Theory as well as any person alive wasn't convinced of its brilliance, then he could have come to his conclusion only because he didn't want people to have jobs.

16 comments:

AP Lerner said...

“I have watched him constantly rewrite the history of financial deregulation in which he has claimed that all of the deregulation occurred under Ronald Reagan when, in fact, most of the original work was done before Reagan took office”

Garn–St. Germain was passed in 1982, opened the doors to the creation of the shadow banking system and lower capital in the banking system. No surprise, we have had 3 banking crisis since it’s passing (with assists from Clinton and Bush). Sorry, can’t put this one on Carter.

“At best, anyone who carries a contrary view does so out of absolute stupidity at best and venality at worst”

Funny. Many Austrian economists have the same element of arrogance in their comments/blogs, despite being equally ignorant on monetary operations.

“although the Democrats that ran Congress from 2007 on certainly played their irresponsible role, too”

By 2007, the housing bubble was popping, so blaming the 2007 Congress for a bubble that took 15 years to blow and was in the process of popping is rewriting history.

“Moreover, when I read Sarah Palin's letter”

Shame on you for wasting time with her comments on monetary policy.

“Henry Hazlitt wrote that inflation, which gives the "good effects" first (a temporary surge in buying and employment) and the "bad effects" later (higher prices, malinvestments, and unemployment) is like the "Dead Sea Fruit" which turns to ashes in one's mouth.”

How come Austrian economists are so hell bent on the horrors of inflation, but fail to even recognize the malinvestment, maladjustment, and unemployment that take place during debt deflation?

William L. Anderson said...

When was DIDMCA passed? Who controlled Congress and the White House?

Bob Roddis said...

How come Austrian economists are so hell bent on the horrors of inflation, but fail to even recognize the malinvestment, maladjustment, and unemployment that take place during debt deflation?

So long as there is fiat money, there is going to be malinvestment, theft, fraud and economic chaos.

Mises smacked down your guy Knapp’s state theory of money a century ago. The laws of economics do not disappear just because a criminal fiat money system has us by the throat. Dr. Hut Tax, you just cannot explain exactly why catallactics does not matter in a fiat money economy, can you?

Oh yes, and then there’s your silly assertion that government deficits are necessary for private savings. In the history of mankind, no one ever saved anything until the government deficits of the 20th century.

And we don’t know how the monetary system works?

Also, I think it’s very important to note Palin’s views on monetary policy. It is always good if a mainstream person is attacking the fiat money system because supporters of that horrible criminal system rely almost exclusively upon intimidation and social shunning of critics to keep the public away from understanding the truth, the better to ruin the lives of fiat money opponents. If anti-fiat money sentiment goes mainstream, it might not have long for this world.

At the same time, it's important to note when such protests (like Palin's) are phony.

AP Lerner said...

"When was DIDMCA passed?"

1980. But I'm sure you knew that.

DIDMCA did not contribute to the creation of the shadow banking system like Garn-St. Germain. My point was you painted a picture as if Reagan’s policies were innocent, which they were not. Consumer debt relative to income accelerated in the mid 80’s thanks to Reagan’s tax and deregulatory policies. It’s no coincidence that income inequality increased and middle class incomes have been stagnant since the mid 80’s. All can be traced to Reagan policies that were continued by Clinton and Bush.

Even people Reagan's own policymakers say Reaganomics were a total disaster, despite the legend that says otherwise. Sorry,

Bob Roddis said...

The greatest American thinker of the 20th Century
smacks down Reagan and Reaganomics here
in 1984.

Anonymous said...

'It’s no coincidence that income inequality increased'

Just like to point out that, on its own, this means very little. This is less of a response to AP Lerner and more of a comment against certain people who seem to see income inequality as the end-all be-all in prosperity.

Let's say you have two cars. Car 1 starts 1,000 MPH behind car 2. Car 1 is traveling at 15 MPH, car 2 is traveling at 60 MPH. Both are accelerating, car 1 at a rate of 10MPH per hour and car 2 at 5 MPH per hour. Work out this problem. Is the gap between them for the first five hours increasing or decreasing?

Lord Keynes said...

However, when Krugman (and now Bernanke) and others claim that the current economic depression in this country is due to China's own monetary policies

Wrong.
They point the undervalued yuan as a source of trade imbalances: 2 different things.
And the US is not in depression: its growth is positive.
The US is suffering very high unemployment, debt deflation, and low capacity utiliztaion.

After all, it was Henry Hazlitt who carefully refuted Keynes' General Theory page by page and line by line.

Hazlitt couldn't even understand Keynes properly, let alone refute him:

http://robertvienneau.blogspot.com/2006/07/can-one-respect-henry-hazlitt.html

Lord Keynes said...

They point to the undervalued yuan...

Bob Roddis said...

I think “Where Keynes Went Wrong” by Hunter Lewis is much better than the Hazlett book. Keynes remains eviscerated and Keynesianism is still the primary cause of our economic catastrophe. There is still no basis in fact, logic, theory or history for its convoluted and damaging nostrums.

Lord Keynes said...

Try reading the Austrian Ludwig Lachmann, “John Maynard Keynes: A View from an Austrian Window,” South African Journal of Economics 51 (1983): 253–260. A sample:

“In the field of methodology Keynes and the Austrians agree that economics is a social science to which methods that have proved successful in the natural sciences should not be applied without careful inspection, …. Keynes concurs with Hayek's misgivings about numerical values. …. Keynes sees in social facts manifestations of the human mind. While to Hayek it is the complexity of these facts, their multitude and diversity, that defies the attribution of numerical values to social concepts, to Keynes it is their mental character … that does so. Rather to the surprise of some of us, Keynes emerges as being more deeply committed to subjectivism than is his Austrian opponent. Lachmann 1983: p. 256.

In actual fact, Keynes was way ahead of many contemporary Austrians on subjectivism.

Business expectations are subjective and investment decisions
are also made under subjective expectations.

The radical subjectivist Austrians following Lachmann understand this and recognise Keynes' contributions.

Too bad other Austrians are clueless.

Bob Roddis said...

Keynesians who meticulously ignore the centrality of economic calculation are the clueless ones.

Another Anonymous said...

'It’s no coincidence that income inequality increased': This meant a lot to people who had a lot less income because of Reagan's catastrophic policies, which suceeded in completely destroying the postwar prosperity. Foremost the idiotic Social Security tax increase and the tax cuts on the rich.

And Bob, Mises clearly didn't understand Knapp, let alone "smack him down". Science is not advanced by inventing silly new words like catallactics, and criticizing someone else for not using your sects unsuccessful terminology is ridiculous.

Though chartalism/MMT has an interesting relationship with Austrians. Earlier, Böhm-Bawerk was the leading critic of MacLeod, founder of the credit theory of money, the first person to scientifically understand banking & finance - that "loans create deposits" not vice versa. Don't forget that Abba Lerner was a student of Hayek. (And Minsky of Schumpeter) The good that Austrian economists have done is largely as foils and teachers of smarter MMT pupils, who went beyond them.

Bob Roddis said...

"Catallactics" is not a silly new word and, as a concept, it is at the center of the study of economics. Your unfamiliarity with the concept proves my point about the MMT and the Keynesians. There are no humans in their childish religious vision of the super-state economic nanny.

"Catallactics" refers to the study of exchanges between living breathing human beings.

Human Action, page 3:

Out of the political economy of the classical school emerges the general theory of human action, praxeology.1 The economic or catallactic problems2 are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.

1. The term praxeology was first used in 1890 by Espinas. Cf. his article “Les Origines de la technologies,” Revue Philosophique, XVth year, XXX, 114-115, and his book published in Paris in 1897, with the same title.

2. The term Catallactics or the Science of Exchanges was first used by Whately. Cf. his book Introductory Lectures on Political Economy (London, 1831), p. 6.


Human Action page 233:

The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences. It is a fact that people in dealing on the market are motivated not only by the desire to get food, shelter, and sexual enjoyment, but also by manifold “ideal” urges. Acting man is always concerned both with “material” and “ideal” things. He chooses between various alternatives, no matter whether they are to be classified as material or ideal. In the actual scales of value material and ideal things are jumbled together. Even if it were feasible to draw a sharp line between material and ideal concerns, one must realize that every concrete action either aims at the realization both of material and ideal ends or is the outcome of a choice between something material and something ideal.

http://mises.org/Books/humanaction.pdf

In the preface to the Nazi German edition of his General Theory, Keynes boasted that his theory was particularly well suited for totalitarian regimes and lamented that it was less fit for the conditions prevailing in freer societies.

On p. xxvi of his Collected Writings Keynes writes:

“Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”

That is why there is always a complete, total and meticulous avoidance of the basic concepts of the Austrian School by its critics which involve the actions of free people and the importance of that freedom. Those basic concepts are so self-evident and true that after fairly describing them, refuting them would be impossible.

So, just as Keynesian policy is based upon fraud and deception [and a totalitarian mindset], criticism of the Austrian School is based upon fraud and deception. That's not a coincidence.

As said...

Using income inequality in an argument without factoring income mobility is laughable. In the U.S. the poor don’t stay poor unless they become heavily reliant on government assistance.

Mike Cheel said...

Kindly read the first paragraph from http://en.wikipedia.org/wiki/Early_1980s_recession

Anonymous said...

wow! nice exchange with Keynes vs Mises - I learned alot... from both sides - Thanks!