Thursday, December 23, 2010

Krugman: Print Money! Print More Money!!

In The Return of Depression Economics (which I reviewed here), Paul Krugman writes: “Recessions, in other words, can be fought simply by printing money—and can sometimes (usually) be cured with surprising ease.”

Once upon a time, printing money was another euphemism for inflation, but in this day of Orwellian Newspeak, it is called "Quantitative Easing" or something else. (Krugman holds that inflation is measured only by indexes, so just creating more money in and of itself is meaningless.) Furthermore, according to Krugman, real-live evidence of inflation is, well, irrelevant whenever Krugman says so. He recently wrote:
For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low. (Emphasis mine)
In other words, two situations in which you really will be feeling the brunt of higher prices is nothing more than volatility at work. However, does anyone really think that food prices will be volatile downward anytime soon?

This is part of the "heads I win, tails you lose" arguing style that Krugman employs. Housing prices have been depressed for a long time, but they were way out of kilter and even Krugman will admit that, and that has had an effect upon the price indexes.

What Krugman does not say, however, is that food, energy, and commodities in general are quite sensitive to changes in the value of money and often act as the proverbial canary in the coal mine. Because Krugman hates gold and silver (or any other kind of "hard" money) and commodities in general, anything that might reflect the fact that people are escaping the dollar and buying something that can hold its value relative to money is something that is evil.

(Of course, anyone who disagrees with Krugman on this subject is a "zombie" and not even worthy of being permitted to inhabit the same planet as Krugman.)

So, inflation is the key in Krugman's view. Save the world by flooding it with dollars or whatever, but flood the world.

16 comments:

Tom said...

Krugman says we need to print more money to solve our economic problems. Then why not give all of us permission to print counterfeit money instead of waiting on the Fed to do it?

Mike M said...

Why do we feel compelled to “fight” a recession? A recession is the cure for the prior excesses. It clears the system of them and allows it to move forward in a healthy manner. Of course the answer is politics.

The government’s definition of “inflation” is, of course, meaningless. It’s a political statistic, not a real world economic statistic. Its creation of “core inflation” is absurd. I can get through a day without buying a flat screen TV. I can’t get through a day without food or energy. Maybe it’s different in Krugmanland.

Mike M said...

Tom,
If we do it, it would be counterfeiting. If the Fed does it, it’s called monetary policy.

Bob Roddis said...

On the subject of “I can’t believe he said that!”:

1. The NYT has historically been the propaganda arm of the power elite.

2. The central bank is the central mechanism of the power elite for purposes of looting and wealth transfers.

3. Keynesian “theory” is the jargon filled double-talk employed to make #2 appear complex and “scientific“ but obscure to the public and the cement-headed.

4. Krugman cannot really be a true believer in what he says. Otherwise, he would have confidence that he could defeat Bob Murphy or Ron Paul in a debate and that the Keynesians could easily make their case fair and square to the public against the Austrians because the Keynesians are right. He understands his tenuous position, and thus employs his ad hominems and other nonsense.

Anonymous said...

"In other words, two situations in which you really will be feeling the brunt of higher prices is nothing more than volatility at work. "

With food and energy, CPI is still only 1%. Back in 2009, cpi with food and energy was actually lower than core inflation. It actually showed literal deflation (negative growth). Krugmman certainly wasn't claiming deflation even then because food and energy is volatile. Why weren't you warning people about the impending deflation when cpi with food and energy went negative?

"Housing prices have been depressed for a long time, but they were way out of kilter and even Krugman will admit that, and that has had an effect upon the price indexes. "

Housing isn't in CPI. Owner's equivalent rent is. Even if you take that out of CPI, the distillation trend is still there. It's actually kind of ridiculous for the opposite reason. When housing prices were plummeting hard, cpi was actually going up! See.
http://economistsview.typepad.com/economistsview/2010/12/frbsf-disinflation-its-not-just-housing.html


"commodities in general are quite sensitive to changes in the value of money "

If commodities are the right measure of inflation, where were you when commodities went down over 50% in 2009? That's depression style deflation. Why weren't you warning people about impending deflation? Commodity prices aren't back to their peak prices.

"Because Krugman hates gold"

Gold demand has increased five fold in China recently while inflationary pressure is making the Chinese consider price controls. I'm sure that has nothing to do with it and it's all US domestic monetary policy that's causing the gold price increase. I forgot that in Anderson's world, we don't live in an open economy. I'm also sure families everywhere are "feeling the brunt of higher" gold prices when they go out to the supermarket to buy gold to make sure the kids have enough gold to eat for supper. You know, cause gold prices is all that matter for the the average Joe.

Mike M said...

Anonymous
This type of forum is difficult for exchanges on this topic but here are a few bullet points

CPI is a political statistic not an economic one. Just go look at how the BLS has gamed the internal calculations over the last 30 yrs. Geometric weighting, hedonic adjustments, substitution. Etc.

Stripping volatile components (food & energy) from one quarter to another can help provide context, but playing that game over a few years is just that, a game.

Gold prices will matter to that “average Joe” at some point soon. Indirectly that is. If you don’t accept gold as money then that won’t make any sense to you.

BTW, in a fiat currency system you can have negative price inflation but still have imbedded inflation within it. I’ll let you noodle that one for a while.

Bob Roddis said...

Walter Block explains in “Austrian Thymologists Who Predicted the Housing Bubble”:

Austrian economists, qua Austrian economists, or praxeologists, do not predict. Period. In what sense, then, am I putting together this list of Austrians who have predicted the housing bubble? It is in the sense that they predicted this phenomenon not as formal economists, or praxeologists, but, rather, in their role as thymologists, or economic historians

http://www.lewrockwell.com/block/block168.html

Lord Keynes said...

Given that Austrians and libertarians have been laughably and ridiculously wrong on their predictions of hyperinflation, you'd do better to try and understand why hysterical predictions like this were wrong:

Marc Faber with Peter Schiff – Hyperinflation In The United States A 100% Certainty
http://www.youtube.com/watch?v=6zwe9VpiKck

Just because base money soars by QE, this does NOT mean that the new money will be injected into the economy by debt. In fact, deleveraging has introduced powerful deflationary forces into the US economy:

http://www.debtdeflation.com/blogs/2010/09/20/deleveraging-with-a-twist/

http://www.debtdeflation.com/blogs/2010/10/19/deleveraging-deceleration-and-the-double-dip/

Money has to enter the broad money stock and be spent on goods and services before you see CPI surges.

And deficit spending does not even necessarily increase money stock either if it is borrowed from private markets.

Austrians are clueless on debt deflation and deleveraging.

Bob Roddis said...

I'm an Austrian and I haven't predicted HYPER inflation in the short run (50% inflation per month). Mish Shedlock is an Austrian and he predicts deflation.

I think there will be price inflation but Austrian theory explains that fiat money induces many lines of production that are unsustainable. When those lines go out of business, there will probably be fire sale prices (deflation!!!) in those lines even as a general price inflation takes hold elsewhere in the economy. Shouldn't we expect a further collapse of commercial real estate as the result of the Keynesian low interest rate policies which will inhibit growth and prosperity?

The fact that an Austrian predicts hyperinflation, no inflation or deflation says nothing about Austrian theory.

I'm not holding my breath expecting LK or APL to ever understand Austrian theory and I'm not holding my breath waiting for Chartalists to explain where all the stuff is going to come from to satisfy all of this unpayable debt.

Further, Bob Wenzel has a video of Hayek attacking the quantity theory of money, which Austrians allegedly believe in (but don't):

While Hayek, Rothbard and Mises would most assuredly understand that the monetary base was not the money supply, in the clip below, Hayek specifically says he doesn't know what the money supply is AT ALL, meaning that money depends upon how people use various financial instruments and that to attempt to define a very concrete money supply is bound for failure. In other words, Ron Paul, as an Austrian, is not going to hold to a specific hardcore definition of money supply, certainly not the monetary base. Note also that Hayek specifically attacks Friedman for seeing a very strict correlation between money supply and price inflation. Thus, he slaps Krugman, once again, for attempting to put a bizarre monetary base-price inflation correlation view on Congressman Paul.

http://tinyurl.com/29rf9z7

Bob Roddis said...

If LK were anything other than a cement-headed Keynesian cypher, he would present an understanding of Austrian theory and explain EXACTLY how that thought process leads to the allegedly wrong explanations and predictions of which he complains.

He cannot do that because he hasn't the faintest understanding of basic Austrian concepts.

Rant on, LK. Rant on.

Lord Keynes said...

The fact that an Austrian predicts hyperinflation, no inflation or deflation says nothing about Austrian theory.

You are laughably wrong.
Austrian theory is directly relevant in such predictions - the people who made them appeal to Austrian theory to justify their opinions.

If Austrian theory is irrelevant, then how did these Austrians come to their predictions?
Pull them out of **^& thin air??

Bob Wenzel has a video of Hayek attacking the quantity theory of money, which Austrians allegedly believe in (but don't)

I know:
http://socialdemocracy21stcentury.blogspot.com/2010/04/austrian-theory-of-inflation-myths-and.html

Mish Shedlock is an Austrian and he predicts deflation.

Mish Shedlock uses a Post Keynesian model of endogenous money and credit growth - some "Austrian"!!

Bob Roddis said...

Mish Shedlock uses a Post Keynesian model of endogenous money and credit growth - some "Austrian"!!

The kind of Austrian that supports appointing Ron Paul as chairman of the Monetary Policy subcommittee:

http://tinyurl.com/2efpbjy

Shedlock seems to believe the Chartalist version of how the system operates MECHANICALLY but is appalled, applying praxeological principles to it. He also understands the law of scarcity.

I'm not going to hold my breath in anticipation of you understanding this as I've said it 17 different ways at least 35 times.

BTW, Dan in Qatar has an excellent Austrian overview of MMT:

http://caps.fool.com/Blogs/a-closer-look-at-modern/490033

the anti-krugtard said...

All hail the Krugtard!

J Cuttance said...

looking at where the printed money is ending up, ie in the sickest part of the property sector ie in stuff that no sane private investor would put their money, I suspect that some of the current inflation is manifest in slowing down property price drops that otherwise would have happened

raritthaler said...

Could it be that the inflation - that should have happened - has been masked by deflation due to the decrease in demand from loss of jobs? Could it also be from the banks hoarding the new money?

Gold Predictions said...

See, if gold remained the official currency, this wouldn't have happened, since gold is a limited resource.