We are dealing with deceitfulness, pure and simple. Krugman is trying to make readers think that Rep. Paul approved of the behavior of the Wall Street firms and wants more of the same. As I see it, this episode highlights the fact that Krugman is fundamentally dishonest in the way he writes. If he were an honest man, he would deal with Rep. Paul's quote in full, and if he then disagreed, he could say why he thought Rep. Paul was wrong.
However, Krugman instead just uses dishonesty and personal attacks. This speaks for itself. [End Update]
I guess with Ron Paul chairing the subcommittee that oversees the Fed, Paul Krugman will be attacking him on a regular basis. Today, he has a blog post which not only misstates the Austrian position on money, but also employs logical fallacies as the basis of attack. In other words, it's another day at the office for Krugman.
Robert Wenzel has an excellent commentary on what Krugman says, and I want to emphasize with Mr. Wenzel that Ron Paul knows the difference between money supply and monetary base. This is in reply to what Krugman writes:
I used that term (paleomonetarism) — it’s probably not original, but who knows? — in a recent post about the increasingly obscure meaning of the money supply. The best example would surely be Ron Paul, who’s now going to have oversight over the Fed. If you read his stuff, it’s very clear: money is a well-defined quantity that the Fed controls, and inflation comes from — indeed is defined as — increases in that quantity.Krugman then shows a graph which has both the monetary base and the CPI and -- Lo and behold! -- the rate of inflation does not match the monetary base. Conclusion? Ron Paul is an idiot.
What he means, I guess, is monetary base. (Emphasis mine)
As Mr. Wenzel replies (and I quote him at length):
Krugman knows damn well that the monetary base is not the same thing as the money supply--and that the distinction became important once excess reserves started piling up, to the tune of a trillion dollars, in the monetary base. Further, Krugman knows this trillion dollars in excess reserves is money sitting outside the system, i.e., it is not in the economy. It is pure evil when Krugman suggests that Congressman Paul thinks that the monetary base is the same thing as the money supply. During television interviews, I have heard Congressman Paul on many occasions comment that there was a huge amount of excess reserves in the monetary base and that it was a threat to explode the money supply. This clearly indicates that Congressman Paul knows the difference between the monetary base and the money supply. (Note: Don't send me an early clip of Congressman Paul talking about the monetary base, without reference to excess reserves, as Krugman points out, monetary base was different in "normal times". Once it became clear that excess reserves were flooding the monetary base, Congressman Paul clearly noted that the monetary base was not moving in correlation with the money supply)Given that Krugman writes for the newspaper that desperately tried to prop up the corrupt and disgraced Michael Nifong while he pursued prosecution in the fake Duke Lacrosse Case, I am not surprised to see him deliberately misrepresenting Ron Paul's views. That's par for the course at the NYT.
Thus, the chart Krugman runs to show the supposed disconnection between the monetary base and price inflation, and implying that Congressman Paul thinks there is a connection, is deception far beyond that of his Princeton buddy, Ben Bernanke, who claimed that he is currently not printing money.
Krugman goes on with even more nonsense by calling Ron Paul's view the politically dominant view. Ron Paul subscribes to the Austrian School of Economics. While gaining in popularity, it's about as politically dominant as the legalize LSD movement.
Labeling Paul's view as the politically dominant view appears to be a slick attempt to muddy Ron Paul with the economic mess that is surely coming. "Hey, the politically dominant paleomonetarism/Ron Paul view is what got us in this mess."
Mr. Wenzel asks how Krugman can sleep at night. It's easy. The guy who writes "Conscience of a Liberal" has no conscience at all.