Monday, May 16, 2011

Jim Rogers vs. Paul Krugman

In reading Paul Krugman's column today -- his usual political screed about Good Democrats and Bad Republicans (as opposed to Bad Republicans AND Democrats) -- I am struck by the utter ho-hum attitude Krugman has toward the gargantuan U.S. Government debt. To him, the issue is purely political, and there is no danger in stacking on more debt and printing more money.

Instead, Krugman continues to excoriate anyone who might think that the government with its policies of "Quantitative Easing" (called expanding the monetary base even more) and heavy borrowing are not leading our economy into disaster. And, while he praises efforts of the government to drive down the value of the dollar (yes, it temporarily makes U.S. exports cheaper abroad), he claims there is no downside to policies of monetary debasement.

Jim Rogers, the legendary investor, would beg to differ. No, Rogers does not have an economics doctorate from MIT, nor does he have a Nobel Prize in hand or a column in the NY Times. But Jim Rogers knows markets and he knows currencies and he believes that the government is pushing us into an even greater crisis than what we experienced in 2008.

In this recent interview on Russia Today, Rogers states that for all of the rhetoric we hear in Washington, no one seriously is dealing with the crisis. The Democrats have been off the charts, and Republicans are delusional about the state of U.S. military spending. I believe the man has some wise things to say, even if U.S. policy makers and people like Krugman stop up their ears with "Na, na, I can't HEAR you!"


Eric said...

Krugman's attitude towards the debt is more complicated than you portray it in your post. What he really says is that since we are in a recession, even though increasing the deficit is bad, its more important for the government to reduce unemployment to the best of their ability. It is during times of relative plenty that the focus of the government should bring down the deficit. He even has links to articles he wrote during the Clinton administration praising their attempts to reduce the deficit, which shows he is consistent in his policy recommendations in times of boom and bust. If you're going to criticize Krugman, you should at least discuss his actual positions rather than making straw men out of them.

AP Lerner said...

"But Jim Rogers knows markets and he knows currencies and he believes that the government is pushing us into an even greater crisis than what we experienced in 2008."

This is comical, but hey, kudo's to Mr. Anderson for outsourcing commentary on capital markets to a so called 'pro'. This is a good strategy on your part since your investment and markets expertise is as limited as your understanding of the monetary system.

Of course, Jim Rogers contributes to the neo-liberal nonsense. This is all you need to know about Jim Rogers ignorance.

Much like Mr. Anderson's comments on inflation, rates, etc, Mr. Rogers will be proven wrong with time.

Do you ever bother to do your own homework, or do you just find baseless opinions to agree with?

Bob Roddis said...

After last week’s evisceration of MMT by Bob Murphy, zillions of MMTers showed up to argued their sector balances:

There weren't any humans or goods and services in the mix, just those miraculous sector balances. That's because real life has no humans or stuff, just sector balances.

Like AP Lerner, none of them could respond to the following:

1. At it’s core, MMT is just a more confusing version of Keynesian demand management. They love those sector balances and try to bamboozle with them because they can’t argue in favor of Keynesian demand management.

2. Where are all the goods and services going to come from to satisfy $100 trillion in government obligations? (The same old same old question). MMTers seem to believe that they have abolished the law of scarcity.

3. The charge that they are completely oblivious to problems of catallactics, economic calculation, Cantillon Effects and the distortion of the price, investment and capital structure that must invariably result from their money dilution and debt policies. They are totally unfamiliar with these topics and don’t respond at all.

ayassos said...

Krugman is simply not conversant with the breadth and depth of the problem. He uses vague references to America's "big economy" instead of grappling with the details. Note in today's column he says that the fed. govt. borrows "about a third" of its spending. The Treasury's own Monthly Statement projects that the outlays will be $3.8 trillion and the income (taxes) $2.2 trillion. $1.6 trillion is not "one third" of the federal outlays; it's about 42%. This is why he's so far off. He must not study the actual numbers. He just makes fun of people who do.It also says something about editorial work at the New York Times.

jason h said...

Come on Bob...

MMT is TOTALLY valid (if you use the clever MMT definitions).

From Murphy's article,

When MMTers speak of "net saving," they don't mean that people collectively save more than people collectively borrow. No, they mean people collectively save more than people collectively invest.

The MMTers intentionally conflate the typical definition of savings with the "net savings" of MMT to justify gov't deficits.

So if taxes and investment stay the same, and "net savings" goes up, we still see the price distortion as more dollars chase the same goods and there was no increase in productivity via "investment".

Same old chartists tricks, try to trip up the Austrians on the "operational realities" and ignore price and capital distortion brought on by gov't spending and arbitrary money printing.

Bob Roddis said...

Only one MMTer even attempted to respond to concerns about economic calculation and it was clear from his cocky statement that he had no clue what it referred to:

Bob Roddis said...

The correct link for the cocky economic calculation comment is:

Bob Roddis said...

Commenter J Murray asked the MMTers some questions:

“Why is it necessary to create an involuntary national policy that everyone must live under to engage in this “net savings” growth?” plus many other questions never answered.

Mosler showed up to give his unique “insight”:

And I just noted that Mosler answered me and claims to have invented MMT all on his own:

Eric said...

You guys are clear that Krugman does not support MMT, right? I mean, if you follow the links you guys posted on this blog they lead to a Krugman post criticizing MMT.

William L. Anderson said...

From what I can tell, Krugman sees a "job" solely as a transmitter of "income." In other words, government should "create jobs" so that people will have income that they can spend in order to keep the "circular flow" going.

Why bother with a job? Why not just give everyone lots and lots of newly-printed money so they can spend it? I mean, spending magically creates everything else that makes up an economy, right?

Eric said...

I've read this argument from you before, and I am not completely sure how a neo-Keynesian would respond to it. The only thing that I can think of off the top of my head is a) after wwII, with the collapse of the financial sector, the economy was stimulated through the manufacturing sector, which was totally unrelated to the sector that was the source of the original crash, and b) When the tech bubble collapsed in the late 90's the bubble that replaced it was in real estate, a totally unrelated field. These examples seem to indicate that your "malinvestment" hypothesis of the recession may be incorrect, that the economy is flexible enough so the investment in sectors other than the ones that collapsed is an effective method of stimulating the economy. However, since this site is about critiquing Paul Krugman, its more relevant to figure out what he has to say about it. I'll browse through his writing to see if he has discussed malinvestment of resources in any of his past blog posts.

Anonymous said...

I'm still waiting for the day that Bob actually cites some academic literature. I thought this guy was supposed to be a lawyer? Evidently, law school never taught him that any crap off the internet can't be used as evidence to base an argument. I feel bad for his clients.

@Anderson "I mean, spending magically creates everything else that makes up an economy, right?"

In our economy, yes. The majority of our GDP is private consumption. I thought you taught economics? America is no longer defined by the manufacturing and exports of post WWII.

Mike Cheel said...

@Anonymous (12:21 PM)

And it sounds like you are inferring that the money creation scheme can just continue on into infinity. Am I correct that you are saying this? If not please clarify.

Eric said...


Krugman is not saying the money creating scheme continues to infinity, it only continues until unemployment decreases to acceptable levels (which I believe is around 4 percent) then money creation stops. Is that a good clarification?

Keep in mind money creation is only the backup plan. Ideally we should have another stimulus package,. but with our messed up[ congress that isn't possible.

Bob Roddis said...

We all know that Krugman is not an MMT guy. Even Krugman knows that the law of scarcity has not and will not be abolished anytime soon.

Anonymous said...

Professor Anderson, you do realize that the debt ceiling is purely cosmetic?

They may choose to pass a legislation keeping the debt ceiling where it is. And then they may use loopholes to raise additional debt anyway, by not having it classified under the debt ceiling.

I had rather expected you to take the proper stance - it does not matter whether or not it is raised.

jason h said...

that the economy is flexible enough so the investment in sectors other than the ones that collapsed is an effective method of stimulating the economy

If that were true than when the bubbles burst the rest of the economy would be unaffected and workers would quickly move to the unaffected sectors.

Malinvestment occurs in long term projects across all sectors, because time preference is artificially shifted to the present by money printing and manipulated interest rates. The actual resources and consumer demand don't actually exist to satisfy the long term projects.

Anonymous said...

What Krugman has been saying is that there is no immediate reason to fear a massive inflation spike. The economic indicators are saying that expected inflation is low. Therefore, his argument is that printing money right now will not create a huge surge of inflation, rather it will stimulate job growth.

Perhaps some of you should do your homework and learn what the argument is really based around before weighing in. This blog is good entertainment, but it does nothing to add to the credence of the Austrian school.

Bob Roddis said...

We already know that Krugman and the other Keynesians are in foam-at-the-mouth denial about actual inflation so that they can continue to insist that even more "stimulus" must be inflicted upon a defenseless and impoverished-by-Keynesianism populace.

Anonymous said...

Thought I would share this piece, to add to the growing anti MMT literature.

Jonathan M.F. Catalán debunks MMT advocate "AP Lerner's" nonsense about savings

TonyFernandez said...

It's because Krugman thinks that as long as the price level does not change that nothing is wrong. He completely ignores the problem caused by monetary inflation which is the distorted structure of production. But maybe that is too much of a Hayekian way of thinking for a simplistic Keynesian mind.

Mike Cheel said...


You might be on to something but sometimes I think he does know the difference and has picked party over principle. This guy definitely drinks the kool-aid.

Eric said...

If inflation was going to spike as a result of quantitative easing, wouldn't it have happened already? I mean, the fed's been pursuing this policy for over 2 years. If there hasn't been an inflation spike by now, it seems unlikely there is going to be one.

jason h said...

If [a recovery] was going to [happen] as a result of quantitative easing, wouldn't it have happened already? I mean, the fed's been pursuing this policy for over 2 years. If there hasn't been [a recovery] by now, it seems unlikely there is going to be one.

jason h said...

Also, you ignore the downward pressure on prices due to other forces. Inflation has happened, QE is inflation. Prices are subjective, so there is no way to know where they should be. We do know that dollars have be printed so dollars buy less than what they would have otherwise.

Mike Cheel said...

@jason h

And to add to what you said at 10:20, by definition inflation is an increase in the money supply. It doesn't define the results of that although typically the outcome is the 'appearance' of higher prices. In reality it tends to devalue exist. How long it takes for the markets to realize this expansion is not immediate and there isn't any set time to it.

Anonymous said...

Since when is inflation "by definition" an increase in the money supply? Is being a Mises acolyte a licence to make up terminology as it suits you?

Anonymous said...

To those who have no fear of inflation, let's make it simple -- I encourage you to support your goverment and buy its debt so it has ready buyers for its endless spending and money creation. I'll defer to the competence of Jim Rogers and stick with real assets. Let's reconvene a few years from now and see who feels better about the outcome. I always feel that having a little skin in the game will test conviction.

jason h said...

Is being a Mises acolyte a licence to make up terminology as it suits you?

The classic definition of inflation is an increase in the money supply. It was Keynes who changed the definition, in order to justify the covert theft of wages.

Mike Cheel said...

@Anonymous - 1:48PM

"Since when is inflation "by definition" an increase in the money supply?"

I looked in the dictionary genius:

Where did you look? You don't have to be a 'mises acolyte' to do that do you?

Eric said...

@ Jason H.

QE2 was never supposed to end the recession, it was meant to have a minor effect in alleviating it, which is exactly what happened.

The stimulus package was more effective at alleviating the recession, and further stimulus would be even more effective, but unfortunately its politically impossible.

QE2 was a compromise that is less effective, but at least you don't have to get conservatives to agree to it.

Tel said...

From Bob: "Cantillon Effects and the distortion of the price"

MMT has solved this problem by removing price from economics completely. Once price is no longer an economic variable, you have nothing to worry about regarding price distortion. It's brilliant... if your objective is fooling some of the people some of the time.

Since when is inflation "by definition" an increase in the money supply?

Probably about the same time people started believing in supply and demand.

Anonymous said...

hah hah... We measure inflation through price indexes, not levels of money supply. What is wrong with Austrians?

Steve said...

Keynesianism is to economics as astrology is to astronomy.