After reading Paul Krugman's latest anti-Wall Street screed, I have decided that I agree with him on principle: We need to occupy the place that is more responsible not only for the financial meltdown, but for the world depression that has followed it.
That's right, I am calling for an immediate occupation of...Princeton University, and specifically, its economics department. There is no other place on earth that has given us more players and more enablers of the financial madness that has gripped this economy for many years.
First, the chief architect of the depression, Ben Bernanke, was the chair of Princeton's economics department, and it was on his watch that Krugman was hired at Princeton away from MIT, Krugman's doctoral alma mater. Bernanke then went on to a position on the Federal Reserve System's Board of Governors and help create the inflationary policies that followed in the wake of the Tech Bubble of the Bill Clinton years and then the Housing Bubble.
Bernanke always has been a champion of inflation, and one of his first speeches as a Fed governor, "Deflation: Making Sure it Doesn't Happy Here," set out the infamous "Bernanke Doctrine" which claims that inflation can be a cure-all for economic ills. (He and Krugman are of one mind on this subject, as both consider government-generated "money" to be a "free lunch" on which everyone can feast.)
Let us not forget where the "Bernanke Doctrine" (and its predecessor, the "Greenspan Doctrine") has led. If I can restate these doctrines, it would be the following message to Wall Street: "Don't worry about the financial bubbles you create because when you run over the cliff, Uncle Fed will be there to provide you with precious 'liquidity'.
Thus, in his attempt to keep a deep recession from happening, Ben Bernanke has created a depression, and according to him and his followers, the only thing that keeps us in this mess is that Goldstein, er, Ron Paul and others like him, is raising too much hell about the inflation. The only man alive who might have done more damage than Bernanke has been Greenspan, but the combination of the two inflationists has been the destruction of the economy.
Of course, Bernanke (and his alter ego Krugman) are utterly contemptuous of anyone who might think that spreading dollars around the world, bailing out this and that, might not have the desired effects of restoring the economies of the nations. Why would anyone even have the temerity to think that propping up unsustainable capital and directing investment away from those entities that actually are profitable might make things worse? After all, EVERYONE KNOWS that creating more money creates more "aggregate demand," and greater "aggregate demand" means more prosperity.
Second, one of Bernanke's main shills is Alan Blinder, another faculty member at Princeton and a longtime advocate of...inflation. I'd like to say that the current depression has been a case of the Blind (Bernanke) leading the Blinder, but from my perch, it looks as though the whole bunch has been blind from the start.
However, Blinder has managed to do damage not only in backing up Bernanke's inflationary urges, but also in advising the Obama administration on the disastrous "Cash for Clunkers" program. When an economics department is as destructive as Princeton's it is important to spread the destruction to all frontiers.
Third, there is Alan B. Krueger, the Princeton professor who claims that raising the minimum wage will result in...more employment. At his urging, the Obama administration prevailed upon Congress to jack up the minimum wage during a severe recession, with one of the worst results being the record unemployment among young black men. Yes, on one end we have Princeton giving us inflation, and on the other, Princeton making sure more people are out of work, a great one-two roundhouse against the economy.
And then there is Krugman. Yes, the Paul Krugman who advocates the destruction of capital through taxation and regulatory policies. The Paul Krugman who is demanding that the U.S. economy have the capital structure of a Third World economy, but with First World results.
With respect to Albert Einstein, I'd say that this was an economic definition of insanity: Following the disastrous policies of Third World governments, but expecting the results of an economy that welcomes real and profitable capital into its overall structure of production.
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38 comments:
Bill, while I agree that Princeton's economics department does bear a lot of the responsibility for the current mess we are in, I hardly think occupying Princeton is the answer. They won't be able to tell the hippies from the faculty.
You are correct. Maybe Princeton already is occupied!
As im reading this im sitting about a mile away from the Princeton university economics department. : )
Go to it, Chris!! Get out the pitchforks and OCCUPY!!
In the end the protests, the lobbies, the backroom sweet heart deals, etc are all symptoms not causes. The US government is a major problem.
You don't blame the nose for the misery brought on by the cold.
Well done.
this is as focused a piece as I have seen on what the Princeton Economics dept has wrought. Well done, sir.
I saw Krugman on GPS with Fareed Zakaria yesterday.
He actually said that the OWS movement is testament to problem that the government not printing and spending enough. I kid you not.
Something eerie about this: Woodrow Wilson, who brought us the Federal Reserve, Wall Street's bank, was also a Princeton man.
OK, Pete. That's it. No comedy permitted on this page. We are serious folk, we are. SURELY KRUGMAN WOULDN'T SAY ANYTHING THAT STUPID!! (But, alas, I know you are telling the truth. Pass the cyanide capsule, PLEASE!)
Professor Anderson,
I believe you have struck a chord that has been missing in these discussions. Accordingly I propose that Princeton represents a “clear and present danger” to the Constitutional principles of liberty and free markets. The executive branch should immediately mobilize forces to neutralize this threat under the doctrine of preemption so frequently used in our international affairs. :-)
Do I hear a second?
Well, you know what they say: "Birds of a feather..."
It reminds me of a really good Jeff Foxworthy joke:
If you took economics at Princeton: You might be a fascist.
Don't give Einstein too much respect....
He was a Princeton affiliated Socialist, too.
Funny, I was just discussing the Princeton economics department with a libertarian-sympathetic friend of mine who's (shudder) taking a macro course at Princeton. "The liberal position is starting to make a lot more sense now" he claimed. I told him to think in terms of what he'd already learned in micro; that none of Keynesianism makes any sense in the context of what he should've already learned in microeconomic theory, especially its wholesale rejection of the price mechanism. He responded by telling me he hadn't taken micro yet - apparently at Princeton they make sure to indoctrinate the impressionable minds in macro first. (Egads!)
He also claimed that the professor was apparently quite enamored of Bernanke, to the point of asking questions on his tests as to why Bernanke is so brilliant, and why anyone, least of all a fellow Republican, would think of criticizing him.
"First, the chief architect of the depression, Ben Bernanke, was the chair of Princeton's economics department, ... "
"Thus, in his attempt to keep a deep recession from happening, Ben Bernanke has created a depression, and according to him and his followers,..."
We aren't in a deptession, bud. The fiscal and monetary inteventions in 2008-2009 rapidly pulled the US out of a severe recession.
What is your definition of a depression? Can you even define the word and then stick to your definition?
"Yes, the Paul Krugman who advocates the destruction of capital through taxation and regulatory policies. The Paul Krugman who is demanding that the U.S. economy have the capital structure of a Third World economy, but with First World results."
What a joke of a sentence.
Menawhile, we have the Austrian economists, who do actually advocate liquidationist insanity - which would cause rapid collapse of the US capital stock, collapse of the financial sector, plunging millions into poverty.
Uh, LK, we have "official" 9+ percent unemployment, kids are moving back in with their parents, and even the politicians are talking about a "lost generation" of workers. This is a depression, period.
We speak of the 1930s as the Great Depression, even though there was a mini-boom in 1934 and 1935 in the middle of it, just as we had a recession in the midst of the depression in 1938-39.
So, I think I am on solid ground. Furthermore, the massive interventions created yet another set of financial bubbles that now are on the verge of collapsing. There has been massive purchasing of government bonds by central banks, especially in Europe, and it is clear that these debts are unpayable.
I love your logic: if one advocates letting some of the malinvested capital be liquidated, then one wants THE ENTIRE ECONOMY to collapse. That is a non sequitur if I ever heard one.
As for Krugman, he has been calling for tax rates and regulation that would be very similar in Third World countries like Haiti or in Africa, and even Latin America. You might try to get yourself educated about how this stuff works as opposed to claiming that a sentence is false on its face because you say it is false on its face.
I'm sorry, LK, but just because you declare it doesn't mean it is true. So, please, look at the various laws and policies of Third World countries and then match them with what Krugman is saying. Not that you would care about it or admit to anything other than "Aggregate Demand will fix everything."
LK what do you do for a living?
Professor Anderson, I understand your citation of the 9% unemployment figure, but we need to acknowledge U3 is a political number not an economic number. U6 is 16+% and if you read John Williams he will tell you the real U6 is ~ 23%
Thanks for the wonderful KiW site. I'm always looking for anyone that can refute and laugh at our infestation of 'post-keynesian' stupidity.
Prof. Anderson: You have the patience of the saint, but don't waste your time on Lord Keynes. What little cursory respect I had for this ignoramus was swept away when he started going on about how the Weimar Republic suffered from "massive, crippling deflation."
Oh, and I seem to remember a snide comment made by Herr Keynes about your personal ethics in a previous post. I'll say anyone whose personal ethics compells them to adopt a child from halfway across the world needs no justification in my book or any civilized person's either.
I appreciate the support, but I actually welcome the dissenters. Krugman tends to delete the comments by those who disagree with him, and I think that it weakens his own arguments.
In LK's defense, he was speaking of the deflation of the early 1930s in Germany. However, unlike the Keynesians, I believe that deflation is an effect, not a cause.
Furthermore, with deflation, we get the "bad effects" first and then the "good effects" later as the structure of production is able to be created off pricing that isn't distorted.
With inflation, however, we get the "good effects" first, but the "bad effects" later. Also, each round of inflation has smaller and smaller "good effects" which is why the monetary authorities will inject larger and larger amounts of new money into the system. Ultimately, we get the high rates of inflation.
Great column Bill!
"Uh, LK, we have "official" 9+ percent unemployment, kids are moving back in with their parents, and even the politicians are talking about a "lost generation" of workers. This is a depression, period."
In other words, your definition of a "depression" is your own arbitrary re-definition, contrary to the accepted definition by economists.
A depression is period of negative real GDP growth where real GDP falls by 10% or more.
The US is not in a depression. It is in a period of positive real GDP growth but very high unemployment.
By your idiosyncratic definition of a "depression", most of the 19th century was a depression. Your beloved gold standard era was a period of almost perpetual depression in many nations.
By your idiosyncratic definition of a "depression", many nations have been in "depressions" since the early 1990s, because they have had high employment, even though in fact real GDP and real per capita GDP have soared.
In reality, of course, you just rob the word "depression" of its meaning, with your laughable re-invention of its meaning at will. Typical of Austrians: when terms don't suit - hey presto!! - let's just redefine them.
Furthermore, other nations that went big with fiscal stimulus like Australia, Norway, and South Korea have had not only good recoveries and have kept their unemployment quite low:
http://www.tradingeconomics.com/australia/unemployment-rate
http://www.tradingeconomics.com/norway/unemployment-rate
http://www.tradingeconomics.com/south-korea/unemployment-rate
"However, unlike the Keynesians, I believe that deflation is an effect, not a cause."
So you don't think there is any such thing as a "secondary deflation", huh?
You've never turned, for example, to p. 515 of R. W. Garrison, “The Austrian School,” in B. Snowdon and H. R. Vane (eds), Modern Macroeconomics: Its Origins, Development and Current State (Cheltenham. 2005. p. 515), and had a read what other Austrians say??:
“Deflation, like inflation, is a secondary issue in the Austrian literature. Growth-induced deflation, that is, the decline in some overall price index that accompanies increases in real output, is considered a non-problem. Here, the microeconomic forces that govern individual markets are fully in play.
Deflation caused by a severe monetary contraction is another matter. Strong downward pressures on prices in general put undue burdens on market mechanisms. Unless, implausibly, all prices and wages adjust instantaneously to the lower money supply, output levels will fall. Monetary contraction could be the root cause of a downturn - as, for instance, it seems to have been in the 1936–7 episode in the USA.
"As for Krugman, he has been calling for tax rates and regulation that would be very similar in Third World countries like Haiti or in Africa, and even Latin America.
And a number of European nations like Norway, Sweden, Denmark have high tax rates on the rich and business regulation too. Yet their economies are highly successful, innovative, and productive.
Tell us another fable.
LK so let me get this right. If a group of “official” egghead economists decide what the definition of a depression is that’s not arbitrary? Do you not recognize your own inconsistency?
If the GDP deflator were properly calculated then we would see continued retrenchment in GDP not positive growth. Get you head out of your government approved textbook and statistics.
You still didn’t answer my question: What do you do for a living?
Anderson you have been most unfair in your commentary! After all, Michelle Obama also went to Princeton and surely she deserves at least a mention?
I apologize for leaving out Michelle!
Do Norway and Sweden have high taxes on capital gains? Do they confiscate the lion's share of return on capital? That is what Krugman is advocating.
Debating with a Keynesian is always sure to be an exercise in positivism, as LK exhibits so clearly here.
ps Bill - "Making sure it doesn't HAPPY here..." (?) :)
Yeah, and once a post is up, you can't edit it. I must have been thinking of the Facebook announcements of a birthday when I wrote it!
Off topic
"What you really need is open-ended funding from the European Central Bank..." - Krugman this morning
have a great day everyone
In other words, the European Central Bank needs to buy government bonds directly to keep the PIGS (and everyone else) afloat.
Let the depression continue!! (Krugman's argument is based upon the belief that central banks are not subject to the Law of Scarcity and Law of Opportunity Cost.)
Tell you what, AK man. Since you engage in outright ad hominems, I am banning you from this board. You could have put the tax rates on without all of the extracurricular stuff.
Ordinarily, I don't mind free speech on the board, but you have stepped over the line. And if you post anonymously, I will ban that, too.
By the way, I get high ratings from my students. Why don't you attack them, too. And I received the university's Academic Award last year. Why don't you attack our entire university?
I deleted Alaskaman's comments. I don't mind the information part of his comments, but the "How could any place allow you to teach there" theme of his comments got too old. He did it one too many times.
@Prof Anderson
He doesn't answer the hard questions anyways, much like AP (sometimes I think they are one and the same).
Krugman, Lord Keynes, and Maynard
It is beyond the pale for these "people" to somehow maintain, that is it the "free market" that is the cause of all our woes. If that is so. Why is Prof. Anderson relegated to write his analysis here, while Krugman has the much larger audience at the NY Times? If "unrestrained capitalism" was in vogue. Why is it that it's most pronounced foe (Krugman) was given the Noble prize, while the brilliant Murry Rothbard was relegated to teaching in Community Colleges?
We all know why. Krugman and Keynes, justify, codify, and proselytize for the state. While most of here long for living freely. They are rewarded handsomely for backstabbing mankind. They are admired for enabling, the state. Prof. Anderson, and Dr. Ron Paul are too gentlemanly to call you what you really are, but I am not.
A GD Fascist PIG.
Your economic policies ENABLED Adolph Hitler, to commit unrestrained warfare, and commit genocide. How do you sleep at night with that? How do rest comfortably knowing that your an acolyte for the only thing Keynesianism is good for, repression and death? Like a baby I am sure, like all the tyrants, and murderers in history. You can just rationalize it away. You can moralize all you like. It's all hollow. History and recorded fact are all against you. You are and always will be on the side of tyranny. That is an inescapable fact, and you are chained to it. So run back the hallowed halls of whatever War Machine you came from, crawl under your velvet lined rock. Take your chains and go, just go away.
Princeton is only about an hour, or so away from me. I wonder how long it would take to be detained, with my "Arrest the Bernake" protest sign? Typically these "mind opened" institutions are only so, when one advocates something anti-bourgeois.
Regarding capital investment in places like Norway and Sweden, Alaskaman says that these countries have capital gains rates that are higher than ours yet have plenty of capital investment.
I'm not familiar with capital investment in those countries, but I hardly believe that if the governments of Sweden and Norway are hostile to private capital investment, that there would be much of it. Because I don't know about capital there or the policies regarding capital other than what Alaskaman said, I can't comment on that subject.
What he seemed to be saying was that capital investment is automatic, no matter what the government in power might have for a policy on such investment. That I cannot believe. If the incentives for private capital investment all are negative, then there won't be capital and, ultimately, the economies will fall behind.
But I cannot comment on what I don't know, but since Alaskaman declared that my lack of commentary was a reflection that I was a liar, I decided that he had stepped over the line. I don't mind the questions and even some of the abuse, and since he also posts anonymously, I figured I had experienced enough. He can go post elsewhere.
As you have noticed, I have gone to moderated comments. My apologies, but since someone is obsessed with the comments section and is attempting to be disruptive, I believe I have no other choice. Again, my apologies.
Great blog! I'm new to the site and will definitely visit regularly.
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