Krugman's Bernanke Problem

I must say that Paul Krugman always is on the lookout for villains. Christians, Creationists, Austrian Economists, Ron Paul, Republicans, and anyone else who is not in complete agreement with The Master all dissent from His Wisdom because they are evil. There can be no other explanation.

So, when people disagree with his view that another $400 billion would have done the trick with the "stimulus," they did so out of evil intent because they enjoy watching people lose their jobs and the economy falling into depression. When people voice concern about massive expansion of the monetary base and the real problems of inflation, they do so out of evil intent because they enjoy watching people lose their jobs and the economy falling into depression. When people object to the massive borrowing that creates an unpayable debt mountain, they do so out of evil intent because they enjoy watching people lose their jobs and the economy falling into depression. And so on.

Today, Krugman introduces a new villain: Rick Perry. Yes, it is Rick Perry, the Texas governor who now is running for the Republican nomination for president. Why is Perry now responsible for the economic misery? He criticizes Ben Bernanke and publicly worries about the various QE's and Fed-financed bailouts, and has used over-the-top language (i.e. "almost treasonous" and “we would treat him pretty ugly down in Texas” if he has the Fed purchase even more long-term government debt).

However, given the rhetoric I hear from the Democrats (and their media allies like Rachel Mad-dog and Keith Olbermann), accusing Ron Paul of "treason" and "the Tea Party is the enemy" and the like, it seems that what Paul Krugman is saying is that he and his allies are permitted to make whatever accusations they want (free speech, you know), but no one else is permitted to speak. After all, he argues, unless Ben Bernanke is able to do what Krugman has recommended, all hope of economic recovery will be lost, according to Krugman.

Am I exaggerating? Krugman writes:

...I’m using Mr. Perry — who has famously threatened Mr. Bernanke with dire personal consequences if he pursues expansionary monetary policy before the 2012 election — as a symbol of the political intimidation that is killing our last remaining hope for economic recovery. (Emphasis mine)

Just what is this "last remaining hope" policy? Something Krugman believes the Fed should be doing:

Well, in 2000 an economist named Ben Bernanke offered a number of proposals for policy at the “zero lower bound.” True, the paper was focused on policy in Japan, not the United States. But America is now very much in a Japan-type economic trap, only more acute. So we learn a lot by asking why Ben Bernanke 2011 isn’t taking the advice of Ben Bernanke 2000.

Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years,” which would encourage borrowing and discourage people from hoarding cash; and “an attempt to achieve substantial depreciation of the yen,” that is, to reduce the yen’s value in terms of other currencies.

Was Mr. Bernanke on the right track? I think so — as well I should, since his paper was partly based on my own earlier work. (Emphasis mine)

Given Krugman's rhetoric, one would think that Bernanke has been cowed into doing next-to-nothing, yet we read that Bernanke's Fed has made literally trillions of dollars in secret loans to banks and financial houses around the world, not to mention massive purchases of near-worthless assets in hopes that somewhere there is another short-term bubble the Fed can create to give us the illusion of recovery.

Now, I will say that Krugman is right -- we are losing hope for a real economic recovery -- but for the wrong reasons. Krugman is claiming that all that is needed is for the U.S. Government (and governments around the world), along with central banks, to try to pump up massive spending, or, as Keynesians call it, "aggregate demand" in hopes of re-employing "idle" factors of production.

Krugman can make this claim all he wants, but all he is doing is calling for the re-employing of malinvested assets that have gone bust, and that is not going to happen no matter how much nasty rhetoric he and his allies spew out. Krugman can blame Perry, Ron Paul, Michelle Bachman, Sarah Palin, and a whole list of other "villains," but perhaps he needs to look in the mirror and admit that he and the King's Men cannot inflate our economy back to prosperity.

Creating caricatures is "listening"? Only in Wonderland!

It seems that Paul Krugman really does listen to what others who are not Keynesians have to say. Really! Why do I know that? Krugman himself says it:

In my experience with these things – which I find both within economics and more broadly – is that if you ask a liberal or a saltwater economist, “What would somebody on the other side of this divide say here? What would their version of it be?” A liberal can do that. A liberal can talk coherently about what the conservative view is because people like me actually do listen. We don’t think it’s right, but we pay enough attention to see what the other person is trying to get at.

The reverse is not true. You try to get someone who is fiercely anti-Keynesian to even explain what a Keynesian economic argument is, they can’t do it. They can’t get it remotely right. Or if you ask a conservative, “What do liberals want?” You get this bizarre stuff – for example, that liberals want everybody to ride trains because it makes people more susceptible to collectivism. You just have to look at the realities of the way each side talks and what they know. One side of the picture is open-minded and sceptical. We have views that are different, but they’re arrived at through paying attention. The other side has dogmatic views.

In his own blog, Cafe Hayek, Don Boudreaux has his own reply to Krugman, and you can read it here. Now, for a guy who insists calling the Austrian Theory of the Business Cycle the "Hangover Theory" (and then explaining it in caricature form and simply refusing to acknowledge that Austrians do not explain it in the terms Krugman uses), his statement is pretty rich. Furthermore, I looked at some past posts of my blog and found a number of places where Krugman has declared that opposition to his points is motivated, at least in large part, by racism and hatred of others. (Last year, Krugman insisted that anyone opposed to QE2 had that viewpoint because that person wanted others to suffer and be out of work.)

So, despite Krugman's insistence that HE and HIS FRIENDS all are the epitome of open-mindedness and that everyone else is a dolt and idiot, I let his own columns and his own comments speak for themselves.

I have met a number of economists who won the Nobel, including Krugman, James Buchanan, Gary Becker, Milton Friedman, and F.A. Hayek. Interestingly, the latter four were gracious to their intellectual opponents and took great efforts to be able to explain differing points of view. And I never saw those four use the kind of attack language that Krugman regularly uses in his columns, articles, blog posts, and interviews.

The madness of fiat money

Yes, I know that Paul Krugman has yet another budget screed in which he calls for higher taxes, more government spending, and all that. Surprise, surprise, surprise: he falls down and worships the proposal that comes from the hard-core socialist wing of the Democratic Party (the "Progressive Caucus").

However, I am more interested in his recent blog post, "Money Madness," in which he once again explains his belief that a system of fiat money is just fine with him, and if it is fine with Krugman, then it is the Way, the Truth, and the Life. He writes:

The whole tone of this discussion is reminiscent of the way people talked about the gold standard back when it was widely thought that any meddling with the sacred role of a metal with precisely 79 protons would mean the demise of civilization. But it has been 80 years since Britain went off gold, and last I noticed, William and Kate weren’t getting married in a desolate wasteland. We’ve had freely floating exchange rates for almost 40 years....

There you have it. Since we have been outright printing money for nearly a century, everything is just great, right? Furthermore, what Krugman really is saying is that we would not have had prosperity at all. We would be stuck in depression with high unemployment and a very uncertain future.

Oh, wait! After massive new spending, QE2 (which, contra Krugman, turned out to be a big deal), we have high unemployment and a very uncertain future. Krugman's reply? Print more money.

Are food and energy prices rising? Why, that is due to speculators and demand from elsewhere. It couldn't have anything to do with Ben Bernanke's showering of the world with dollars. Why? If it did, then Krugman would have to admit that maybe inflation was not a good thing.

But, Krugman does not stop there. No, he gives us his monetary philosophy of life:

Anyway, money and monetary policy are basically technical issues, albeit important ones. The fate of Western society is not at stake, nor is there a deep moral issue in allowing the purchasing power of the medium of exchange to depreciate modestly over time. Calm down, everyone.

I would beg to differ. If I were to enter your household and take your property, albeit slowly, you would still call it theft.

However, when the government says that you have to use its money for exchanges, and then purposely depreciates that money, leaving you poorer in the process, that is a moral issue. Krugman would counter, of course, that it is the very inflation that makes the economy grow, but he gives no methodology of this "technical" claim.

By the way, when Krugman claimed last year that those who opposed QE2 did so because they wanted people to suffer and be out of work, was he not making a "moral claim"? When he claims that opposition to Keynesian policies is done out of racism, is that not a "moral claim"?

So, I guess that when Krugman attacks people who disagree with him and calls them racists, he is making a "technical" statement. Anyone who points out that deliberate government depreciation of money just might have a moral connotation is engaging in metaphysics.

In the end, with Krugman it is "heads I win, tails your lose."

Krugman's "Death Panels" for the Economy

Paul Krugman definitely has thing thing about "death panels." In fact, he so much is enamored with them that apparently he believes that the American economy itself should be forced to die.

That is not what he believes he is saying, but as I see it, his recommendations are akin to bleeding the patient to death (and digging our economic hole even deeper). He writes in his most recent column:

If there’s one piece of economic wisdom I hope people will grasp this year, it’s this: Even though we may finally have stopped digging, we’re still near the bottom of a very deep hole.

So, what does Krugman recommend? Well, he seems to believe that we are not digging fast enough, and that more digging will get us out of the hole. Krugman declares:

So what can be done to accelerate this all-too-slow process of healing? A rational political system would long since have created a 21st-century version of the Works Progress Administration — we’d be putting the unemployed to work doing what needs to be done, repairing and improving our fraying infrastructure.

Yes, yes, bring back the WPA! Yeah, the organization with the alternative title, "We Piddle Around," and "We Poke Along." I'm not sure that a "rational political system" would be creating such waste, but to Krugman, the economy simply is a mechanistic mass of homogeneous factors into which one throws in a bunch of money, with an economy magically appearing.

What Krugman never will understand is that the kind of government he demands is a burden to the economy, not a stimulator. I have yet to see him suggest one thing that actually would make our economy stronger. Instead, he claims that we can have a recovery based upon government spending and subsidized "green energy" production.

Now, both Krugman and I see problems on the horizon, but for two very different reasons. First, here come Krugman's worries:

Realistically, the best we can hope for from fiscal policy is that Washington doesn’t actively undermine the recovery. Beware, in particular, the Ides of March: by then, the federal government will probably have hit its debt limit and the G.O.P. will try to force President Obama into economically harmful spending cuts.

I’m also worried about monetary policy. Two months ago, the Federal Reserve announced a new plan to promote job growth by buying long-term bonds; at the time, many observers believed that the initial $600 billion purchase was only the beginning of the story. But now it looks like the end, partly because Republicans are trying to bully the Fed into pulling back, but also because a run of slightly better economic news provides an excuse to do nothing.

Now, I am not sure how the Fed's QE2 or QE100 would "promote job growth" in the long term, given that it would more likely result in stagflation. For that matter, what this economy needs is real economic growth, and if that occurs, then "job growth" will follow.

Instead, Krugman really seems to believe that if the government creates official "jobs" and then pays people with printed money (QE2 version), then the result will be a growing, robust economy. Well, maybe Krugman and Brad DeLong believe that nonsense, but everything he is recommending will do nothing but make the economic hole we are in even deeper and the sick economy even more ill.

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.