I meant to blog on this last week, but only now can give the subject of capital controls my attention. In a post of nearly two weeks ago, Paul Krugman praises such restrictions during the economic crisis in Malaysia of more than a decade ago, yet wonders if such controls would work in Greece and Spain.
Such comments once again reveal the "Historicist" Krugman, just as he believes that governments should engage in printing lots of new money (what some call "inflation") during bad times, and refrain from such activity when times are good. Likewise, capital controls might be successful at times and unsuccessful in certain periods.
In other words, outside circumstances dictate economic policies rather than economic policies staying within the bounds of the laws of economics, which are based upon laws of human action. Thus it is with capital controls.
We have to remember that capital controls are based upon coercion. After all, such controls prevent people from taking things they value out of the country. It is another way of saying that government owns everything, and anything people have in their possession simply is borrowed from the state.
Granted, we are dealing with very different fundamental approaches. Krugman is saying that Malaysia instituted capital controls, and after the crisis ended, investment flowed into the country again. Thus, they were "successful."
Yet, what might be the case had the government of Malaysia declared that the country was a safe place to invest, and that also meant people could bring their possessions into the country and take them out again if they so desired? I don't know the results, since Malaysia did not go that route. However, as I see it, there is a huge fundamental difference between Krugman and the Austrians here, and it is not just based upon potential outcomes.
No, what Krugman endorses is a form of theft. That's right, theft. Capital controls are theft. Krugman might believe that they can be "good theft," but nonetheless, government is taking control of the possessions of others. Since Keynesian economics endorses stealing through the "magic" of inflation, I hardly am surprised that America's loudest Keynesian believes theft is just fine in other forms, too.