However, I need to give Krugman more credit, for he is not really a one-trick pony, but a one-and-a-half trick pony. What do I mean? I will explain, using Krugman's NYT April 12 column.
Writing about the high rate of bank failures in Georgia, compared to the relative stability in Texas, Krugman writes that in most cases, the high rates of foreclosures tended to be concentrated in areas with strict zoning laws. He writes:
To appreciate Georgia’s specialness, you need to realize that the housing bubble was a geographically uneven affair. Basically, prices rose sharply only where zoning restrictions and other factors limited the construction of new houses. In the rest of the country — what I once dubbed Flatland — permissive zoning and abundant land make it easy to increase the housing supply, a situation that prevented big price increases and therefore prevented a serious bubble.Now, this would seem to be a case of the Law of Unintended Consequences rearing its head, since all good "Liberals" like Krugman are staunch supporters of strict zoning laws, but that fact seems to have escaped the Nobel Prize laureate. Instead, Krugman claims that he has found the magic bullet that tells us why Texas does not have the same kind of banking crisis that has hit Georgia:
So what’s the matter with Georgia? As I said, banks went wild, in a scene strongly reminiscent of the savings-and-loan excesses of the 1980s. High-flying bank executives aggressively expanded lending — and paid themselves lavishly — while relying heavily on “hot money” raised from outside investors rather than on their own depositors.It is hard to examine this point in a short column, and I don't know how much Georgia's banking laws differ from those in Texas, although the ultimate irony to me is that George W. Bush was governor of Texas before coming to the White House, which, according to Krugman, generally makes that state to be evil. Nonetheless, I will take Krugman's word for it that Texas has stricter banking regulations than does Georgia (although the devil always is in the details and I suspect that the differences between Georgia and Texas are more cloudy than what Krugman tells us).
It was fun while it lasted. Then the music stopped.
Why didn’t the same thing happen in Texas? The most likely answer, surprisingly, is that Texas had strong consumer-protection regulation. In particular, Texas law made it difficult for homeowners to treat their homes as piggybanks, extracting cash by increasing the size of their mortgages. Georgia lacked any similar protections (and the Bush administration blocked the state’s efforts to restrict subprime lending directly). And Georgia suffered from the difference.
Thus, Krugman, reasons, the key to financial reform is regulation:
So what’s the moral of this story? As I see it, it’s a caution against silver-bullet views of reform, the idea that cracking down on just one thing — in particular, breaking up big banks — will solve our problems. The case of Georgia shows that bad behavior by many small banks can do as much damage as misbehavior by a few financial giants.Thus, on one side, Krugman readily support policies of inflation and having the Federal Reserve System artificially hold down interest rates. In other words, Krugman believes our government actively should push easy money.
And the contrast between Texas and Georgia suggests that consumer protection is an essential element of reform. By all means, let’s limit the power of the big banks. But if we don’t also protect consumers from predatory lending, there are plenty of smaller players — both small banks and the nonbank “mortgage originators” responsible for many of the worst subprime abuses — that will step in and fill the gap.
However, on the other hand, he also wants government to determine who receives the new money through aggressive regulation. To put it another way, he wants the government simultaneously to make water flow downhill and uphill at the same time. That dog won't hunt, people.
Krugman seems to be the last economist who does not understand the "Capture Theory of Regulation," which was established long ago in the formal and informal economics literature. Instead, Krugman wants us to believe that as long as the regulatory offices are filled with "smart and well-meaning" apostles of financial regulation, then everything will be fine.
To put it another way, he believes that the same government (or at least government run by experts like him) that turns on the inflation spigots also is so wise that it can tell us exactly where that inflation should be direction, thus bringing happiness and prosperity to all. I don't think so.
All this reminds me of some parents in Chattanooga who rented a racetrack for their children to have a wild party after graduation. Their justification was that the kids were going to be drinking, anyway, so at least they could "regulate" the fallout from the party.
So, while their kids were getting stinkin' drunk, the parents patted themselves on the back for keeping their children from driving afterward. Likewise, Krugman believes that the government should supply Wall Street with endless amounts of financial "liquor," but that the regulators will keep everyone from getting drunk.
Krugman is just a self hating Austrian. He dimly realizes that money dilution causes problems. But in his little totalitarian "I'm smarter than the masses" mind, those problems can and must be solved by the BIG NANNY Mary Poppins, not by the market and an elimination of money dilution.
if that doesn't lay bare the idiocy of the "self hating X" thought-stopping cliche, i don't know what does.
maybe this: war is just self-hating peace.
there may be a word to describe the predilection of character which allows some men the inner calm to study economics in and among the austrian school. if so, krugman obviously doesn't have any of it. but whatever it is, it's moral or ethical.
it would be ridiculous to attribute to general human identity a category cut whole cloth out of the one school of thought in economics that isn't collectivist.
not since the guild system had a death-grip on labor organization have people thought there was something in them that made them belong to a class of chair-maker, or scribe, or glass-blower, or some such thing.
A further thought on the same theme....
As Krugman and the Keynesians dimly take note of the mess caused by money dilution, they nevertheless attribute the malinvestments that invariably occur therefrom to laissez faire and the free market. Thus, if the Fed and the banks lend money created out of thin air while the borrowers of that new fiat money can still spend/invest that new money however they please, that system must be called "laissez faire" according to Krugman.
This is what we are up against: Fraud ab initio even at the definition stage of the debate.
Given the close relationship between business and government (as is to perfectly illustrated by all those Goldman-Sacs executives that now work in the Department of the Treasury), I'd be interested to read Krugman's explanation for an interesting phenomenon. How is it that these guys who always malinvest the inflated currency when they work in the private sector suddenly become wise and all knowing investors incapable of malinvestment when they start drawing a paycheck from Uncle Sam?
Do government pyachecks somehow convey a boost to the IQ? That flies in the face of all evidence. But then, theories that fly in the face of evidence seem to be Krugman's forte.
The more I read of Krugman, the more convinced I become that he KNOWS his 'solutions' to our current problems are going to prove ineffective and wasteful at best and downright destructive at worst, and that hes well aware, if not of the truth of the Austiran School of economics, at least of the problems with Kenseiam.
I'm not certain why he's being dishonest with his policy recomendations. Maybe he's vying for a government advisory job, maybe he just detests the idea of indvidual freedom and the ability of indviduals to make their own choices....I dunno for sure, but I find it hard to accept that he honestly believes what he's selling.
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