Robert Wenzel versus Paul Krugman

[Garth Zietsman]

At the beginning of the year many of us were involved in what might be called an Austrian versus Keynesian debate.  Many said that the recession that started in 2008 was a vindication of the Austrian school of thinking and I happened to mention that Paul Krugman was claiming that it was an excellent empirical decider between Keynesianism and it's opponents - and a slam dunk win for Keynesianism in his opinion.  One particular empirical test at issue was inflation expectations.  Krugman said that inflation will be modest at worst and claimed anti-Keynesians expected massive inflation soon.

It so happened that I was looking at some Hayek interviews on You Tube when I saw lots of stuff by Peter Schiff and I thought "Who was the Austrian theorist so admired by those I had argued with?"  Well it turned out to be Robert Wenzel.  So I looked up his stuff and just happened to find an article of his, titled How the Government Lies about its High Inflation, attacking Paul Krugman for using core rather than headline inflation and being worried about deflation.  

I quote Wenzel.  "Yes, write this down. In November 2010, when we are on the edge of huge price inflation at the consumer level, Krugman fears deflation." [Emphasis mine.]

Here is Krugman "There's really nothing here to shake my view that deflation, not inflation, is the threat."

Wenzel calls this Krugman's most embarrassing statement ever.

There can be no doubt that in November 2010 Wenzel confidently expected massive inflation (I am assuming on the basis of his understanding of and belief in Austrian theory); that he expected it very soon, and that he thought Krugman a complete fool for not seeing it.  Furthermore, going on his other articles, by "huge" he means well above anything the US has seen before e.g. 20% plus.  (Schiff, another Austrian theorist, expects something similar i.e. the dollar worth 30% or less of it's current value in 5 years - 27% inflation.)  I don't know about those two but many others opposed to the stimulus have been preaching doomsday inflation ever since the 115% increase in the monetary base in 2009.  There is also no doubt that Krugman (also based on his theoretical understanding) expected low inflation for years to come i.e. until unemployment dips below 6% which he expects will take a few years.  Krugman means an inflation rate of 3% or less.  This is indeed a clear test between the two sides because both make an unambiguous and mutually exclusive prediction.  

Sixteen months have passed since these predictions were voiced.  Headline inflation has been an annualized 3% since then.  In spite of the economy beginning to recover, and people beginning to spend and borrow, and fuel prices pushing prices hard, headline inflation is actually slowing down - it's 2.7% over the last year and 1.82% over the last 4 months annualized.  Core inflation was 2.3% over the last year.   It has been 3 years since that radical increase of the monetary base and there is still no sign of huge inflation, or even inflation exceeding the Fed target rate.  

Now perhaps huge inflation is just around the 'next' corner but quite frankly the empirical test looks unfavorable to Wenzel.  Any comments?

   

[Chris Becker]

">Many said that the recession
> that started in 2008 was a vindication of the Austrian school of thinking
> and I happened to mention that Paul Krugman was claiming that it was an
> excellent empirical decider between Keynesianism and it's opponents - and a
> slam dunk win for Keynesianism in his opinion.  One particular empirical
> test at issue was inflation expectations.  Krugman said that inflation will
> be modest at worst and claimed anti-Keynesians expected massive inflation
> soon."

I would start with the ability of austrian theory to predict the crash
as a better empirical "test" of the theory, rather than focussing on
the coming price inflation and inflation expectations.

Wenzel called the crash in real-time between July-September 2008,
based on the Austrian theory of the trade cycle.

http://www.economicpolicyjournal.com/2008/07/super-alert-dramatic-slowdown-in-money.html
http://www.economicpolicyjournal.com/2008/07/alert-collapsing-credit.html
http://www.economicpolicyjournal.com/2008/07/is-fed-in-crash-dive-mode.html
http://www.economicpolicyjournal.com/2008/07/money-supply-watch.html
http://www.economicpolicyjournal.com/2008/08/money-supply-watch-moving-closer-to.html
http://www.economicpolicyjournal.com/2008/08/crashing-money-supply-numbers-signal.html
http://www.economicpolicyjournal.com/2008/09/alert-money-growth-plunges-to-18.html
http://www.economicpolicyjournal.com/2008/09/is-no-one-but-me-watching-fed.html

Did Krugman predict the downturn, in real-time? I just did a timeline
search on his blog, and found not one discussion of the developing
business cycle bust, even after the failure of Lehman! Not one.

On August 23, 2008 he even writes "The truth is that the
synchronization of the world business cycle is something of a
mystery."
http://krugman.blogs.nytimes.com/2008/08/23/synchronized-sinking/

Does this sound like someone who has a theory to understand business
cycles?

So I think first things first: Wenzel was way ahead of Krugman in
calling the bust. Krugman was still 'confused' and the crash didn't
even get a mention on his blog from July to September 2008.

Price inflation is a more dynamic process and takes longer to develop,
especially when it comes to prices at the retail level, so I wouldn't
shut Wenzel down on that front. The increase of demand for USD
following Europe crisis has contained price inflation in US. Once this
rush to safety reverses, US price inflation is set to climb
dramatically. Wenzel has pointed this out throughout 2011, and pushed
out his 'huge' price inflation call as a result.

Chris

On Apr 17, 7:33 pm, Garth Zietsman <garth.ziets...@gmail.com> wrote:
> At the beginning of the year many of us were involved in what might be
> called an Austrian versus Keynesian debate.  Many said that the recession
> that started in 2008 was a vindication of the Austrian school of thinking
> and I happened to mention that Paul Krugman was claiming that it was an
> excellent empirical decider between Keynesianism and it's opponents - and a
> slam dunk win for Keynesianism in his opinion.  One particular empirical
> test at issue was inflation expectations.  Krugman said that inflation will
> be modest at worst and claimed anti-Keynesians expected massive inflation
> soon.
>
> It so happened that I was looking at some Hayek interviews on You Tube when
> I saw lots of stuff by Peter Schiff and I thought "Who was the Austrian
> theorist so admired by those I had argued with?"  Well it turned out to be
> Robert Wenzel.  So I looked up his stuff and just happened to find an
> article of his, titled How the Government Lies about its High Inflation,
> attacking Paul Krugman for using core rather than headline inflation
> and being worried about deflation.
>
> I quote Wenzel.  "Yes, write this down. In November 2010, when we are on

> the *edge* of *huge* price inflation at the *consumer level*, Krugman fears

> that radical increase of the monetary base and there is still no sign of *
> huge* inflation, or even inflation exceeding the Fed target rate.

[Garth Zietsman]

I would start with the ability of austrian theory to predict the crash
as a better empirical "test" of the theory, rather than focussing on
the coming price inflation and inflation expectations.

Wenzel called the crash in real-time between July-September 2008,
based on the Austrian theory of the trade cycle.

Did Krugman predict the downturn, in real-time? I just did a timeline
search on his blog, and found not one discussion of the developing
business cycle bust, even after the failure of Lehman! Not one.

Well actually he did predict a crash.  So this isn't a test between them. 

Here is an interview with Krugman in 2006 where he very clearly and unambiguously says that there is a large housing bubble that will cause more serious problems than the dot com bubble, and that it is likely that there will be other problems that will make it worse.  He said it would happen but that predicting exactly when is guesswork.  He said it could happen anywhere in the next ten years but most likely in the next 2-5 i.e. 2008-2011.  He said people had been using houses as an ATM and that housing wealth wasn't real and would decline substantially.

Also in other interviews he acknowledged a serious long term budgetary and private debt problem that will have to be fixed at some point.  

Also even if he didn't predict a crash, Krugman's theory does not deny the possibility of booms, bubbles and crashes, or even that structural problems can and do exist, so this kind of prediction can't really decide between them. 

On August 23, 2008 he even writes "The truth is that the
synchronization of the world business cycle is something of a
mystery."
http://krugman.blogs.nytimes.com/2008/08/23/synchronized-sinking/

Does this sound like someone who has a theory to understand business
cycles?

It sounds like someone saying that the business cycle isn't fully understood by anyone - including Austrian and other business cycle theorists.  The fact that Wenzel says he understands it doesn't make it true.  I know for example that there are problems with Real Business Cycle theory in that something that is supposed to be counter cyclical (I'll try to recall what) turns out to be pro-cyclical.

Price inflation is a more dynamic process and takes longer to develop,
especially when it comes to prices at the retail level, so I wouldn't
shut Wenzel down on that front. The increase of demand for USD
following Europe crisis has contained price inflation in US. Once this
rush to safety reverses, US price inflation is set to climb
dramatically. Wenzel has pointed this out throughout 2011, and pushed
out his 'huge' price inflation call as a result.

I take your point Chris but how much time should we allow before we call it?  When does Wenzel expect the rush to safety to end?  

I'm also a little confused at why Europe would buy USD (which is supposedly at risk of a dramatic reduction in value), instead of gold, in a rush to safety.  In any case I'm not so sure that foreign buying of the USD is anything like enough to counter the scale of the huge theoretical scale of inflation.  It would have to be on the order of $1.5 trillion above normal levels since 2009.  Is it?

The longer the huge inflation fails to materialize, and the more ad hoc explanations needed to explain this away, the less plausible Wenzel's theory becomes.

Garth

[Piet le Roux]

Garth, you've mentioned Real Business Cycle theory in conjunction with Austrian Economics before. Do you consider Real Business Cycle theory to represent the Austrian position on business cycles?

2012/4/18 Garth Zietsman <garth.z...@gmail.com>

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Piet le Roux

[Garth Zietsman]

When I first mentioned it I wasn't sure but now I understand that Real Business Cycle theory is not Austrian economics.  I understand that there also exist something called Monetary Cycle theory - also not Austrian.  However as I understand it Real Business Cycle theory agrees a lot with the Austrian account of business cycles.  If I am wrong please tell me - and point out the differences.

[Piet le Roux]

Garth, a conflation of RBC and ABC is really problematic. For one: RBC explains the business cycle as actually serial efficient responses to exogenous productivity shocks. ABC explains the business cycle as a market response, under a heterogeneous capital situation, to an earlier monetary distortion.

I do not have time to go into detail about the differences myself right now, but you may want to take a look at the following attempts do so:

1. Robert Murphy in My reply to Krugman on Austrian Business Cycle Theory

[...]My reason for the lengthy summary is that I still get the sense that Krugman truly doesn't understand the Austrian position. For example, he asks, "Why is there overwhelming evidence that when central banks decide to slow the economy, the economy does indeed slow?" But because the Austrian theory says the bust occurs when the central bank backs off and allows interest rates to rise toward their "correct" level, this is hardly a problem. In fact, if central banks couldn't slow the economy, as an Austrian economist I would be worried about my theory.

Krugman also poses questions concerning (price) inflation rates and the connection between nominal and real GDP. But I think he is conflating the Austrian theory with a purely "real" business-cycle theory. Austrians understand that monetary influences can have real effects. To repeat, that is the very essence of the Mises-Hayek theory.

2. John Cochran - Austrian Business Cycles, Plucking Models and Real Business Cycles, http://mises.org/journals/scholar/Cochran.pdf

Many media pundits, sounding like proponents of a plucking model of business

cycles, compare the cause of recessions to the host (the central bank) taking away the

punch bowl (raising interest rates) just as the party (boom) is getting underway.

Inappropriately tight money and credit policies trigger recessions. Real business cycle

theorists, on the other hand, treat money as endogenous and irrelevant with respect to

economic expansions and downturns. Exogenous productivity shocks cause economic

fluctuations.1 In contrast to both, the Austrian business cycle theory traces the cause of

economic recession (bust) back to the beginning of the party (the boom). The host is

guilty, not of taking away the punch bowl and spoiling the party, but of spiking the punch

and thus causing many of the partygoers to suffer from an unanticipated hangover. The

party is wilder from the start, but tomorrow’s consequences and cleanup are more severe

than they need have been. The downturn is the ultimate consequence of malinvestment

initiated by previously created credit resulting from central bank policy.

Regards,

Piet 

2012/4/18 Garth Zietsman <garth.z...@gmail.com>

[Garth Zietsman]

I am extremely grateful to you for this Piet.

Garth

[Colin Phillips]

I'd just like to point out that not all Austrian economists have been forecasting high inflation.  One notable exception is Mike Shedlock, who blogs here:  http://globaleconomicanalysis.blogspot.com/ 

My favourite exposition of why Austrian economists might predict deflation is this:

http://libertarianpapers.org/articles/2010/lp-2-43.pdf 

The author makes the point that while a central bank is undoubtedly capable of causing inflation or even hyper-inflation should it choose to do so, in the face of a bust, which is necessarily deflationary from the peak of the bubble, when central banks inject cash into the market, the first effect is to cancel out the deflation (through distorting the market), and only thereafter will inflation begin.

.c.

[Garth Zietsman]

On Thu, Apr 19, 2012 at 5:34 PM, Colin Phillips <noid...@gmail.com> wrote:

I'd just like to point out that not all Austrian economists have been forecasting high inflation.  

The author makes the point that while a central bank is undoubtedly capable of causing inflation or even hyper-inflation should it choose to do so, in the face of a bust, which is necessarily deflationary from the peak of the bubble, when central banks inject cash into the market, the first effect is to cancel out the deflation (through distorting the market), and only thereafter will inflation begin.

This is pretty close to Krugman's position on inflation expectations.  I still think Austrian expect very high inflation eventually whereas Krugman would not.  

Krugman would also deny that a monetary or fiscal stimulus involves a market distortion that will make things even worse later. In fact he says that the failure to provide an adequate stimulus is going to make things worse than they could have been later.  I don't know of a good way to test these differences in expectations.  Perhaps some of you could suggest some.

It seems to me that there are too many ways for both sides to worm out of a decisive test.

[Chris Becker]

Thanks for that link Garth. There's an interesting distinction here
between the Austrians and Keynesians.

In 2002, Krugman wrote "To fight this recession the Fed needs more
than a snapback; it needs soaring household spending to offset
moribund business investment. And to do that, as Paul McCulley of
Pimco put it, Alan Greenspan needs to create a housing bubble to
replace the Nasdaq bubble."

So he understands that monetary inflation blows bubbles, and like he
says in this interview, that the consequences thereof, will be ugly.

Then, also in this interview (around 9.15mins), in response to how
should the govt should deal with the looming recession he says, "well,
we might need to do some pump-priming." So, again, advocates blowing
another bubble via money printing.

The Austrians have consistently pointed out that it is the pump
priming that is the problem in the first place, that it creates
malinvestments and bubbles, as well as the business cycle, which
become progressively more harmful to the economy and especially the
capital structure.

Krugman understands this, but obviously suffers from terminal short-
terminism, and has no regard for the long-term consequences thereof.

So, yes, Krugman was 'correct' in calling a recession, as well as in
his remedy of generating another business cycle boom that would, in
the short-term, paper over the problems. However, it caused and an
even bigger bust, which now requires even more printing to generate
another boom cycle. The Austrians were correct in predicting that as
well.

Then again, in this lecture he said he didn't know whether the housing
bust would cause a recession
http://youtu.be/MnekzRuu8wo?t=2m37s

Therefore, I agree with you, this doesn't decide who was right between
Krugman vs Wenzel. However, I do question the intentions of Krugman. I
now actually think Krugman is an evil bastard, even more so than I did
before.

I mean, I would also be correct to tell a heroine addict to take
another hit of heroine to get over the withdrawal symptoms. However,
if he keeps taking my advice, he will ultimately drop dead.

On inflation, perhaps drop Wenzel a mail and ask him when he expects
price inflation to pick up. Wenzel, like me, doesn't forecast when the
rush to safety will end, only when it happens, when conditions change.
You'd be very silly to try predict that though, unless you were Mario
Draghi maybe, or like to be wrong. Still, Krugman has been saying the
bigger risk is for deflation, and the US has exceeded the 2% target
for years now. If we were closer to zero % I'd give Krugman the
benefit of the doubt, but we're not even close to deflation in the US
right now.

Europe didn't buy USD, US money market funds withdrew from Europe and
went home with their money, cutting credit lines with European banks.
That, along with ECB rate hikes, caused the crisis last year. Money
market funds can't invest in gold, yet. When it is money again, they
will though.

I would just say it's not Wenzel's theory that becomes less plausible,
because there is too much complexity to expect to get predictions
perfect, and also, perhaps Wenzel is applying the theory developed by
Mises et al less correctly than he could. Doesn't mean the theory is
incorrect, though.

Have a good weekend,

Chris

On Apr 18, 1:38 pm, Garth Zietsman <garth.ziets...@gmail.com> wrote:
> > I would start with the ability of austrian theory to predict the crash
> > as a better empirical "test" of the theory, rather than focussing on
> > the coming price inflation and inflation expectations.
>
> > Wenzel called the crash in real-time between July-September 2008,
> > based on the Austrian theory of the trade cycle.
>
> > Did Krugman predict the downturn, in real-time? I just did a timeline
> > search on his blog, and found not one discussion of the developing
> > business cycle bust, even after the failure of Lehman! Not one.
>
> Well actually he did predict a crash.  So this isn't a test between them.
>

> Here <http://www.youtube.com/watch?v=fzDnCqqEzhY&feature=related> is an

> interview with Krugman in 2006 where he very clearly and unambiguously says
> that there is a large housing bubble that will cause more serious problems
> than the dot com bubble, and that it is likely that there will be other
> problems that will make it worse.  He said it would happen but that
> predicting exactly when is guesswork.  He said it could happen anywhere in
> the next ten years but most likely in the next 2-5 i.e. 2008-2011.  He said
> people had been using houses as an ATM and that housing wealth wasn't real
> and would decline substantially.
>
> Also in other interviews he acknowledged a serious long term budgetary and
> private debt problem that will have to be fixed at some point.
>
> Also even if he didn't predict a crash, Krugman's theory does not deny the
> possibility of booms, bubbles and crashes, or even that structural problems
> can and do exist, so this kind of prediction can't really decide between
> them.
>
>
>
> > On August 23, 2008 he even writes "The truth is that the
> > synchronization of the world business cycle is something of a
> > mystery."
> >http://krugman.blogs.nytimes.com/2008/08/23/synchronized-sinking/
>
> > Does this sound like someone who has a theory to understand business
> > cycles?
>
> It sounds like someone saying that the business cycle isn't fully

> understood by *anyone* - including Austrian and other business cycle

[Garth Zietsman]

Therefore, I agree with you, this doesn't decide who was right between
Krugman vs Wenzel. However, I do question the intentions of Krugman. I
now actually think Krugman is an evil bastard, even more so than I did
before.

Some (including Krugman) say that the Austrian policy of doing nothing during a recession is seeing economics as a morality play i.e. people deserve to suffer, rather than a useful economic theory.  From their point of view this is evil.

I figure the complexity allows both sides to claim that events support their theory - no matter what happens.  It would be cool if economist would spell out what would make them rethink their theory.  And while they are at it they should spell out their moral assumptions too because those have quite a strong effect on what people believe to be true.

Garth

[Gareth Brickman]

@Garth

The Austrian prescription is not to "do nothing"- it's to reverse those fiscal and monetary policies that lead to the boom in the first place. Isn't Krugman "evil" for wanting an endless cycle of ever-worsening government-induced bubbles?

[Garth Zietsman]

On Fri, Apr 20, 2012 at 7:40 PM, Gareth Brickman <garetho...@gmail.com> wrote:

@Garth

The Austrian prescription is not to "do nothing"- it's to reverse those fiscal and monetary policies that lead to the boom in the first place. Isn't Krugman "evil" for wanting an endless cycle of ever-worsening government-induced bubbles?

Gareth I'm not so sure about what you mean by "reversing those policies" but I assume it's more or less the opposite of a stimulus.  If so the recession may well be deeper and longer than what would have happened if they "did nothing."

The idea of "an endless cycle of ever-worsening government-induced bubbles" isn't something all economists accept as a true picture of what's happening.  I'd go so far as to say it is a minority position.  Krugman believes that it is definitely false.

[Gareth Brickman]

The prescription I propose is private stimulus: rolling back government intervention and spending a la 1946. The mainstream notion of stimulus is for a bloated, massively interventionist government to go even further into debt so it can co-opt and interfere even more in an already structurally unsound and muddled economy. In this instance government is simply the disease masquerading as its own cure. And while its stimulus may stave off an immediate "deep" recession, it's only going to create worse problems down the line because these actions do not address any of the fundamental structural problems. The Keynes vs. Hayek rap illustrated this well with "the hair of the dog"- keep drinking to avoid the hangover. Sure, but eventually you'll either have to bear that hangover or drink yourself to death in the process of avoiding it.

"The idea of "an endless cycle of ever-worsening government-induced bubbles" isn't something all economists accept as a true picture of what's happening.  I'd go so far as to say it is a minority position.  Krugman believes that it is definitely false."

Sure. But my point was to illustrate the facetious nature of straw-manning the Austrian prescription and calling it evil.

On Friday, April 20, 2012, Garth Zietsman wrote:

--

[Garth Zietsman]

"The idea of "an endless cycle of ever-worsening government-induced bubbles" isn't something all economists accept as a true picture of what's happening.  I'd go so far as to say it is a minority position.  Krugman believes that it is definitely false."

Sure. But my point was to illustrate the facetious nature of straw-manning the Austrian prescription and calling it evil.

Krugman is saying that if your ethical outlook makes you like the idea of a hangover then theories that say hangovers are necessary become compelling.  He thinks this is an example of reason serving the passions.

Of course it works both ways.  Austrians can and do say something similar about Krugman.

There is always something to that notion even if everyone thinks they are the exception.

Garth  

[Chris Becker]

Jeremy Hammond has written and published a book on the subject. It has
just been released. "Ron Paul vs Paul Krugman".

http://www.amazon.com/Ron-Paul-vs-Krugman-Keynesian/dp/1470070723

A snippet from a foreign policy journal review of the book

"Hammond quotes both figures extensively, comparing their words from
one time to another time. In Paul Krugman’s case, it is a long series
of changing his story, in one part to avoid responsibility for his
part in the financial downturn, and for the other part—it is hard to
ascertain—in order to sound like he still knows what is best, or what
he is doing is correct. The differences between what he said at one
time and says at a later date are numerous and obviously
contradictory, and Hammond has no trouble juxtaposing Krugman’s
waffling rhetoric.

Ron Paul on the other hand is consistent with his message: we do not
have free markets and we need to get to them. By controlling the
interest rate and controlling and assisting the institutions with
rules and bailouts, the free market cannot operate as it should, and
by holding the interest rate near zero, we are only setting the
economy up for an even bigger downturn in the future."

http://www.foreignpolicyjournal.com/2012/04/18/review-ron-paul-vs-paul-krugman/

Might be worth a read for you Garth, and others that are still sitting
on the fence.

[Trevor Watkins]

Naive question, perhaps.  Has the trillions of bail-out money actually found its way into the general economy of the US and the world, or is it still simply held on the balance sheets of big banks to give them the illusion of solvency? As I understand it, the inflationary effects of increases in the money supply will only occur if that money is in general circulation. If it simply sits as a number on a bank's annual report, it will have no real effect.  However, as banks start to lend this funny money into the real economy, then the inflationary effects will manifest themselves.

Trevor Watkins 

[Chris Becker]

Hi Trevor, about $1.5 trillion has worked its way into the US economy
as measured by M2 money supply. Theoretically, there's another $40
trillion or so that could work its way into the economy on the built
up excess reserves banks are holding at the Fed. Let's hope it doesn't
happen suddenly.

On another note. There was a great interview on Bloomberg last night
where Ron Paul and Paul Krugman went head to head for about 13
minutes.

In response to Ron Paul's argument that we should have competing
currencies and a market determined rate of interest and monetary
policy, Krugman says Ron Paul wants to go back 150 years with this
proposal. Ron Paul responds by saying Krugman wants to go back 2,000
years to the debasement policies that brought down the Roman Empire in
the monetary crisis of the 3rd century AD.

Watch the smirk get wiped off Krugman's face when Ron Paul calls him
on it.

http://www.lewrockwell.com/blog/lewrw/archives/111098.html

[Garth Zietsman]

On another note. There was a great interview on Bloomberg last night
where Ron Paul and Paul Krugman went head to head for about 13
minutes.

In response to Ron Paul's argument that we should have competing
currencies and a market determined rate of interest and monetary
policy, Krugman says Ron Paul wants to go back 150 years with this
proposal. Ron Paul responds by saying Krugman wants to go back 2,000
years to the debasement policies that brought down the Roman Empire in
the monetary crisis of the 3rd century AD.

Watch the smirk get wiped off Krugman's face when Ron Paul calls him
on it.

I dunno - I used to take accusations that Krugman had been caught with his pants down e.g. misusing data, changing his claims etc very seriously.  However after actually checking some 40-50 of these so far my conclusion has been that he has been seriously misrepresented in every case.  I've become deeply skeptical of such claims.

This debate is a perfect example.  I've read the transcripts of the debate as well as some comments by Tyler Cowan (and Krugman's own comments since then) and now I've finally seen the video.  I didn't see anything like a smirk being wiped off Krugman's face.  I guess you have to want to see something like that in order to see it.

At no stage did he look remotely troubled.  To me it looked like he felt as if he had been thrown into something completely senseless, like a debate with the flat earth society.  The 'facts' of the matter seem to me to be in the mind of the beholder rather than in the video itself.  It seems to me that 'believing is seeing' is truer than 'seeing is believing'. 

I despair of ever having a debate where people even agree on what is in plain view in front of them, let alone data about complex economic phenomena.

[Trevor Watkins]

I think the "seeing what you believe" remark cuts both ways, Garth. I also watched the debate, and I feel Ron Paul trumped Krugman's "going back 150 years" remark quite nicely. Of course, Krugman was not about to let much other than scorn show in his facial expressions. He certainly didn't address the remarks about debasing the Roman currency.

Then again, it is hard to resolve the intricacies of an immensely complex social interaction called the economy in 13 minutes. I also despair of ever seeing 2 parties to a debate actually agree that the other party may be right, and themselves wrong. Perhaps if we had a few more women involved....?

I believe there is a single, simple debate killer, and the libertarians own it - they just don't use it often enough. Ask "Is there force involved in supporting your position - in which case you lose."

Ron Paul made the point that he felt government should get out of the way, stop interfering, let individuals choose. Krugman essentially responded that it was all too complex, and only clever people in government could save us.  

Krugman loses.

Trevor Watkins 

[Jaco Strauss]

Well Garth, last night I saw Krugman interviewed by a very accommodating Charlie Rose on Bloomberg and few here would be surprised that he was pretty pathetic. 

Unfortunately, I can't find a transcript of it yet, but at one point he explained to Charlie that fixing the economy could be compared to fixing a big and expensive luxury car that doesn't want to run.

Quoting from memory and not verbatim - JS:

"Sometimes the reason for not starting could be something very simple, like a dysfunctional battery that would cost only $100 to replace. Yet there would be people that wouldn't believe that such an expensive car could be fixed through such a simple and cheap solution. Such people would insist on replacing the entire engine." 

He saw this as analogous to the situation with the US economy where "the solution to solving the current depression is actually equally simple"?! When Rose asked him to elaborate on this, he gave his solution.

"We just need more spending" he explained. "Spending by government, individuals, companies, it doesn't really matter - as long as they spend"! He even went so far as to say that "the spending should preferably be on useful thing, but that is secondary. So long as demand is stimulated and money is spent!"  

And apparently the Fed could also do more to support such a spending spree. Krugman sees QE3 merely "as a start" and that in addition the Fed should also raise the inflation target to "at least 3 %". (Unfortunately Charlie didn't ask him about the savers who would be robbed to the tune of 3% per annum while interest rates hover around 0%)

 

Krugman actually lamented the fact that the Fed couldn't drop short term interest rates any further, but he did express the belief "that they could try and lower longer term interest rates further by buying up longer term debt"! He wouldn't cut government spending (in line with his SPEND, SPEND, SPEND mantra), but acknowledges that the current budget is not sustainable in the long run. He would still not propose cutting "benefits" such as Medicare though, but would rather "go after the cost curve and curtail the cost of the benefits to the state."

Funny no-one else thought of that yet. I suppose one needs a Nobel prize in Economics to have worked that one out. That and all the other crap he comes up with!

In fact, as far as I am concerned, that "emperor" is as naked as they come and I can't wait for the day when even his most fervent supporters would not be able to ignore his ugly bum any more!   

Jaco S

2012/5/2 Garth Zietsman <garth.z...@gmail.com>

[Chris Becker]

Garth, are you in favour of having a monopoly creator of money,
supported by the public law (legislation) of the state, the
territorial monopolist of aggression?

Or are you in favour of a free market in the supply of money,
regulated by private law and contract?

Just curious to know where you stand on this.

[Garth Zietsman]

I think the "seeing what you believe" remark cuts both ways, Garth.

Yes indeed Trevor, it does.

 

I also watched the debate, and I feel Ron Paul trumped Krugman's "going back 150 years" remark quite nicely.

I didn't think so.  He basically appealed to a time on which very little is known by anyone, let alone by Krugman.  It would be a surprise if anyone called him on it.

I believe there is a single, simple debate killer, and the libertarians own it - they just don't use it often enough. Ask "Is there force involved in supporting your position - in which case you lose."

Only if you debating someone who accepts the idea that force is illegitimate.  Most people don't and certainly wouldn't accept that they had lost an argument on that account.

[Chris Becker]

> Only if you debating someone who accepts the idea that force is
> illegitimate.  Most people don't and certainly wouldn't accept that they
> had lost an argument on that account.

But most people aren't libertarians/classical liberals but statists
and in favour of an organisation with the territorial monopoly of
exploitation and aggression.

Which is why I asked you whether you are in favour of having a

monopoly creator of money, supported by the public law (legislation)
of the state, the territorial monopolist of aggression? Or are you in
favour of a free market in the supply of money, regulated by private
law and contract?

>He basically appealed to a time on which very little is
>known by anyone, let alone by Krugman.

That's really weak. There are good records on the crisis of the 3rd
century AD, and that it happened because of currency debasement and
other central planning. The coins still exist to prove the currency
debasement.

http://en.wikipedia.org/wiki/Crisis_of_the_Third_Century#Economic_impact

http://en.wikipedia.org/wiki/Edict_on_Maximum_Prices

http://www.mises.org/daily/1962

http://mises.org/daily/3663

Ron Paul could just as easily have used Zimbabwe as a modern example,
but would've defeated the point of highlighting that Krugman's policy
prescription is as old as the monopoly of mints.

[Garth Zietsman]

Garth, are you in favour of having a monopoly creator of money,
supported by the public law (legislation) of the state, the
territorial monopolist of aggression?

Or are you in favour of a free market in the supply of money,
regulated by private law and contract?

I'm really not sure how this is relevant to how Krugman is represented.  

Your question is highly loaded and carries an awful lot of ideological baggage.  I don't believe there will be any lasting private law without some authority (with a monopoly on force) of last resort.  I do however think this ought to be an authority of last resort rather than of 1st resort.

I think people should be able to use any currency.  To a large extent I think they already are.

[Garth Zietsman]

On Wed, May 2, 2012 at 12:33 PM, Chris Becker <chris...@gmail.com> wrote:

> Only if you debating someone who accepts the idea that force is
> illegitimate.  Most people don't and certainly wouldn't accept that they
> had lost an argument on that account.

But most people aren't libertarians/classical liberals but statists
and in favour of an organisation with the territorial monopoly of
exploitation and aggression.

These are the guys you differ with and are debating.  There is no point preaching to the converted.  You can't argue with them by expecting them to accepting premises that automatically make you a libertarian.  You need to find common ground. 

>He basically appealed to a time on which very little is
>known by anyone, let alone by Krugman.

That's really weak. There are good records on the crisis of the 3rd
century AD, and that it happened because of currency debasement and
other central planning. The coins still exist to prove the currency
debasement.

I accept that the currency was debased and that there is good evidence to that effect.  I don't accept that the effect of the debasement is all that well documented or understood.  Even in modern times with much better data such things are controversial.

Ron Paul could just as easily have used Zimbabwe as a modern example,
but would've defeated the point of highlighting that Krugman's policy
prescription is as old as the monopoly of mints.

Zimbabwe would have failed spectacularly as an example.  Krugman quite explicitly says - quite rightly I think - that the US situation is nothing like Zimbabwe (or Greece).  Anyway I think that Krugman basically conceded Paul's point for arguments sake and said that he doesn't support what was Roman 3rd century policy.  Rightly or wrongly he considers what he supports as something different.

[Chris Becker]

Firstly, I am trying to figure out whether you believe in free markets
or not, hence the question.

Secondly, it is the essence of the two opposing views, held by Krugman
on one hand and Paul on other.

Krugman is in favour of someone appointed by the government to have
the monopoly to control money supply and interest rates, under the
protection of state law.

Ron Paul wants a true free market in money, to get rid of monopoly
laws on money creation, and to have competing central banks and
issuers that people are free to use, under regulation of private law
and contract.

That is why RP said private issuers of money are prosecuted by the US
federal government for counterfeiting, while the Fed is allowed to
counterfeit. Google "liberty dollar" for a recent example of this.

Krugman doesn't understand this and makes a jump directly to barter,
which would take us back further than 2000 years.

In response to "I think people should be able to use any currency. To

a large extent I think they already are."

People are not allowed to use any currency they want within the
boundaries of the territorial monopolist of aggression, the state.
Firstly, even though Krugerrands are legal tender in SA, you're still
liable for capital gains tax on any profits made on it, but not on
profits on rands. Secondly, you try and pay your tax return in US
dollars here in SA, or buy your groceries with the Swiss franc.

Let me know how that goes for you.

[Gareth Brickman]

In the style of Krugman's op-eds I wish to patronisingly and presumptuously question why Krugman so obviously hates hungry people. After all, if he simply agrees to debate Austrian economist Robert Murphy on Austrian versus Keynesian business cycle theory over $70,000 would be donated to a New York food bank. Is Krugman simply content to chuckle and talk past an interlocutor of lesser caliber while food banks go unfunded? Lo, what a terrible human being he be!

http://www.krugmandebate.com/

 

 

[Garth Zietsman]

On Wed, May 2, 2012 at 1:50 PM, Chris Becker <chris...@gmail.com> wrote:

Firstly, I am trying to figure out whether you believe in free markets
or not, hence the question.

I am very strongly for free markets and freedom/liberty generally.  My moral instincts are libertarian.  I don't agree with Krugman's ethical outlook but I think calling it evil goes much too far.  Just because he isn't a libertarian doesn't make him remotely a communist or an authoritarian.  Furthermore if one were to accept his ethical outlook I think his economics makes a great deal of sense.  I found him pretty up front about how his policy suggestions are dependent on his ethical views.  I think he is technically extremely on the ball.  On the other hand while I agree with Paul's ideal of smaller government and much more liberty I find his economics pretty much of a one dimensional morality play and so far very unconvincing.

Secondly, it is the essence of the two opposing views, held by Krugman
on one hand and Paul on other.

I understand their purported differences very well.  What I think is wrong is the suggestion that Krugman doesn't understand what Paul is getting at.  I am quite sure he understands very well indeed.

 

In response to "I think people should be able to use any currency.  To

a large extent I think they already are."

People are not allowed to use any currency they want within the
boundaries of the territorial monopolist of aggression, the state.
Firstly, even though Krugerrands are legal tender in SA, you're still
liable for capital gains tax on any profits made on it, but not on
profits on rands. Secondly, you try and pay your tax return in US
dollars here in SA, or buy your groceries with the Swiss franc.

Let me know how that goes for you.

Krugman is simply repeating a point Hayek made in that money is much more than currency.  It's all sorts of things going on in banks and in shadow banking and in society at large.  Using the US dollar to pay for groceries would simply require the trader to accept it.  Krugman doesn't agree with Paul that transacting in anything other than the US dollar in the US will get you jail time.

[Chris Becker]

So in other words you're a middle of the road kinda guy, you believe
in free markets "generally" but not completely. That's all I wanted to
know, it wasn't a trick (or loaded with baggage) question. Now it
makes sense why you're a defender of Krugman. Krugman is critical of
the actions of the Federal Reserve, but not the Federal Reserve System
itself. Milton Friedman also falls into this camp.

A principled libertarian like Ron Paul, wants freedom in all areas of
the economy, not only some. Freedom to choose the medium of exchange
from an issuer of your choice is as important as being able to choose
a shampoo from a producer of your choice.

Ron Paul wants competing currency to be issued without coercive legal
tender laws, and knows full well that ultimately one or two will
become the most commonly used media of exchange, i.e. money, and it
won't be an unbacked dollar. It will expose the money printers in no
time.

Anyways, so I'm interested, what do you think caused the
hyperinflation in Zimbabwe, and how come, once competing currencies
were introduced, the hyperinflation ended immediately.

On May 2, 12:35 pm, Garth Zietsman <garth.ziets...@gmail.com> wrote:

[Garth Zietsman]

On Thu, May 3, 2012 at 2:23 PM, Chris Becker <chris...@gmail.com> wrote:

So in other words you're a middle of the road kinda guy, you believe
in free markets "generally" but not completely. That's all I wanted to
know, it wasn't a trick (or loaded with baggage) question. Now it
makes sense why you're a defender of Krugman. Krugman is critical of
the actions of the Federal Reserve, but not the Federal Reserve System
itself. Milton Friedman also falls into this camp.

No you miss the point completely.  I am not a middle of the road kind of guy.  I believe in free markets very strongly and as I said I believe in freedom to use any currency one chooses. Insofar as the tests mean anything I always come out as hardcore libertarian on 'tests of libertarianism'.

Bryan Caplan (a libertarian economist) recently posed a simple model on his blog.  The scene is an island with ten inhabitants.  The first can produce ten times as much as he needs.  Eight others can produce only what they themselves need and the tenth person cannot produce anything.  He asks do the other nine have a right to expect/force the first person to produce enough for the tenth, and do they have the right to expect/force the tenth to produce at maximum levels to raise everyone's standard of living.  My answer is absolutely not.  The one thing I liked about Rand is her insistence that our minds do not belong to the collective.  I find the idea of people having children for their future labor potential unconscionable.  Their lives and labor are theirs and only theirs.  The idea that anyone else has a claim on that gets my gall up.

I do not think that those who believe that allowing the tenth person to die (in the Caplan model) is far worse than forcing the first person to work harder than he wants to, are evil just because I believe the opposite.  I don't agree with Krugman's moral ordering but I don't accept that it is evil.  After all it isn't nothing if the islanders do allow the tenth person to die, when some solution was possible.

None of this compels me to believe that recessions aren't in principle fixable (if one accepts a morality that I do not), that monetary or fiscal stimuli during a recession will end up making the problem worse, that malinvestment is always the cause of recessions or that government cannot produce high economic growth.  It doesn't compel me to believe that free markets can exist without government enablement via the rule of law and a monopoly on force.  All it compels me to believe is that stimuli and government action would involve some degree of immorality.

Anyways, so I'm interested, what do you think caused the
hyperinflation in Zimbabwe, and how come, once competing currencies
were introduced, the hyperinflation ended immediately.

Zimbabwean hyperinflation was caused by massive printing of money and it was ended when people were no longer being paid in Zim dollars and were allowed to use Rand and US dollars etc.  This printing of money however had nothing to do with providing a limited stimulus to get over a recession and there were many other elements and factors that make the Zimbabwean case very different from the US.

On May 2, 12:35 pm, Garth Zietsman <garth.ziets...@gmail.com> wrote:

> > Garth, are you in favour of having a monopoly creator of money,
> > supported by the public law (legislation) of the state, the
> > territorial monopolist of aggression?
>
> > Or are you in favour of a free market in the supply of money,
> > regulated by private law and contract?
>
> I'm really not sure how this is relevant to how Krugman is represented.
>
> Your question is highly loaded and carries an awful lot of ideological
> baggage.  I don't believe there will be any lasting private law without
> some authority (with a monopoly on force) of last resort.  I do however
> think this ought to be an authority of last resort rather than of 1st
> resort.
>
> I think people should be able to use any currency.  To a large extent I
> think they already are.

[Chris Becker]

It is not based on morality that I (or Ron Paul or other Austrians)
believe the Federal Reserve and government should do less in order to
stimulate an economic recovery. It is based on value free economic
theory. The government CAN do something to help the economy recover.

Paul Cwik explains:

"Of all the implications presented above, perhaps the most significant
point is that the
Austrians were correct to spend so much energy explaining the cause of
the business
cycle. It is only an understanding of the cause that allows us to
determine the best
policies to follow to generate an economic recovery. If the government
follows
policies that are contrary to the Austrian prescription, the situation
will not only fail
to improve, it will worsen. The lesson is that if input prices are
rising (a real resource
crunch), we will have a recession-even if output prices stay up
(through Keynesian
policies) and the Monetarists keep interest rates from rising (or
maybe push them
lower). The only way out of the recession is through the painful but
necessary
liquidation process.

The best means to transform malinvestments into viable economic
activities is by
increasing savings. This means that one of the government's most
effective policies
is to cut taxes on savers. Those who are savers are usually labeled as
"the rich."
Unfortunately, the prescriptions of "get government out of the market"
or a "tax cut
for the rich" tend not to be politically popular.6 Nevertheless, it is
the duty of the
economist to present the truth. The economist cannot state that the
government
should do nothing. Such a policy was tested in the early 1930s. The
modern
economist needs to present the case that the government caused the
recession and
only by removing the government from the equation can the economy
truly
recover."

Read the full dissertation here http://mises.org/journals/qjae/pdf/qjae11_1_4.pdf

So it is not based on morality that the monetary inflation must stop,
but because it is the policy that will prolong the recession, based on
economic theory.

---

However, for an Austrian and libertarian, who believes in the
principle of individual liberty and respect for property rights,
monetary inflation is also 'wrong' because it is a form of theft.

Ron Paul conflates the two positions at times, which perhaps confuses
the issue, but his goal is to get the message of liberty out, and in
so doing takes the libertarian ethical position in these debates
rather than the strict austrian position.

I think that you don't agree or have really bothered to understand -
evident from conflating ABCT with RBC before - austrian theory of
capital, money and the business cycle, you continue to fall back on
the view that the austrian position is just some kind of one
dimensional morality play.

It is not.

---
Furthermore, re my opinion of Krugman as "evil," it is because he is a
lier. Follow the links and argument in the following post on EPJ to
see what I'm talking about.

---
"Not sure if you saw this, but I watched the video mentioned in the
comment section on your site and the poster is correct.

Starting around 19:40 or so of this video from his Bloomberg
appearance the other day:

http://www.bloomberg.com/video/91694137/

Krugman claims that it is the "great lie" that the Fed created the
Housing Bubble. However, he wrote this in his blog in 09:

"What I said was that the only way the Fed could get traction would be
if it could inflate a housing bubble. And that’s just what happened."

http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/

This is hardly unique, just as his editor at the NY Times pointed out
in his final column:

http://www.nytimes.com/2005/05/22/weekinreview/22okrent.html

"Op-Ed columnist Paul Krugman has the disturbing habit of shaping,
slicing and selectively citing numbers in a fashion that pleases his
acolytes but leaves him open to substantive assaults."

And then the exchange between Krugman and his editor showed how
Krugman cannot handle being defeated in a debate, just as we are
seeing now after the Ron Paul showdown.

http://publiceditor.blogs.nytimes.com/2005/05/31/new-public-editor-hosts-paul-krugman-daniel-okrent-debate/
----

I know you said you've double checked 40-50 accusations against
Krugman, but how do you explain this sudden change of opinion?

---
Basically, Krugman promotes both anti-libertarian ethics as well as
economic policies that will prolong the recession, and on top of that,
he lies.

To me, that is as close as a being can get to "evil."

Ciao


On May 4, 3:07 am, Garth Zietsman <garth.ziets...@gmail.com> wrote:

[Jaco Strauss]

@Garth 

You said of Krugman:

Furthermore if one were to accept his ethical outlook I think his economics makes a great deal of sense.  I found him pretty up front about how his policy suggestions are dependent on his ethical views.  I think he is technically extremely on the ball. 

 
while in the same paragraph you said of Paul

On the other hand while I agree with Paul's ideal of smaller government and much more liberty I find his economics pretty much of a one dimensional morality play and so far very unconvincing.

Looking at these two statements of yours, it is clear that - at least economically - your bias is in favour of Krugman; a realisation I found  quite incredible...

The other night on Bloomberg, Krugman stated quite plainly that the solution to the current financial crisis is a very simple one; we should simply spend our way out of it. And he doesn't even care whether it is spent on useful stuff. Just so long as it is spent. 

Krugman's solution for an out-of-money addict who is going "cold turkey" is clearly to give them more drugs. (Paid for by someone else, of course). Sure, it would fix the "cold turkey", but would it actually solve the bigger drug problem? Even if you do not have a problem with drugs, or with taking other people's money to pay for it, it is still a daft and unsustainable solution to the bankrupt addict's dependency problem.

Yet, when this man proposes to solve a financial crisis caused by reckless spending, through much more reckless spending, you still think that "he is technically extremely on the ball" and that it somehow "makes a great deal of sense"?!

Please elucidate and help me to see the light too....

Jaco

2012/5/2 Garth Zietsman <garth.z...@gmail.com>

[Garth Zietsman]

Hi Chris

I confess I did not know if Austrian Business Cycle theory was the same as Real Business Cycle.  I also confess that, like Krugman, I have to some extent been throwing all those who are predicting hyperinflation as a result of the stimulus and who argue for cutting spending and government into the same pot.  These include the so-called freshwater economists e.g. the Chicago school, conservatives like Paul Ryan and Austrians and probably some others.  These groups do have theoretical differences but also substantial areas of theoretical agreement.  They also have differences in values.  Libertarians (many of whom are Austrians) value liberty above all else.  Conservatives e.g. tea party, talk liberty but they aren't really for it.  What they really value is some kind of karma where people get what they deserve and not get what they do not deserve and they believe entitlements and bailouts violate that.  The Chigago school believes in a fairly self contained elegant mathematical structure/model based on unrealistic rationality assumptions, belief in equilibria and the normal curve i.e. they live in a bubble and think economics is like a chess game.

Nonetheless if you think your choice of theory is objective and free of the influence of value based preferences you are fooling yourself.  There is no such thing - not in economics, and not in science or even in mathematics.  It's extremely compelling for someone who values liberty to believe in a theory that tells them that all government action makes things worse and almost impossible to give any credence to a theory that says government can do good and even more difficult to swallow the notion that government may be essential.  I can tell you from personal experience that the latter results in massive conflict.

I have seen the accusation that he " has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults" quite a few times and every time I checked the example given it proves to nonsense - in fact almost always the accuser seemed to be doing what he accused Krugman of doing. The same thing happened frequently to The Skeptical Environmentalist author Bjorn Lomborg.  Nonetheless I will look at your links carefully.

When one has a sense of certainty in one's convictions one is led to believe that those who disagree with you must either be fools or deliberately promoting a falsehood i.e. evil.  Your conviction that Krugman's policies would prolong or worsen the recession seems to fit that scenario.  I suspect Krugman's accusation that your preferred policies are or would prolong the recession and cause very long term damage to the economy fits as well.  All I can say is that a sense of certainty is an extremely unreliable guide to the truth.  Actually studies on the accuracy of expert predictions say those who are more highly certain are actually more likely to be wrong.

[Garth Zietsman]

You said of Krugman:

Furthermore if one were to accept his ethical outlook I think his economics makes a great deal of sense.  I found him pretty up front about how his policy suggestions are dependent on his ethical views.  I think he is technically extremely on the ball. 

 
while in the same paragraph you said of Paul

On the other hand while I agree with Paul's ideal of smaller government and much more liberty I find his economics pretty much of a one dimensional morality play and so far very unconvincing.

Looking at these two statements of yours, it is clear that - at least economically - your bias is in favour of Krugman; a realisation I found  quite incredible...

I suppose you would - given that you can't conceive of anyone disagreeing with the logic of Paul/Mises/Rothbard or finding Krugman/Keynes plausible. Paul quite often does use polemics as a substitute for argument and so far his predictions of inflation haven't appeared.  I wouldn't say my bias is in favor of Krugman.  I give at least as much weight to libertarian economists like Tyler Cowan who is a Keynesian skeptic and gives a lot of weight to structural factors and public choice theory.

The other night on Bloomberg, Krugman stated quite plainly that the solution to the current financial crisis is a very simple one; we should simply spend our way out of it. And he doesn't even care whether it is spent on useful stuff. Just so long as it is spent. 

Well he is convinced that THIS recession is almost entirely due to lack of aggregate demand (which he puts down to large private debt) rather than anything structural.  He says that since one person's income is another's spending the only cure is to increase spending and the only source of possible spending right now is the state.  He is NOT indifferent to what it is spent on.  It is true he says any spending would create incomes but knows full well that breaking windows and fixing them or going to war are not paths to wealth.  He has clearly said it is best to spend on stuff that will increase wealth and aid the future economy e.g infrastructure repair and expansion, education, etc.

Krugman's solution for an out-of-money addict who is going "cold turkey" is clearly to give them more drugs. (Paid for by someone else, of course). Sure, it would fix the "cold turkey", but would it actually solve the bigger drug problem? Even if you do not have a problem with drugs, or with taking other people's money to pay for it, it is still a daft and unsustainable solution to the bankrupt addict's dependency problem.

Yet, when this man proposes to solve a financial crisis caused by reckless spending, through much more reckless spending, you still think that "he is technically extremely on the ball" and that it somehow "makes a great deal of sense"?!

This drug addict analogy is clearly the view of someone who cannot conceive of anything other than an Austrianish being correct - kind of like a fundamentalist Christian who can't get his mind around the notion that the eye could have evolved without intelligent design.

The fact that an extremely bright, highly informed and respected economist disagrees with you doesn't automatically make him wrong and evil. The more rational conclusion is that there is some non-zero (and most likely significant) probability that your position is mistaken.  In case I'm not being clear that goes for Krugman and me too.

[Jaco Strauss]

Garth I get the idea that you worry too much about labels. I ask a few simple questions and you immediately want to portray me as a  Paul/Mises/Rothbard disciple attacking the evil Keynesians

The western world economy is a mess and Krugman, the current toast of the town, claims a very simple solution as all that is needed. And because of his CV, he gets a lot of airtime.

Disregarding his impressive credentials for a moment, on the face of it his solution seems pretty daft to me and I'm trying to work out what I might be missing here. You are a thinking individual who sees him as "technically extremely on the ball" and that "his economics makes a great deal of sense".

Hence my initial mail

Forget about Austrians and Keynesians for a moment. And of business cycles and inflation predictions. I wanted to discuss the simple solution to the simple problem Krugman sees. Is a lack of spending really the biggest problem here? 

You summed it up as follows:

Well he is convinced that THIS recession is almost entirely due to lack of aggregate demand (which he puts down to large private debt) rather than anything structural.  He says that since one person's income is another's spending the only cure is to increase spending and the only source of possible spending right now is the state.  

If "THIS recession" was caused "almost entirely" by a lack of aggregate demand, how did the large private debt develop in the first place? Had it not been caused by excessive spending, i.e. demand for goods and services? And if that unsustainable spending spree eventually ended up causing THIS recession when it inevitably ran out of steam, does it make sense to now create another?

A little like replacing the tech bubble with the housing bubble... also known as kicking the can down the road!

You claim that "the only source of possible spending right now is the state", but as you know full well, the state doesn't have any money to spend. They have taxpayer money to spend, or future generations' money to spend, or the savings of others to 'spend', but none of its own.  

Krugman is essentially saying the following:

• we kept the party going through excessive spending until we had none left to spend. 
• Then we lowered interest rates so that we could extend the party by spending our future earnings now ... until we had none of that left to spend.

Krugman still doesn't see anything inherently wrong with this picture. The only problem he sees is that there is currently nothing left to spend. The problem is therefore not "structural" he claims, merely a lack of spending. 

 

Now he recommends we should keep the party going by

• printing more money, effectively spending the value saved by the savers
• more government debt bequeathed to future generations. 

In short Krugman wants this generation to keep the party alive by spending the money of future generations.

I suppose when we are done with our children's money, we would be encouraged to spend our grand children's and so on..... But at some point the party will still inevitably stop. Somebody, somewhere is eventually going to call the bluff 

Anyway, that is why I believe the drug analogy is so apt. When faced with a "cold turkey" Krugman doesn't see the drugs as the problem, rather the lack of drugs. His solution of "more drugs" would surely cure the cold turkey over the short term, yet over the longer term also lead to host's demise. 

So forget about labels and reputations for a moment. Just sit back and imagine your neighbour's kid coming up with this simple "spending solution" to cure all the world's financial woes.

Would you still have taken it so seriously?

Jaco

2012/5/8 Garth Zietsman <garth.z...@gmail.com>