In all honesty, I have committed far too much time to Paul Krugman over the past several months. I've read his blog posts somewhat regularly, and as such, I've been exposed to far more nonsense than any human should legitimately or willingly submit to. Yet here I am again, compelled to blow even more of my life on the diminutive yet disturbingly egotistical professor.
For those of you who aren't particularly aware of the Krugman, he is a blogger for the New York Times and is their resident "expert" on economics. He also won the Nobel memorial prize in Economics a few years back for his work in International Trade - which I haven't read but I hear is actually rather worthwhile, and pro-free trade/anti-protectionism... Which is weird given that his political proclivities run entirely the other direction. But of course, you can't fair very well with actual, legitimate peer-review in economics if you only write partisan hackery... Fortunately for Krugman however, that's the New York Times' specialty.
Broken Windows and Krugman's Faulty Reasoning
Dr. Paul Krugman is someone who wrote, just 3 days after the Twin Towers fell on 9/11, this:
"These aftershocks need not be major. Ghastly as it may seem to say this, the terror attack like the original day of infamy, which brought an end to the Great Depression ? could even do some economic good.
...So the direct economic impact of the attacks will probably not be that bad. And there will, potentially, be two favorable effects.
First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending."
You just don't find a clearer depiction of the Broken Window Fallacy thoroughly destroyed by Frederic Bastiat nearly 200 years ago!! The above statement is not only a failure of logic that could and should be recognized by every thinking person on the planet, it's also Econ 101 stuff. It's not really that complicated either... Just ask yourself, is the wealth of society greater when you destroy a building, or is it lessened? Or even, make it more personal if you wish... If you have $1000 you wanted to spend on a trip to Disneyland, but your laptop breaks and you instead spend that $1000 on a new laptop, are you one laptop richer? NO... Of course not... You've got just as many laptops as you had before, but now you are out one vacation. Yet Krugman, winner of the Nobel prize in economics can't understand that basic logical fallacy?
Sadly, as absurd as it is that Krugman would say something so idiotic, classless (under the circumstances) and demonstrably wrong - it turns out that's some of the least of the economic nonsense Krugman has been pedaling over the years...
Krugman's Bubble Blowing
The real impetus for writing this little diatribe came out just a few days ago, thanks to some review by Ron Paul Blog blogger, Patrick Semmens, who noted in the comments of a Reason Magazine article that 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."
That's right friends, that actually is Paul Krugman advocating that the Federal Reserve produce a bubble in housing to push the economy back "up" in the face of the recession we were facing in 2000-2001 which was exacerbated by the terrorist attacks. Now, this has zipped about the Blogosphere quite a lot in the last 2-3 days, and Dr. Krugman even had to respond to it here today.
His response was piffle, merely trying to back-pedal by suggesting that he was merely offering "economic analysis" and not recommending perpetuating a bubble economy as a policy action. And of course, Krugman also insinuates that anyone who believes he was advocating for the Fed to pump up a housing bubble, then surely they must also think that he was the 2nd shooter in the Kennedy assassination as well... Really Krugman? Really... That's the best you can do? Ugh.
Disappointingly, this kind of ad hominem is exactly what many of us have come to expect from the good doctor. His record of making accurate predictions on the economy has been abysmal, and his record as a policy-advocate has done nothing but lead to disaster after disaster, and the crazy part is, he knows it! For example, in 2004, Krugman himself - on national TV, no less - said:
"Compare me … compare me, uh, with anyone else, and I think you’ll see that my forecasting record is not great."
You don't say Dr. Krugman? Your forecasting record is lousy, huh? Hmm... go figure. Yet here's a man who commands a fat salary from the NY Times for his economic advice & ideas, along with his Princeton professorship and his regular (rather pricey) speaking engagements... Not to mention his regular appearances on network & cable television spouting his "expertise". Paul Krugman's ridiculously illogical view of economics is why his predictions are so terrible, and that his predictions are so awful is why most Americans view economics as a mystery and economists as witch doctors no more capable of accurate forecasting than the local meteorologist trying to do the weather for next month.
Of course, the point is that Krugman knows damn well that his analysis are little more than partisan hackery designed to mislead & distort. And when he gets caught in his own idiocy, his only way out is to distract and insult. He certainly can't succeed in any open debate with the actual facts...
Now. All that said, his "rebuttal" to the exposed 2002 quote certainly could have been the truth............... that is... Perhaps Krugman really didn't mean that we should pump up a housing bubble, shouldn't we give him the benefit of the doubt at least? Man, I'd love to... But unfortunately that case would actually hold some water if Krugman hadn't clearly and consistently advocated for exactly that again & again from 2001 on!
The Plot Thickens
Reason magazine commenter, Ben Lee took the time to compile a rather telling list of additional Krugman gems, exposing today's "rebuttal" as the revisionist bullshit the Krugman has come to specialize in.
Read the whole thing over at the Ludwig von Mises Institute blog, but here are a few bits of classic Krugman advocating for the Federal Reserve to cut interest rates & pump up a bubble:
"August 14th, 2001
"Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery.... But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place."
October 7, 2001
"Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package"
Dec 28, 2001
"The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged."
Sooooo.... Yeah. It sure looks like Krugman's 2002 piece was merely "analysis", not that he doesn't have a lengthy history of advocating for a perpetual bubble economy. And by the way, OF COURSE he advocates that!!! That is Keynesianism 101, and Krugman, if nothing else, is a dyed-in-the-wool disciple of John Maynard Keynes. Unabashedly so. And Keynes, of course, said:
“The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and keeping us permanently in a quasi-boom.”.
~ Keynes (1964), p. 322.
Well, anyway - I left a comment on his blog, as did Tim Cavanaugh of Reason Magazine and a number of other regular posters over there. As of this moment however, none of our comments have been "approved" by Krugman's moderators. My comment, for posterity's sake, is below:
C'mon Paul... This is ridiculous. As is your "moderated" comments board (by which I mean, filtered so that not a single comment appears from anyone who exposes your absurd lie with links & evidence from your many years of advocating exactly the policy that you appear to in your 2002 statement).
You've advocated for a perpetual bubble over & over, and the internet archives only help those of us who've been paying attention to keep you from forgetting.
Continue your attempts at wriggling your way out of your own bad predictions and worse ideas, but here's a barrage of quotes from your own mouth & pen, sir:
Perhaps you've forgotten all those. But do you have the guts to let your readers see... That remains to be seen I guess. (This comment will be posted elsewhere, as I won't be holding my breath for your board's "approval").
To all the commenters here like "Sabrina Star", rolling their eyes at the rest of us, your smugness suits you about as well as it does on Krugman himself... But self-congratulations, ad hominem attacks and snide remarks really can't help you out of this one. Your dear leader can't weasel out of his own advocacy quite so easily.
Finally Dr. Krugman - It's also worth noting that you've showed your hand to the Austrian school here, as you've obviously admitted that the Federal Reserve is capable of artificially creating a bubble. Since you recognize that it's possible, will you now go on record admitting that that's exactly what happened here?
No more "animal spirits", no more "deregulation" canards (we all know Bush was the biggest regulator since Nixon already - http://www.reason.com/news/show/130328.html & http://cei.org/news-release/2009/06/17/obama-overregulation-plan-wont-fix-financial-crisis). I want to see you admit that you realize the accuracy of the Austrian Business Cycle Theory, and that the bubble in housing was a direct result of what you said (and yes, advocated) in 2002.
Admit that you understand that this crisis was caused by exactly the kind of Keynesian policies you've been advocating for your entire career.
I think I've made it clear enough here that Krugman is neither to be trusted, nor listened to as any voice of sanity or intelligence in the economic sphere - and frankly, Krugman hasn't really done much legitimate work in the field of economics in a long time. It's quite a shame that he manages to get such an enormous public forum for how big a twit he really is... But there's one more interesting point to make - which I touched on in my comment to Krugman's blog...
That is: Krugman, in 2002 and earlier openly explains that a lowering of interest rates by the Federal Reserve, combined with printing money & dumping it into the financial system can inflate an economic bubble.
Why is this important??? Because it is exactly the basis for Austrian Business Cycle Theory, which Krugman has repeatedly denied has any merit!
Fundamentally, the story of this depression, and the great depression, and the tech bubble, and the stock market bubble, and the 70s Stagflation, the 80s housing & financial bubbles, the 1920 recession.... and, well, virtually every economic boom & bust the world has ever experienced, has clearly been a result of tampering with the money supply by central banks within a fractional reserve banking system. Krugman explicitly denies this explanation in article after article, yet..... here he is, in 2001, 2002 and beyond advocating EXACTLY that scenario!! What's depressing, of course, is that Krugman believes that inflating bubbles is a good thing.
Now, of course, Krugman blames the idiotic canard of "deregulation", which was non-existent during the Bush years (as I linked in my comment), liquidity traps and stupid consumers... All the while denying that it was exactly those policies which he recommended and championed, that created the bubble in housing & subsequently the stock-market to begin with.
The man is a fraud. Nothing more, nothing less. I think it's time for him to be exposed for the hack that he is.
***Note: I want to just give a special thanks to Ben Lee, Mark Thornton, "jsh", Mish, Patrick & all the other fine libertarians who've done all my research and muckracking for me. Crowd-sourcing is sweet. Viva la Internet!