Paul Krugman, Please Call Ben on This "Printing Money" Thing

A) Paul Krugman has no idea how the Fed works or what its activities effectively do

OR

B) Krugman’s defense of the current policies are what he claimed above “politics over economics”

I’ll go with “B” because I do not think Krugman is dumb. Only a very smart person could be so obviously partisan and without a trace of moral objectivity in his ability to twist any data set to his pre-determined outcome and get away with it for years.

Now, it of course does not help that he works at the Democratic Party National HQ (errr NY Times) and preaches to the also pre-determined political predilections of its readers/editors. Nor does it hurt he won he won a Nobel Prize for his consistent trashing of anything the GOP attempted from a Noble Committee that considers him “conservative” despite his actual claim to be “liberal”.. He is also on the record trashing the Reagan legacy as though the longest period of economic expansion those policies set off were either an accident or the result of Jimmy Carter’s legacy.

The joke goes that any member of the GOP could walk out of the Capital and walk across the Potomac River and Krugman would eviscerate them in a column for “not being able to swim”.

Back to the “article”. Later in it he says:

But it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.

Again Krugman simply lies. It is not the fact we have deficits that have economists up in alarms. Did you notice he declines to name names? It is easy to claim something as “fact” if you do not back it up with specifics like, oh, who is actually doing the “fear-mongering”? What has people so alarmed is that the current deficit that will exceed $2TRILLION is greater than every deficit ever run in the history of the country COMBINED.

Consier this, in 1996 Krugman wrote in an article called “First, Do No Harm”:

Still, would a more relaxed attitude toward budget deficits do any harm? Here Kapstein’s article becomes truly mischievous, by suggesting that concern about deficits is motivated entirely by ideology. Would that it were! Unfortunately, the West is past the point at which the virtues and vices of its budget deficits could be discussed in terms of uncertain macroeconomic effects. The stakes now are much cruder and more elemental: the long-term solvency of Western governments.

Debt as a percentage of national income in almost all Western nations is now comparable to the levels that historically have prevailed only at the end of major wars. But there has been no war, and instead of paying down their debts, as peacetime governments always have in the past, Western treasuries are continuing to increase their debt, for the most part faster than the increases in their tax bases. Moreover, in the current situation there are no major emergencies — no big arms races or wars in prospect, no natural disasters that require extraordinary spending. But stuff happens. If governments cannot control their budgets when it is not happening, what will they do when it does?

The demographic time bomb makes this situation particularly worrying. The budgets of advanced countries are in large part engines that transfer money from workers to retirees, a system that runs smoothly as long as the population is steadily growing, so that the workingage population is large relative to the retired population. But Western populations have not grown steadily. Baby boom was followed by baby bust, and it is therefore certain that the demands on the social insurance systems of advanced countries will greatly exceed their resources beginning only a bit more than a decade from now. Or to put it differently, to the already huge explicit debts of Western nations one should add implicit debt in the form of their unfunded promises to future retirees. In short, concern about the budget deficits of Western nations can no longer be considered a matter of ideology. These days it is a matter of straightforward accounting, and one must deliberately stick one’s head in the sand to imagine otherwise.

He finished the article with this:

There is a great deal that can be done to improve the economic situations of the ill-paid and unemployed. However, there is no reason to tie responsible, realistic proposals to raise incomes and create jobs either to irresponsible demands for bigger deficits or to unrealistic expectations about international coordination.

It is the almost unfathomable scope of current deficits that has economists up in arms (as it used to him), not that we are running one. To be sure, it would be near impossible to find an economist that declares given what has happen the last year that it would be wise for the government not to be running a deficit. Yet, Krugman insinuates this yet another “vast right wing conspiracy”.

No Paul, just people being intellectually honest about what is happening….give it try sometime.

Disclosure (“none” means no position):