How Blind Is Paul Krugman? This Blind!
"The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. 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." -- Paul Krugman, New York Times (2002)
Paul Krugman is the dean of contemporary Keynesian economists. He won the Nobel Prize. He is a blogger for The New York Times. He is a professor at the Graduate Center of the City University of New York, which I regard as a third-tier institution academically, but he used to teach at Princeton until he got a better offer: $250,000 a year. He is being paid not to teach. I do not begrudge him this money, since I do not live in New York City, and my taxes do not support him. In my book, keeping him away from students is money well spent, as long as it's other people's money. Of course, if I lived in New York City, I would want him fired -- a cheaper way to keep him away from students.
In 2011, Robert Murphy, who teaches economics at Texas Tech, offered to donate $100,000 to a charity of Krugman's choice if Krugman would debate him in public. Back then, he was not employed by any university. He got people to offer to fund the donation. I pledged $1,000. When the figure hit $80,000, I recommended to Krugman that he not accept the offer. I listed 10 reasons.
Eighth, Murphy is really good in front of a crowd. Krugman cannot even work an audience in an elevator.Ninth, Krugman doesn't lose anything by not debating. Poor people will lose about $80,000 worth of food, but when you're a full professor at Princeton, and you have been awarded a Nobel Prize, you don't know any poor people. You have no understanding of what they're facing. Besides, when push comes to shove, you're a liberal, and the liberals only care about helping poor people with money that has been taxed from rich people.
In conclusion, Krugman would be a fool to debate Murphy. Krugman is no fool. Krugman is a self-interested, rationally calculating, totally economic man. That's why he thinks formulas apply to the rest of this. It is not in his self-interest to get in front of a video camera and let Bob Murphy take him down three notches in full public view, and then see the video on YouTube an hour later.
Silence is golden. You only think it's yellow because you're color blind.
The figure went over $100,000, but Krugman never responded. He was wise. Gutless, but wise.
Keynesianism is a system that is incoherent. Henry Hazlitt demolished Keynes's General Theory in 1959. Academic Keynesians ignored this. They had ignored two decades of criticisms. Hazlitt edited a book of these criticisms in 1960. Academic Keynesians ignored this.
We live in the age of Keynes. Paul Krugman is as close to being the high priest of Keynesianism as there is.
Alan Greenspan did what Krugman recommended.
When Bernanke stopped inflating in 2006, we got the collapse of the housing market. I had predicted this in 2006. I was not alone. A lot of Austrian School analysts did. This is a matter of public record. A list is here.
Why were we right when the other schools were either silent or wrong? Because Ludwig von Mises was correct in The Theory of Money and Credit in 1912 about the monetary origin of the boom-bust business cycle. He blamed central banking. On campus, only the Austrian School is opposed to central banking. (The other anti-central bank group, the Greenbackers, wants Congress to control a 100% fiat money system. Greenbackers have never been on campus. For my critique, go here.)
When the next recession hits, and real estate again falls, the Keynesians will get blamed, as they should. They are the promoters of federal deficits and central bank inflating.
People with no understanding of economic cause and effect are in control of the Federal Reserve System and the world's central banks. They are the blind leading the blind into the ditch. The voters are unaware of this. No matter who gets elected, nation by nation, the same economic policies are adopted: deficits and fiat money inflation. Anything else is dismissed as "austerity."
The Keynesians will take the hit when the bottom drops out of the capital markets in the next recession. The longer it goes on, the more doubts there will be about the prevailing consensus.
They will never admit they are wrong. But they will eventually retire and then die off. The economic disaster that will result from today's Keynesian policies will reduce the re-supply of Keynesian replacements. It will take a generation, but it will happen. There will be a paradigm shift.
This is why we need comprehensive critiques of Keynesianism. This is why we need to be able to say: "We told you so, and we told you why." This is why we need the Keynes project.