Ron Paul vs Paul Krugman

[Alkibiades]

Paul and Krugman debated the Fed and monetary policy on Bloomberg.

http://reason.com/blog/2012/05/03/ron-p ... loody-afte

I would like to say that Ron Paul mopped the floor with Krugman, not only substantively but also in terms of not being unbearably prissy, but I am biased.

I was especially surprised that off the bat, Krugman could not defend the existence of a central bank. He said, 'if you want to ditch a central bank, it doesn't happen; the gov't will always set monetary policy'. I have long suspected that at bottom, economists who believe in fiat systems are theologians rather than scientists, and this was about as conclusive a display as I can imagine.

Paul's rejoinder that Krugman is living in a world of Diocletian monetary policy was well placed.

And, it was, I thought, exceptionally ironic that Paul began by arguing that nobody has enough knowledge to manage monetary policy and the economy and set interest rates, and Krugman a minute later goes on to say that 'money is the result of the financial system' (that should go on his tombstone) and 'we don't even know where the line between money and non-money' is. Amen.

Krugman also appears to be unaware that bartering with commodity coins is illegal.

Apparently, Krugman is not only convinced that he is the smartest man alive but that there is simply nothing worth knowing that he doesn't know.

[Deuce Dropper]

Hi I am in my 20s and have internet access. Vote Ron Paul!

[antarcticbeech]

So you voted for Obama last time round?

[Dr. McCoy]

I respect Ron Paul's pacifism, but I don't like the Austrian economics.
Ron Paul Flunks History

[Alkibiades]

I respect Ron Paul's pacifism, but I don't like the Austrian economics.
Ron Paul Flunks History

I disagree with Paul's take on the post-World War II economy as he presented it here. I think he is mistaken, too, about the inevitability of gold's rise in the medium-term. And, I think that is because Austrians have a rather simplistic view of the role gold plays. They are obsessed with gold as an inflation hedge when it should be regarded as a hedge against financial stability more generally, of which inflation is merely one type.

I think that if one looks at the behavior of P/E ratios over the last century, the post World War II boom can be largely explained as supercyclical. And, more importantly, it was unsustainable. That boom peaked in the mid-1960s and it wasn't long until Bretton Woods was finally destroyed, supposedly because of the flaws of the gold standard itself, of course, and not due to an unsustainable expansion in governmental social spending and spending on blowing up Southeast Asian villages.

More importantly, though, Krugman had no coherent defense of the necessity for central banking. Does anyone remember the economic crises that preceded the Depression? Certainly, people who take a particular interest in monetary policy or economic history can identify banking crises and panics, but in our collective memory, the Depression has displaced all of them, because of its incomparably devastating economic and political consequences.

True, Krugman can say 'look at the 50s or the 90s or even the 20s, if he wants to, but those are just booms juiced by having a central bank. Then, if one points out the 1930s or 1970s or the 2000s, the professor says, well, in the first case money was too tight and in the current case it is too loose, and he's got an answer for everything. Supposing he's right, though, apparently the establishment is unable to identify the correct monetary policy, so Paul's larger point about the inability of bureaucracies staffed by academic nose-pickers to manage the economy and monetary policy stands.

We did have economic instability prior to central banks, because credit is inherently unstable, but it does not necessarily follow that central banks increase stability. We have a century of boom and bust that give us grounds to question that assumption. Krugman's imitation of a know-it-all buxiban student hardly diminishes that. How can he so smugly insist that central banks have added any stability to the financial system?

His claim that 'central banks should exist because they do exist' is something akin to St. Anselm's proof of God's existence.

Btw, I don't think Paul is a pacifist so much as an anti-imperialist.

[Alkibiades]

Hi I am in my 20s and have internet access. Vote Ron Paul!

Hi. I am a self-discovered genius with internet access and a penchant for sophomoric sarcasm.

[Teddoman]

Haven't read much econ history, so I don't really have an opinion on the very theoretical question of doing without a central bank.

But I have been following Krugman's blog about the current balance sheet recession/depression in Europe and how austerity is basically sending Europe into a vicious cycle.

What is the alternative? A return to the gold standard, with no flexibility to expand or contract the money supply other than the natural growth of the gold supply through mining? Wouldn't that just exacerbate our economic cycle, with no one ever speeding up or putting the brakes on the economy?

[Alkibiades]

Haven't read much econ history, so I don't really have an opinion on the very theoretical question of doing without a central bank.

But I have been following Krugman's blog about the current balance sheet recession/depression in Europe and how austerity is basically sending Europe into a vicious cycle.

What is the alternative? A return to the gold standard, with no flexibility to expand or contract the money supply other than the natural growth of the gold supply through mining? Wouldn't that just exacerbate our economic cycle, with no one ever speeding up or putting the brakes on the economy?

I hear you, but all the historical evidence suggests that economic growth under a gold standard was steadier than it was prior to the creation of the Fed. Again, not only economic growth, but politically, the world was more stable. This notion that the money supply has to be constantly ballooned and then crushed and that there is someone who knows how and when to do this is groundless.

Who are these people that supposedly know when to hit the gas and when to hit the brakes? Where did they learn this art? Have they ever successfully done such a thing, except in small, anomalous economies? There is no evidence that they have. All the evidence suggests that they have created massive social and economic dislocation. I think one could argue that exceptional growth is as socially corrosive as exceptional depression, as well.

Remember, the money supply used to expand and contract before central banks existed. That is the nature of credit, but central banking has only exacerbated the expansions and contractions. Gold did not create the Great Depression. The Fed blowing a bubble in consumer credit in the 1920s did.

The economy is like an ecological system. Tampering with something as fundamental as money is inherently dangerous. Economic growth has been going on for millenia without the need for artificial money. And, the point is not so much that gold must be money. It is that the government should not be determining what money is. Gold was the latest stage in monetary evolution, so it seems the most likely candidate, especially since it has continued to behave like a shadow currency ever since the Nixon Shock.

Does Greece need to go on the gold standard tomorrow? Surely not. But not even Ron Paul says that. He said in the video above that any return to a gold standard would have to be gradual and careful. But, ultimately, his point is that the government should be out of the business of regulating money.

There is just no evidence for Krugman's positions. Krugman constantly makes unfalsifiable claims. If only we had done what he said in situation X, everything would turn out fine. You can be sure that if he were finally given the power he apparently thinks he deserves, he would have just as money excuses as every other Fed chairman.

Compare Bernanke, especially from 1:00 http://www.youtube.com/watch?v=INmqvibv4UU
to Ron Paul especially from 2:15 http://www.youtube.com/watch?v=tFg1_sJDQIY&feature=fvst

Bernanke didn't 'buy the premise' that the national housing market could collapse, and was in denial until the bitter end. Paul predicted most of it years in advance and on the record.

With fairness to Krugman, he was not asleep at the wheel with respect to the housing bubble. http://www.youtube.com/watch?v=qo4ExWEAl_k
He was extremely clear-eyed. (And far less smirky and irksome).

Anyway, Bernanke and Krugman are now attacking each other, which I think further demonstrates that economics is not science. It is guess work and unfounded speculation.

[GuyInTaiwan]

I hear you, but all the historical evidence suggests that economic growth under a gold standard was steadier than it was prior to the creation of the Fed. Again, not only economic growth, but politically, the world was more stable. This notion that the money supply has to be constantly ballooned and then crushed and that there is someone who knows how and when to do this is groundless.

I'm not entirely sure I'm reading that underlined sentence correctly. Are you claiming that prior to 1913, the world was more politically stable? I really am not too sure of that. I think the thing that distinguishes the political instability of the 20th century was that it was, ideological, but more importantly, technology really allowed for great violence.

Just off the top of my head though, Europe in the 19th century and first decade or so of the 20th century had all sorts of political crises: the Napoleonic Wars, the 1848 nationalist revolutions, the Crimean War, the unification of Germany, the Franco-Prussian War, the unification of Italy, at least one revolution in Russia (I know there was one around 1905, but I vaguely remember there being another during the 19th century), as well as the independence and annexation of several countries in the Balkans (and the First Balkans War which began just prior to the creation of the Fed).

America had the 1812 War, the Texan Revolution, the American-Mexican War, various Indian wars, the American Civil War and the Spanish-American War, plus probably some others I've forgotten.

I don't know too much about Central or South American history, but I believe several countries gained independence through the help of Bolivar and O'Higgins, and many subsequently went on to have civil wars or fight each other, such as in the War of the Pacific.

Africa had the Scramble for Africa, plus a few direct wars such as the Boer War.

Asia had all sorts of conflicts. There was the Great Game, there were all of China's wars involving Britain, there was the Sino-Japanese War, the Russo-Japanese War and probably a whole lot of others.

[Teddoman]

A lot to think about and respond to in your posts, but let me just respond while I remember with a quickie. Since the OP referenced Bernanke vs Krugman, it made me think of a blog post by Krugman that I thought you'd find interesting. Bernanke is essentially enacting into policy his view from academia.

http://krugman.blogs.nytimes.com/2011/0 ... s-wonkish/