Paul Krugman, Keynesian Idiot: Part 8

Posted: February 1, 2013 by ShortTimer in Economics, free markets, Progressives and Left
Tags: ,

There was so much going on in the Second Amendment world that I skipped right on past Paul Krugman’s demand that we print a $1 trillion dollar platinum coin and then give it away saying “we paid off the debt!”

Andrew Wilkow over at the Blaze did a pretty good job of ridiculing Krugman for being such a Keynesian idiot, dissecting Krugman’s whole stance rather harshly.

Others just made fun of Krugman for the idea being stupid.  It’s gotta be hard as a progressive to find that even Jon Stewart is mocking you.

MAD trillion dollar coin

Of course, when Krugman’s not busy being a Keynesian idiot, sometimes he’s busy being an idiot Keynesian:

Way back when, Mike Konczal felicitously made that analogy to discuss the people who were calling for a rise in interest rates despite high unemployment and low inflation — a group at the time exemplified by Raghuram Rajan. For those who don’t read the classics, Calvinball is a sport in which you change the rules whenever you feel like it, very much including in the middle of games.

For those unfamiliar with the Austrian School of Economics, Friedrich A. Hayek and the rest, here’s one of the main tenets, taken in short short version from Wikipedia:

Proponents believe that a sustained period of low interest rates and excessive credit creation result in a volatile and unstable imbalance between saving and investment.

In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank‘s inflationarycredit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates.

Raghuram Rajan, who Krugman mocks, is actually making a very salient point (without comparing Krugman to Dagwood Bumstead demanding a bigger sandwich as more stimulus):

Clearly, someone is paying a price for ultra-low interest rates: the patient and uncomplaining saver. Interestingly, if traditional spenders such as firms and young households are unwilling or unable to take advantage of low interest rates, low rates could even hurt overall spending, because savers like retirees receive lower financial incomes and curtail spending.

This is not a heretical concern. As with any tax and subsidy, the net effect depends on whether those taxed cut back spending less than those subsidized. Economists have sensibly advocated that China raise the interest rates that it pays on bank deposits so that Chinese households earn more and consume more. Some Japanese now wonder whether their ultra-low interest-rate policy could be contractionary.

Equally worrisome are the distortions that easy money creates. Evidence from the recent crisis suggests that ultra-low rates prompted a wide range of portfolio adjustments, whereby Asian and Middle East central banks and funds ended up holding the safest low-interest securities, while the US and European financial sectors went on a risk-taking binge. History never repeats itself exactly, and those singed by fire do learn not to play with matches, but we should be aware that unnaturally low interest rates have consequences other than inflation.


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