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Nobel laureate economist Paul Krugman, who has been telling us (in as many words) that we cannot print money fast enough, in his latest New York Times Op-Ed piece defends his prescription to keep the printing presses running at full tilt. The troubling part of Krugman's prescription is not so much that it is short-sighted (though one could certainly argue the case) or inconsistent, but that it is unclear exactly what reality he is dealing with. For example, according to Krugman, we are now at a point where "interest rate cuts, the conventional way to perk up the economy, have reached their limit" and that "unconventional measures" are all that can save us now. Pumping unprecedented sums of money into bailing out banks and insurance companies, riding roughshod over bankruptcy covenants to restructure beaten-down automakers and pledging close to $800 billion (and counting) in economic stimulus wasn't unconventional enough? What exactly does Krugman have in mind when he says "such unconventional measures make the conventionally minded uncomfortable, and they keep pushing for a return to normalcy"? He doesn't say. Krugman makes fun of Republicans for saying the stimulus has failed just four months after it was passed. But how exactly is this different from deciding the "conventional" efforts to perk up the economy have failed, as Krugman does here? He also appears to have developed some kind of persecution complex that makes him hard to take seriously. He tells us "a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts." Who exactly are these critics? Krugman mentions Arthur Laffer, Republicans and Europeans, though at no point does he provide actual examples. With the possible exception of Republicans (who are politically impotent at this point, or close to it) there is dangerously little proof for this. It is true that some, Laffer included, have raised red flags over inflation. In Friday's Wall Street Journal, Laffer expressed concern over what he called "panic-driven monetary policies." But his critique of the Fed dates to its fiscal policy starting in September 2008, before Obama was even elected. While it is also true that Laffer argued the Fed should "do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base," at no point did he so much as direct one word at Obama or his policies. As for the Europeans, there was some rhetoric from the Czech prime minister in March. This talk, calling Obama's economic policy "a road to hell" was widely ridiculed and anyway came from a lame duck politician. All of which does not quite add up to a "chorus" of anything, least of all one calling for the Fed and the executive branch of the U.S. government to abandon their economic/monetary policies. As for Krugman's inflation-as-bogeyman concept, he has plenty company. Well, kind of. Goldman Sachs & Co.'s (NYSE:GS) Abby Joseph Cohen told Reuters inflation fears are "spectacularly premature" and that the Fed should stay the course "for as long as possible." This isn't quite on par with Krugman's view that there is no chance of inflation under any circumstances now and forever (to paraphrase loosely), but it's about as close as you can come without sounding like a monetary policy official from Weimar, Germany. For all his talk of historical "reality checks," that is one period Krugman does not appear to have investigated much. - Nathaniel Baker
CategoriesComments
From: Mitchele Vigil,
Interesting how immediately after 8-years of a republicans rule, and all that the changes in policy and lack of enforcement that entailed, commentators such as this individual remain mute. I am shocked that this column did not seek to make all the current negative economic/financial issues the responsibility of the Clinton administration.
Posted on:
June 17, 2009 7:35 AM
From: Nathaniel E. Baker,
If Krugman watches (or even knows/cares about) Kudlow's CNBC program he should have mentioned that as one example in his article. Instead he simply ranted about some vague "chorus of critics" while alluding to a Wall Street Journal article (but not mentioning it by name). Even though the Fed is (in theory at least) independent of the executive branch of the U.S. government, Krugman sees every critique of U.S. fiscal policy as a direct attack on Obama. This isn't only absurd, it's paranoid. You don't have to be a Republican to think so (FWIW I have no party affiliation whatsoever). While we're on the subject though, it was under Clinton's watch that Glass-Steagall was overturned. Just sayin'....
Posted on:
June 17, 2009 10:20 AM
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On Kudlow's CNBC program, almost all his guests criticize Obama's fiscal policies. Kudlow has even championed canceling the stimulus bill, as he believes that the economy is recovering, and that it has more to lose (b/c of higher interest rates resulting from deficit spending) than to gain from continuing with the stimulus.