Well, I am nipping at Krugman’s heels on this one, but I’m out of free articles for the month and I refuse to subscribe to the New York Times. I will show you guys what I’ve gotten so far, and maybe some of you can carry it over the finish line.
In today’s blog post, “Plutocrats and Printing Presses,” Krugman writes:
These past few years have been lean times in many respects — but they’ve been boom years for agonizingly dumb, pound-your-head-on-the-table economic fallacies. The latest fad — illustrated by this piece in today’s WSJ — is that expansionary monetary policy is a giveaway to banks and plutocrats generally. Indeed, that WSJ screed actually claims that the whole 1 versus 99 thing should really be about reining in or maybe abolishing the Fed….
What’s wrong with the idea that running the printing presses is a giveaway to plutocrats? Let me count the ways.
First…the actual politics is utterly the reverse of what’s being claimed. Quantitative easing isn’t being imposed on an unwitting populace by financiers and rentiers; it’s being undertaken, to the extent that it is, over howls of protest from the financial industry. I mean, where are the editorials in the WSJ demanding that the Fed raise its inflation target?
Beyond that, let’s talk about the economics.
The naive (or deliberately misleading) version of Fed policy is the claim that Ben Bernanke is “giving money” to the banks. What it actually does, of course, is buy stuff, usually short-term government debt but nowadays sometimes other stuff. It’s not a gift.
To claim that it’s effectively a gift you have to claim that the prices the Fed is paying are artificially high, or equivalently that interest rates are being pushed artificially low. And you do in fact see assertions to that effect all the time. But if you think about it for even a minute, that claim is truly bizarre.
OK, I found Krugman’s statements to be “truly bizarre,” because I’m almost positive he’s written several times on the audacity of the plutocrats whining about their situation, when they were rescued from their own bad decisions by the government. I’ve found two examples so far:
==> In a November 2008 post titled “Citigroup” Krugman wrote:
Mark Thoma has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.
==> In a March 28, 2010 op ed Krugman wrote:
Now what? We have already, in effect, recreated New Deal-type guarantees: as the financial system plunged into crisis, the government stepped in to rescue troubled financial companies, so as to avoid a complete collapse. And you should bear in mind that the biggest bailouts took place under a conservative Republican administration, which claimed to believe deeply in free markets. There’s every reason to believe that this will be the rule from now on: when push comes to shove, no matter who is in power, the financial sector will be bailed out. In effect, debts of shadow banks, like deposits at conventional banks, now have a government guarantee.
The only question now is whether the financial industry will pay a price for this privilege, whether Wall Street will be obliged to behave responsibly in return for government backing. And who could be against that?
So at this point, I see only two possible legs Krugman has to stand on:
(A) He could say that in the earlier pieces he was referring solely to TARP, and that the Fed had absolutely nothing to do with rescuing Wall Street firms. That is crazy, but I’m wondering if we can go further: Can someone find Krugman himself explicitly saying that the Fed rescued Wall Street?
(B) He could clarify that in his latest post, he is distinguishing the extraordinary Fed lending programs (TAF etc.) from generic quantitative easing. Maybe he wants to say that the current Fed critics at the WSJ and elsewhere aren’t being very nuanced, and that they are wrong for thinking that the Fed’s purchases of Treasuries per se help the banks, when really it’s all these other things that the Fed does that admittedly help the banks…
In any event, I am calling this a Krugman Kontradiction. Some may disagree with me, but remember I am, by definition, the judge of what is a Krugman Kontradiction. The only remaining question in my mind is to see if we can upgrade this to an actual contradiction by finding him explicitly saying the Fed bailed out Wall Street.
Release the hounds!