06 Sep 2013

“Paul Krugman’s Problem”

Krugman 23 Comments

The creator of this video, Skyler Lehto, sent it to me when he first posted it, but I lost track of it on my browser and didn’t actually watch it until Danny Sanchez popped into my office (I’m at the Mises Institute for a few days) and mentioned it.

This video certainly won’t convince Krugman fans, but I’m blown away by how work Lehto put into this. He has a bigger Paul Krugman Problem than even I do!

23 Responses to ““Paul Krugman’s Problem””

  1. Razer says:

    This will make Daniel and Over-Lord Eugenics weep with fury. How dare their idol be attacked like this with mere facts.

    • Richie says:

      Indeed, DK will step in and interpret for all of us belligerents exactly what Krugman was *really* saying.

      Over-Lord Eugenics will give us numbers, quotes, or whatever else to try to say that the maker of the video knows nothing about which he speaks.

  2. Tel says:

    Paul Krugman is everybody’s problem.

    Mind you, if Krugman stepped down, a dozen just like him would step up and wave the same Keynesian banner. I should rephrase and say, Paul Krugman happens right now to the the embodiment of economists who are well paid apologists for big government and central planning… and that’s everybody’s problem.

    • Economic Freedom says:

      >>>Mind you, if Krugman stepped down, a dozen just like him would step up and wave the same Keynesian banner.

      That might be true, but I doubt they would be as objectionably nasty. For example, I don’t care for Stiglitz, but he comes across in interviews as a decent enough fellow.

      I’ve actually seen very little of Krugman on television or the Internet. The more I see him, though, the more I’m convinced, in all seriousness, that there’s something wrong with the man, both in his psychology and his character.

  3. Dan says:

    Back in my diehard liberal days, I thought Krugman was the most brilliant economist on the planet. I remember recommending two of his books to my mom at one point. Then I saw a friend watching a Ron Paul video on YouTube, and I decided to look into him to show my friend how RP was just another typical republican. Would’ve never guessed that that decision would cause me to abandon nearly ever belief I held about economics and political philosophy. Now I can’t even stomach listening to Krugman.

  4. Jonathan Finegold says:

    “…it’s like arguing against a wall.”

    How does he suppose Ron Paul feels?

  5. Cosmo Kramer says:

    Let me beat the spendthrift-eugenicist-apologists to the punch

    “In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.”

    “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.”

    “During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”

    “That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

    However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.

    “: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing”

    “Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place”

    I guess this “joke” of his was such good material, he kept telling it? Kruggy, you aren’t Brian Regan.


    “Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”

    Right. Clearly our poison is also our medicine.

  6. Bob Roddis says:

    As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.

    Now the question is what can replace the housing bubble?

    Nobody thought the economy could rely forever on home buying and refinancing. But the hope was that by the time the housing boom petered out, it would no longer be needed.

    But although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we’d be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession.
    So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it’s hard to imagine what that might be. After all, THE FED’S ABILITY TO MANAGE THE ECONOMY MAINLY COMES FROM ITS ABILITY TO CREATE BOOMS AND BUSTS IN THE HOUSING MARKET. If housing enters a post-bubble slump, what’s left?
    [emphasis added]


  7. Bob Roddis says:

    Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.

    In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. October 7, 2001


  8. joe says:

    Krugman was wrong to say that Hayek was not influential. Hayek was very influential in the 30s. He influenced France’s economic policy. Keynes influenced Nazi Germany. So it’s easy to understand why Hayek was placed on the back burner until the Koch Bros brought him to the US.

    However,Krugman’s comment about Veronique de Rugy is very inaccurate. Krugman specifically refered in 2010 to a article by Veronique de Rugy which used decennial census hiring to argue that federal govt hiring has exploded since the start of the recession.

    Quote on July 22, 2010: “As you may recall, since the adoption of the Recovery Act, the private sector has shed 2.5 million jobs and the federal government gained 416,000 jobs”

    Federal Govt Employment:
    June 2009: 2815.0
    June 2010: 3194.0
    June 2011: 2859.0
    June 2013: 2750.0

    She clearly was misleading the reader. There was a spike due to the census and the jobs quickly disappeared. Now there are 65,000 fewer federal employees than in June 2009 (and 13,000 fewer than in June 2003).

    Does Krugman point this out on his blog? Yes he does. So this video needs to be corrected or the person who made it is a hypocrite.

    Birth of a Zombie

    • Don Boudreaux says:


      You suggest that Hayek’s popularity in the U.S. happened because the Koch brothers “brought” him here. Are you aware that Hayek’s Road to Serfdom was condensed by Readers’ Digest in 1945 and became quite the best seller – and that Charles Koch then was all of 7 years old (and David Koch even younger)? Also, Hayek began teaching at the University of Chicago in 1950 – still a tad bit too early for Charles and David Koch to have exercised much influence in bringing Hayek to the U.S.

      Finally, Hayek’s 1974 Nobel Prize surely contributed mightily to Hayek’s recognition, in the U.S. and elsewhere. I doubt that the Koch Bros. were in any way responsible for Hayek being awarded that prize.

      • integral says:

        Sir, are you seriously ignoring the idea that the Koch brothers are capable of time travel?

  9. Warren says:

    The great thing about P-Kroog is that even when he is wrong he’s really right and when you’re right you are really wrong. When he is wrong-right it’s a matter of timing ,things will turn his way eventually. When you are right-wrong it’s because you are obviously an imbecile and irredeemable

    It’s a God-like superpower. Fear him, envy him, bow to him.

  10. Bob Roddis says:

    Krugman was sure right in refuting the Austrians with their silly inflation predictions. Look at this silly story:

    The average sale price of a vehicle in the U.S. hit $31,252 last month, up almost $1,000 over the same time last year. The sharp increase has been driven by consumers loading cars up with high-end stereos, navigation systems, leather seats and safety gadgets.

    It’s a buying pattern that began around two years ago with low interest rates that let buyers choose pricier cars while keeping monthly payments in check.


    What a dumb article. Everyone knows that low interest rates don’t cause price increases or allow for lower monthly payments…

  11. Innocent says:

    Why are the Austrians ‘wrong’ about inflation? Lets talk about money here for a second. What do we mean by ‘inflation’? In my mind inflation means adding to the money supply. What most people mean is CPI or the prices we pay for things. Well the cost of items does not rise until there is a sustainable demand to justify the price increase. So if the supply of rice is 100 lbs per person per year and it goes up to 110 lbs of rice per person per year it is difficult to justify a price increase on rice even with energy cost increases etc and so on. So by increasing the money supply where you are not also increasing aggregate demand there will be no increase in CPI.

    What has been has been a financial asset price increase. The Dow as an example has gone from 12,500 in January of 2012 to 15,000 as of yesterday. That is an increase of 20% that I would argue is over inflated of where it SHOULD be due to the increase due to what the Federal Reserves Policy has been in regards to banks.

    My only problem is I cannot prove this to be the reason why stocks are where they are. Additionally I do not know if the peak of this bubble needs to go higher or not. However based on just a quick Google chart look it looks like we have hit ‘peek’ levels of the Stock market again and the question is will it last for 1 year, two years, or three years before running down again…

    Finally… I admit it, I really dislike Krugman. I admit that I no longer say his name as written, it is childish and petty, I know, and to be honest I have to remind myself that he is one of God’s children as well, but I have been secretly saying the name Crap-man for about three years now. Simply because I know that most of what he says is as fresh as possible and it is all you can do to avoid placing a foot in it.

    It feels all style and little substance when he speaks. I can deal with people who want to DISCUSS economics with me. I have a belief, and with economics it seems that is all it is in the end, system with how financials operate and cycles and causation’s occur in financials. I am happy to hear others points of view. But for crying out loud TALK to me about how I am wrong, and then listen and RESPOND to my suggestions that the way you view things are incorrect, don’t simply disparage the difference of opinion and call me an idiot. I may be wrong, I may be incorrect, but calling me an idiot is not the way to convince me I am wrong or to prove that you are right. Lets debate, lets argue, and in the end lets attempt to influence sane policy on economics through our discussions.

    Again I know it is petty for the name that I hear each time I read Krugmans name. I do not even use it that way because of his economic beliefs, I love the chance to debate and discuss with others economic and socio-economic issues. But when the man you attempt to discuss this with is Paul Krugman it is no longer a civil discourse in the first place.

    • Cosmo Kramer says:

      “The Dying of Money” has predicted what is happening thus far.

      From page 64

      “The significance of all this is that the use of money in capital markets IS A PRINCIPAL REPOSITORY OF INFLATIONARY POTENTIAL. Monetary inflation invariably makes itself felt first in capital markets, most conspicuously as a stock market boom. PRICES OF NATIONAL PRODUCT REMAIN TEMPORARILY STEADY while stock prices rise and interest rates fall. This happened at the commencement of the German inflationary boom of 1920, and it happened again at the commencement of the American inflationary boom from 1962 to 1966. Indeed, every monetary expansion in the United States since World War 2 was followed by a stock market rise, every cessation of monetary expansion by a stock market fall. Conversely, every stock market rise was preceded and accompanied by monetary inflation. Bull markets rest on nothing but inflation. The market fall following tight money merely brings the market BACK TO ITS REAL-VALUE LEVEL.

      It is not difficult to understand why this is true. Virtually all, and not merely a proportionate part, of the excess money demand created by monetary inflation goes TEMPORARILY into the capital markets. In our earlier example, the holder of excess money could either force up the prices of national product (price inflation) or hold the excess money longer than usual (low velocity), neither of which he had any wish to do. What is actually most likely to do with the excess money is to buy himself some stocks, bonds, or savings accounts, in other words to “invest” the money or put it into the capital markets. This must force up the prices of real values in capital markets, to be sure, and this in turn is one form of simple price inflation, but no one thinks of it as such because no one is thinking of real values. One man’s price inflation is another man’s capital gain, and even the first man does not mind it if he is getting his capital gains too. The excess money which is happily at play in the capital markets is money which is not yet distressing the prices of national product, where it might hurt.

      Notice what has happened in mathematical terms. In our original example, there was a partial money supply occupied with purchasing national product equal to $10. Velocity was one transaction per day, output was one unit per day, and resulting prices were $10 per unit. Suppose now more complexly that there is another separate money supply of $10 occupied with trading capital assets, making a total money supply of $20. Now if the money supply is doubled to $40 and all of the extra $20 goes into the purchase of investments, the money supply in the capital markets will have trebled, not doubled, and prices there will at least treble too, perhaps more because of speculative high velocity. Money quantity and velocity and therefore prices in national product will remain temporarily unchanged.

      In due time, there being no dam between the markets, a leakage of excess money demand back from capital markets into national markets will occur. There will always be that spoilsport in the capital casino who will take his winnings and buy national product with them. There will always be that footslogger selling national product who senses that there is surplus money demand over yonder among the capitalists and demand some of it by raising prices. It is inevitable. Excess money which starts out in the capital markets winds back up in national product. If luck is good, the excess money will merely redistribute itself proportionately between the two markets. In the example, national product prices will double while capital prices fall back from three times their original level to merely twice their original level. By coincidence, these are precisely the relationships that held good in the German boom of 1920-21; the money supply doubled, the stock market at first trebled but then skidded to double as the prices of national product began to rise. If luck is bad and people lose faith in all kinds of capital investments, there may be a general exodus of money from capital markets which make the price inflation in national product much worse than money inflation would seem to justify. This too happened as the initial acceleration of the German inflation gathered speed.”

      [Caps added]

  12. Martin says:

    Some fair points. Some less fair points. And the ending is simply bad. Krugman does not pontificate outside of his area of expertise. As a textbook writer on the principles of economics and a textbook on trade theory he has a good and deep grasp of almost the whole of economics. In addition he has also written some more specialized texts. Just have a look at the list of his published works on wiki http://en.wikipedia.org/wiki/Paul_Krugman#Published_works.

    • anonymous says:

      Prof. Schwartz’s point was that Krugman uses the Nobel status to deflect criticism, even of his views outside those areas for which his Prize was awarded. That is, his Nobel is not for total economic mastery, but “for his analysis of trade patterns and location of economic activity” (see http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2008/krugman-facts.html).

      • Martin says:

        The video states that Krugman pontificates about topics which are beyond his expertise. He doesn’t as his record of publications shows, he knows more than enough to pontificate, especially in a newspaper.

        Also the Nobel is not awarded for mastery. It’s for contributing to our knowledge.

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