Consulting by RPM || Free Advice Blog

My Response to Krugman on Mises on the Great Depression

My latest post at Mises Canada. The intro:

Paul Krugman recently piggybacked upon a critique of Mises’ views on the Great Depression. There’s really nothing new in Krugman’s post, but as an ardent Misesian with a book on the Great Depression and a public vendetta against Krugman…I am pretty much contractually obligated to write a response.

Incidentally, I’ll respond in greater detail to “Lord Keynes”‘ specific post later this week. I wanted to distinguish my reply to Krugman, since he made a much more generic (and weaker) attack, using LK’s post merely as a springboard.

The Flotation Movement

[This story was inspired by my recent trip to the “Save Long Island” forum.–RPM]

Joseph looked out on the vast ocean, the cool night breeze whipping his hair as he drank the last of his six-pack on the top deck of the ocean liner. Joseph became puzzled, then alarmed, as a distant object grew larger on the horizon. He was by no means a seafaring expert, but Joseph was pretty sure the ship was heading straight for an iceberg.

Joseph immediately ran into the main dining area, where the majority of the passengers were gorging themselves on steak and wine. “Hey, we’re in danger! Stop the music!” Joseph yelled. But it was in vain. Most of the diners completely ignored him, while a few mumbled that surely the crew would do something if Joseph’s fears were true.

After running up and down the hall, Joseph finally stopped to listen to a small group of passengers who looked very alarmed. Joseph was greatly relieved to hear that these people knew about the iceberg, too.

“This is why we need to call for a ship-wide tally and replace the existing crew!” exclaimed an older woman with a commanding tone. “We need regular folks like Mary and John here at the helm, not officers educated at some private academy.” The people agreed.

Joseph suddenly felt someone tugging at his sleeve. It was a teenaged girl, covered in tattoos. “Can you believe these idiots? Crewists, all of them. They want to use the ship’s loudspeakers to tell everyone about the potential new crew members. Yeah, I’m sure that will be a fair process. If you really want to have your mind blown, follow me.”

Since Joseph could see that the people trying to replace the crew were not going to avert the collision in time, he followed the girl. “There he is,” she said with a mixture of pride and awe, pointing out a young, bearded man with surprisingly large biceps. “He just got out of the brig. He inflated a life raft in a restricted area. Said we have the right to float our own boat, whatever the Captain might say to the contrary.”

The charismatic man was surrounded by a dozen enthusiastic passengers. “If you think you need a crew to steer this ship, then you should walk away now; you’re not going to like my message. But for those of you with the courage to face the truth, let me speak clearly: We all see that we’re heading straight for that iceberg. The crew has to know it. This isn’t an accident, this is their plan.”

Some people murmured that maybe the crew were just a bunch of idiots, not murderers.

“You don’t get to be in charge of an entire ocean liner if you’re that stupid,” the bearded man replied.

“It’s true,” piped up a blonde woman. “I used to be in the Navy. I know from firsthand experience that there are secret plans to direct ocean vessels into icebergs.”

Some of the doubters wondered why this would be done.

“Don’t you see it?” said an older man, to whom the crowd deferred. “A group of wealthy foreigners, back at port, have taken out large property insurance contracts on the contents of the ship, vastly overstating the true value. Only a select few of the crew are in on it; they presumably have a small speedboat on which they will make their escape.”

The crowd began to dissipate, as many of the passengers simply could not believe the claims the older man made.

Joseph was becoming more frantic, knowing that they were running preciously low on time. He ran from table to table, trying to warn the passengers that disaster was imminent. Most of the diners were annoyed and asked Joseph to leave. A few–followers of an admiral who wrote a column for the New York Times–told Joseph that the only danger would come from trying to steer away from the iceberg, as the ship’s side would then scrape it. Instead, heading straight into the iceberg at full speed would actually be the proper response to escape from their liquid trap.

With complete exhaustion, Joseph moved to the final table in the dining hall, where he encountered a bald man who looked remarkably like Jason Alexander.

“We’re heading straight for an iceberg!” Joseph exclaimed.

“I know,” said the bald man. “I wrote a pamphlet about this in grad school.”

“Well, help me warn everyone!” Joseph shouted.

“It’s too late now,” the bald man explained. “We’ve already told enough people so that the survivors will be able to tell their children exactly what happened.”

“How can you be so calm?!” Joseph yelled in fury.

“Because I have a personal relationship with Poseidon,” the bald man explained, a look of genuine affection on his face. “Everything is going to be okay.”

The bald man put his arm around the horrified Joseph, and turned him to face the door. “C’mon, they’ve got karaoke on Deck 6. Wait till you hear my ‘Chantilly Lace.'”

Potpourri

Yikes I’ve been traveling lately and am way behind with some of these…

==> Niels van der Linden replies to my comment on his critique of Rothbard.

==> Richard Ebeling (my teacher in undergrad) reflects on the Great Society.

==> Megan McArdle on health insurance bailout. Joe Salerno provides more details on this interesting story at the Mises blog.

==> Somebody writing for Jim Cramer’s (?) website says I am a leading singer in the Austrian doomsday chorus. Bob Roddis, if you’re reading, please save this one for when the market crashes.

==> A reader (sorry I forget who at this point) sends me this discussion of outrageous police deception in manipulating confessions from people. Seriously, these are eye-opening.

==> For those who pine for a revenue-neutral carbon tax reform, look at what’s actually happening in California.

==> I discuss the minimum wage and other issues with Tom Woods.

==> I discuss the world’s 85 richest people with Scott Horton.

==> I am not being sarcastic, I feel bad for Tyler Cowen. On the one hand, he is constantly criticized for being a “sell out” by one group of libertarians, while in the comments at his blog people routinely denounce his free-market dogmatism (seriously). He is well-versed in all kinds of economic theory, and yet has to spend time arguing that demand curves slope downward. No wonder he has an eating disorder.

==> I may have lost an inflation bet, but at least I never lost a radiation bet. Stephen Hawking better hope Brad DeLong doesn’t find out about this…

“Why Libertarians Need God”

Dr. Jay Richards argues that the core “libertarian” principles make the most sense within a theistic worldview. Watch to find out why this is and why it matters. This presentation was given at the first IFWE [Institute for Faith, Work, and Economics] Coffee House Lecture on Nov. 7, 2013.

For my case that fighting for liberty makes more sense from a theistic framework, see this.

Kristen Meghan on “Geo-Engineering”

I’ll be honest, when I looked at the list of speakers for the Save Long Island event (where I debated Bill Still), the talk by Kristen Meghan jumped out at me as something that was too “out there” for a respectable, mild-mannered guy like myself. I was imagining General Ripper from Dr. Strangelove.

Well I met Kristen over the weekend and she sounded completely sincere, and she’s obviously not stupid. So that means either she’s a really good actress or she’s insane.

Or, the Air Force really is doing something nefarious. You tell me.

Arnold Doesn’t Need No Stinking NDGP Level Growth Targeting

An Austrian for the Chicago School?

The Austrian School (and Rothbardians in Particular): The Only Consistent Anti-Interventionists

In the blogosphere’s discussion to the Krugman-Barro flap–which soon enough engulfed Russ Roberts and me–Scott Sumner has (partially) defended Krugman. Sumner too is frustrated with modern conservatives who reject Obama’s fiscal “stimulus” packages, yet do so with rhetoric that would also throw out the need for Fed monetary stimulus. I agree entirely with Scott when he writes:

If conservatives really believe “the real problem is real” then they shouldn’t be contemptuous of “Keynesian economics,” they should be contemptuous of “the entire Keynesian/Milton Friedman strand of economics.” After all, Friedman also thought nominal shocks had long lasting effects on unemployment. But they never add Friedman’s name.

Of course, Scott thinks the solution to this apparent inconsistency is for conservatives to maintain their rejection of fiscal stimulus, but to change their arguments when doing so, in order to leave room for the (alleged) benefits of fine-tuning monetary policy. In Scott’s case, he wants the Fed to do whatever must be done, in order to keep the market’s expectations of the level of nominal GDP growing on target.

Yet there is a different way to resolve the paradox: Conservatives who see the folly of “stimulus” as presented by the likes of Paul Krugman should realize that their objections also apply to the work of Milton Friedman, when it comes to monetary policy. We didn’t need just a little more deficit spending to cure the Great Depression; Hoover’s and FDR’s deficits only made things worse and prolonged the agony.

By the same token, Milton Friedman was wrong to say that the explanation for the Great Depression was an inadequate burst of inflation from the Fed. On the contrary–as the Austrians explain–it was loose monetary policy that caused the boom that collapsed in 1929.

So Scott Sumner is right that the conservatives in Obama’s America often contradict themselves; they use rhetoric against government intervention in the fiscal context that would just as well prove that the Fed should leave the economy alone, too. Scott thinks conservatives need to change their rhetoric. I think the conservatives need to start reading Murray Rothbard, starting with his take on Milton Friedman.

Bob Murphy vs. Bill Still

It’s the master of disaster versus the Money Master. It was supposed to be about money, but then we took off the gloves and started talking anarchy. Oh boy. When I saw the crowd was with him early on, I had to break out my Jimmy Stewart impression. I wasn’t screwing around.

Incidentally, I have some major work deadlines so this is all you’re going to get (save for one quick post on Austrian monetary theory) over the next few days. You might as well watch it to avoid withdrawal.