Krugman And The "Heroic" Fed

Tyler Durden's picture

Authored by Bill Anderson via The Mises Institute,

Once an avid reader of Paul Krugman’s New York Times twice-weekly columns, I admit to rarely even glancing at his work now, since I know that anything he writes is going to have the theme of “Trump evil, Democrats good” each time, and it doesn’t take long to get one’s fill of that, even if one disagrees with Donald Trump’s policies or cringes at some of his public statements. The real problem, however, is that Krugman also manages to endorse unsound and inflationary economic policies as a “solution” to what he calls “Trumpism.”

If one reads Krugman to see what “vulgar” Keynesian fallacies he is promoting, the man rarely disappoints, and a recent column in which he attacks what he believes will be Trump’s future choice to head the Federal Reserve System only burnishes Krugman’s Keynesian credentials. After claiming that Trump has been like a “Category 5 hurricane sweeping through the U.S. government, leaving devastation in his wake,” Krugman then worries if the Fed will suffer the same fate. One only could hope….

Before looking at Krugman’s worshipful commentary on the current Fed leadership, a brief point is in order regarding the rest of official Washington that Trump allegedly has devastated. People like Krugman believe that Washington and its gaggle of Alphabet-Soup agencies regulating nearly every aspect of individual lives is the very source of social stability and economic prosperity in this country – provided there are little or no restraints on what government agents can do. As Krugman and his fellow progressives see it, we need more, not less, bureaucratic control of our lives, and especially control by people of progressive bent with “elite” academic credentials, since they are smarter than the rest of us, so they should be able to tell us what to do.

In his classic 1945 paper, “The Use of Knowledge in Society,” F.A. Hayek wrote that the kind of knowledge needed within a growing and prosperous economy is not the distant academic knowledge, but rather the boots-on-the-ground knowledge undergirded by a price system held by entrepreneurs and others directly involved with enterprises. Ludwig von Mises in many of his writings, including Bureaucracy, pointed out that free-market pricing of goods, along with profit (and loss) management, serves as an irreplaceable guide for an economy.

Krugman is having none of that, and his academic biases are exposed in his recent column. He writes:

The Fed, which sets monetary policy, is by far our most important economic agency; its chairwoman (or chairman) is arguably the most powerful economic official in the world, more than the president himself. Its institutional status is peculiar: It isn’t exactly part of the executive branch, but it isn’t exactly independent, either. Its board members are appointed by the president subject to congressional approval, but have traditionally been technocrats expected to distance themselves from partisan politics.


That is, however, a norm rather than a legal requirement. And we know what tends to happen to norms in the Trump era.


For more than a decade the Fed chair has been a distinguished academic economist — first Ben Bernanke, then Janet Yellen. You might wonder how such people, who have never been in the business world, who have never met a payroll, would deal with real-world economic problems; the answer, in both cases: superbly.


In particular, both Bernanke and Yellen responded effectively to a once-in-three-generations economic crisis despite constant heckling from back-seat drivers in Congress and on the political right in general. And their intellectual and moral courage has been completely vindicated by events.


Given this track record, you might expect to see either Yellen reappointed or an equally qualified technocrat take her place. But remember, we’re living in the age of Trump, which means that we should actually expect the worst.

And what were the policies driven by “intellectual and moral courage”? More inflation. That’s right, printing money. Writes Krugman:

When the financial crisis struck in 2008, it was essential that the Fed engage in aggressive monetary expansion — loosely speaking, print lots of money. There are circumstances in which that kind of action would be inflationary, but economists (like Bernanke and, well, yours truly) who had studied the subject understood that this wasn’t one of those times. Indeed, inflation stayed quiescent even as the Fed quadrupled the monetary base.

Beyond debating Krugman and others regarding the presence of Keynes’s “liquidity trap” that supposedly turns laws of economics upside down, there is another point I believe needs to be made, and it goes back to the Hayek-Mises theme of economic calculation driven by profits and losses and a free price system. In Krugman’s view, it is the market economy driven by ignorant and greedy know-nothings and always is prone to collapsing into the maw of “underconsumption” that is the real problem. If academics like Krugman, Bernanke, and Yellen were in charge of the economy, things would work smoothly and rationally.

For example, Krugman and many of his fellow intellectuals believe that the mortgage securities which bundled mortgages considered to be “sub-prime” (and later collapsed, bringing down much of the financial system with it) were the “natural” result of a laissez-faire economy, something the Austrians would have created if left to their own devices. The Alan Greenspan-Ben Bernanke Fed, along with government housing policies, had nothing to do with the creation and distribution of these doomed securities. Indeed, Bernanke and his minions only wisely reacted to the crisis once the free market, which created the disaster in the first place, had run its destructive course.

This is a re-occurring theme in Krugman’s writings: the free market creates crisis after crisis and then the “adults” from the federal regulatory agencies must step in and repair the damage, and if Krugman could have political control, those agencies would have unlimited powers to control the economy, since the agencies consist of people who know more than everyone else.

There are exceptions to the academics-must-rule-the-economy theme: Austrians, who have the effrontery to hold to doctrines of sound money and who argue for free markets, are not included in the guest list. Austrians, after all, are delusional, and actually know little-to-nothing about real economics. Properly-vetted economists such as Krugman and Bernanke know that federal policies that promise to backstop banking losses, push home ownership through artificial financial means (including Fed policies of pushing down interest rates to near-zero), and then manipulate housing prices actually had nothing to do with the financial madness known as the Housing Bubble. (That Austrians, such as Mark Thornton, warned long before the 2008 meltdown that the housing market was destined to fail spectacularly garners Austrians no credit; even a broken clock is correct twice a day.)

People like Krugman perpetuate the myth that the U.S. economy is a pure, laissez-faire entity that is driven to collapse by free markets, only to be rescued by the Ph.D. economists and federal regulators that are more intelligent than everyone else and set things right again, like an unstable democracy that every so often experiences a coup by its army, which cleans out the corruption and steers the government back onto a righteous path.

The future picks Donald Trump may have for the Fed leadership really is not the issue here, no matter what Krugman claims. Far from being the incorruptible general whose troops must clean up the wreckage left by the hurricane of free-market economics, the Fed usually is ground zero (or at least nearby) when it comes to economic crises. Instead of the hero academic economist “who saved the world,” Ben Bernanke actually helped to create and nurture the crisis, and then prevented a full recovery – along with his successor, Janet Yellen.

One does not answer Krugman’s claim that progressive academics should run the world by urging the appointment of more “conservative” academics – who also should the run the world the “right” way. No, one replies by saying that the last thing any credentialed academic economist should be doing is becoming the “visible hand” that substitutes for free market processes. Let markets work on their own, period.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Buckaroo Banzai's picture

The author takes a decent stab at trying to describe how big of a worthless faggot that Krugman is. But trying to get the full measure of Krugman's epic faggotry-- to fully plumb its depths, or compass its length and breadth--has turned into the journalistic challenge of our times. Just as the english language is limited in describing frozen precipitation, but the eskimos have 57 words for "snow", we desperately need a new language, with a suitably rich and varied vocabulary of terms to adequately encompass every aspect of the concept of "faggotry", in order to even begin to grasp the truly brobdignagian proportions of the faggotry that Krugman embodies. In every aspect of his being, Krugman reflects the archetype of The Eternal Faggot with the clarity of perfection of the most perfectly polished and silvered mirror. One day, doctoral dissertations will compete to do justice to this level of Utter Faggotry. One day, a hero will rise, and we shall truly know the Faggot That Is Krugman.

Paul Kersey's picture

Krugman is just one more whore working for the Goldmanite owned Fed:

"William Dudley, president of the New York Fed and vice-chair of the Federal Open Market Committee (FOMC) since 2009, hails from Goldman Sachs, where he worked as chief economist for the decade to 2007. He'll be joined on the FOMC by Kashkari and Dallas Fed president Robert Kaplan, who worked as head of Asia-Pacific investment banking, head of corporate finance and global co-head of investment banking over the course of his 23-year career at Goldman. Together the three will constitute a quarter of the FOMC's twelve votes, assuming the two currently vacant seats are filled; if they remain empty, Goldman alums will account for 30% of the votes on the Fed's rate-setting committee.

Stephen Friedman, who chaired the New York Federal Reserve Board from January 2008 to May 2009, joined Goldman in 1966 and alternated between chairman and co-chairman of the board from 1990 to 1994. He divested from Goldman in 2002 in order to serve as an economic advisor in the George W. Bush administration, but rejoined the board in 2004. He kept his seat when he took on his role at the New York Fed, later explaining that his goal had been "to provide continuity during a time of financial market instability."

When Goldman converted from an investment bank to a bank holding company in 2008 – putting it under the New York Fed's regulatory purview – Friedman was required to sell his shares in order to avoid a conflict of interest. Instead he applied for a waiver from the Fed and, while he was waiting on a decision, bought 37,000 (extremely cheap, given the circumstances) shares in Goldman. The Fed granted the waiver, and he bought an additional 15,300 shares.

Friedman left the New York Fed in May 2009, citing the "distraction" of a "mis-characterized" conflict of interest. He was already several million dollars richer due to his well-timed investment in Goldman Sachs stock. Before departing, he oversaw the hiring of a new president: his old colleague William Dudley."

Read more: 26 Goldman Sachs Alumni Who Run the World (GS) | Investopedia

Son of Captain Nemo's picture

That $Trillion platinum coin is looking mighty good 4 years later!...

jaxville's picture

I have a couple of platinum coins in my stash.  Sounds like I only need to keep one.

LawsofPhysics's picture

Krugman has done well for himself by being an arrogant mouthpiece for the status quo.  I sincerely hope he continues to associate himself with the ongoing "let the majority eat cake" policies.

"Full Faith and Credit"


Going to be fun watching him lose his head.

Son of Captain Nemo's picture

"Going to be fun watching him lose his head."

He'll have to stand in line behind Janet Yellen, Bernard Bernanke, Alan Greenspan, Paul Volker and the last 35 years of the Board of Governors to the Fed / U.S. Treasury and Congress!

Let me know when that "event" takes place because that will be a "feast" celebration and gift unlike any this Country has had in our lifetime!!!

LawsofPhysics's picture

Yes, I agree.  Simply the best reality show entertainment since Lehman!!!

Tsunami Wave's picture

Photo from 'Syriana'? Thought Clooney looked like him when I saw it many years ago.

JedClampIt's picture

"Let markets work on their own, period."

Markets? What are those??

GunnyG's picture

Krugman is a blistered hemmorhoid on the asshole of America. A couple and total clueless economic fucktard and the worse part is, is they let him teach at Harvard!

Atomizer's picture

Fuck you Krugman! You must of attended. Masterbaiting in your chair. She is a poster child. They would have her into DARPA if she was that brilliant. Question, Mensa member? 

IMF Videos - Towards a More Secure Recovery Shared by All

IMF Videos - A Conversation with a “Flying Physicist” - No Music

Edit: it's called VFR in a small plane. This bitch can blow her nose and wipe her chin ass. Based on her hand gestures, she could throw the plane yoke into a tail spin. 

Ghordius's picture

"I know that anything he writes is going to have the theme of “Trump evil, Democrats good”"

not the complete Krugman, though

he also writes: "euro evil, european fiscal compact* evil"

(*) read: "Austerity evil" or "balanced budgets evil"

GreatUncle's picture

If more people understood in other nations what Krugman was ... destroyer of them, their homes and societies.

If a section of the population is continually being deflated away does it really matter what race, religion, sex or age they are?

Vardaman's picture

Stopped clock.  Look!  It means the article writer is correct!! Blech...

Kina's picture

Krugman a Nobel prize for Attention Whoring

Joe Dirt's picture

He'll be singing a different tune after Federal Reserve Chairman Rand Paul takes his seat.

If not now, when?

Nomad Trader's picture

Economics: The single stupidist intellectual pursuit in human history. It doesn't make sense, it never did make sense, and anyone who says otherwise is just a salesman pushing a product.


Bunga Bunga's picture

Come on, the elites love financial hurricanes because it makes them richer and more powerful. They are the driving force behind them.



Antifederalist's picture

Good information at the following site.  Thomas Woods points out his errors on a regular basis.

mendigo's picture

Anointed by the same crew that granted Obomber the Peace Prize. Vlearly he is expert.

Excellent article.

In Mr T's matrix for evaluating candidates, I sugest substation weight be given to those with whom pK takes issue - contrarian indicator. Solicit pK input then fade then apply Costanza rule.


Rex Andrus's picture

The Trump administration is more like a series of well placed UNEs sweeping through the (((ZOG))), devastating deplorables and their despicable henchmen, everywhere. I only hope they can nuke the Fed and restore the money powers to a congress that can pass a background check and a drug test before it's too late.

Iconoclast421's picture

Everyone has see that chart where the last 10 years have basically been the worst 10 years since the great depression. And this scum like Krugman will never take any responsibility for it. The middle class has been robbed frickin blind by these people.

Rex Andrus's picture

Economic warfare. And what did (((they))) do after they robbed us blind in 1913, 1936, 1963, 1979, 2001 and 2007?

koan's picture

Operation Bernhard.

tongue.stan's picture

buh buh buh his taste in music is so cool! and he likes CATS!

Blankfuck's picture


ElTerco's picture

Krugman is to the left what Limbaugh is to the right. I don't listen to either of them because they are both liars. They only tell the truths they want you to hear, and conveniently discard the whole truth.