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Guest Post: Krugman, Diocletian & Neofeudalism

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Submitted by Azizonomics

Krugman, Diocletian & Neofeudalism

The entire economics world is abuzz about the intriguing smackdown between Paul Krugman and Ron Paul on Bloomberg. The Guardian summarises:

  • Ron Paul said it’s pretentious for anyone to think they know what inflation should be and what the ideal level for the money supply is.
  • Paul Krugman replied that it’s not pretentious, it’s necessary. He accused Paul of living in a fantasy world, of wanting to turn back the clock 150 years. He said the advent of modern currencies and nation-states made an unmanaged economy an impracticable idea.
  • Paul accused the Fed of perpetrating “fraud,” in part by screwing with the value of the dollar, so people who save get hurt. He stopped short of calling for an immediate end to the Fed, saying that for now, competition of currencies – and banking structures – should be allowed in the US.
  • Krugman brought up Milton Friedman, who traversed the ideological spectrum to criticize the Fed for not doing enough during the Great Depression. It’s the same criticism Krugman is leveling at the Fed now. “It’s really telling that in America right now, Milton Friedman would count as being on the far left in monetary policy,” Krugman said.
  • Paul’s central point, that the Fed hurts Main Street by focusing on the welfare of Wall Street, is well taken. Krugman’s point that the Fed is needed to steer the economy and has done a better job overall than Congress, in any case, is also well taken.

I find it quite disappointing that there has not been more discussion in the media of the idea — something Ron Paul alluded to — that most of the problems we face today are extensions of the market’s failure to liquidate in 2008. Bailouts and interventionism has left the system (and many of the companies within it) a zombified wreck. Why are we talking about residual debt overhang? Most of it would have been razed in 2008 had the market been allowed to liquidate. Worse, when you bail out economic failures — and as far as I’m concerned, everyone who would have been wiped out by the shadow banking collapse is an economic failure — you obliterate the market mechanism. Should it really be any surprise that money isn’t flowing to where it’s needed?

A whole host of previously illiquid zombie banks, corporations and shadow banks are holding onto trillions of dollars as a liquidity buffer. So instead of being used to finance useful and productive endeavours, the money is just sitting there. This is reflected in the levels of excess reserves banks are holding (presently at an all-time high), as well as the velocity of money, which is at a postwar low:

Krugman’s view that introducing more money into the economy and scaring hoarders into spending more, is not guaranteed to achieve any boost in productivity.

As I wrote last month:

The fundamental problem at the heart of this is that the Fed is trying to encourage risk taking by making it difficult to allow small-scale market participants from amassing the capital necessary to take risk. That’s why we’re seeing domestic equity outflows. And so the only people with the apparatus to invest and create jobs are large institutions, banks and corporations, which they are patently not doing.

 

Would more easing convince them to do that? Probably not. If you’re a multinational corporation with access to foreign markets where input costs are significantly cheaper, why would you invest in the expensive, over-regulated American market other than to offload the products you’ve manufactured abroad?

 

So will (even deeper) negative real rates cause money to start flowing? Probably — but probably mostly abroad — so probably without the benefits of domestic investment and job creation.

Nor is it guaranteed to achieve any great boost in debt relief.

As Dan Kervick wrote for Naked Capitalism last month:

Inflation only reduces debt overhang in a significant way for households who are fortunate enough to see their nominal wages rise along with the general rise in prices. In today’s economy, workers are frequently not so fortunate.

Again, I have to bring this back to why we are even talking about debt relief. The 2008 crash was a natural form of debt-relief; the 2008 bailouts, and ongoing QE and Twist programs (which contrary to Professor Krugman’s apologetics really do transfer wealth from the middle classes to Wall Street) crystallised the debt burden born from a bubble created by Greenspan’s easy money policies. There would be no need for a debt jubilee (either an absolute one, or a Krugmanite (hyper)inflationary one) if we had simply let the market do its work. A legitimate function for government would have at most been to bail out account holders, provide a welfare net for poor people (never poor corporations) and let bankruptcy courts and markets do the rest. Instead, the central planners in Washington decided they knew best.

The key moment in the debate?

I am not a defender of the economic policies of the emperor Diocletian. So let’s just make that clear.

Paul Krugman

Actually you are.

Ron Paul

Ron Paul is dead right. Krugman and the bailout-happy regime for which he stands are absolutely following in the spirit of Diocletian.

From Dennis Gartman:

Rome had its socialist interlude under Diocletian. Faced with increasing poverty and restlessness among the masses, and with the imminent danger of barbarian invasion, he issued in A.D. 301 an edictum de pretiis, which denounced monopolists for keeping goods from the market to raise prices, and set maximum prices and wages for all important articles and services. Extensive public works were undertaken to put the unemployed to work, and food was distributed gratis, or at reduced prices, to the poor. The government – which already owned most mines, quarries, and salt deposits – brought nearly all major industries and guilds under detailed control.

Diocletian explained that the barbarians were at the gate, and that individual liberty had to be shelved until collective liberty could be made secure. The socialism of Diocletian was a war economy, made possible by fear of foreign attack. Other factors equal, internal liberty varies inversely with external danger.

While Krugman does not by any means endorse the level of centralism that Diocletian introduced, his defence of bailouts, his insistence on the planning of interest rates and inflation, and (most frighteningly) his insistence that war can be an economic stimulus (in reality, war is a capital destroyer) all put him firmly in Diocletian’s economic planning camp.

So how did Diocletian’s economic program work out?

Well, I think it is fair to say even without modern data that — just as Krugman desires — Diocletian’s measures boosted aggregate demand through public works and — just as Krugman desires — it introduced inflation.

Diocletian’s mass minting of coins of low metallic value continued to increase inflation, and the maximum prices in the Edict were apparently too low.

 

Merchants either stopped producing goods, sold their goods illegally, or used barter. The Edict tended to disrupt trade and commerce, especially among merchants. It is safe to assume that a gray market economy evolved out of the edict at least between merchants.

And certainly Rome lived for almost 150 years after Diocletian. However the long term effects of Diocletian’s economic program were dire:

Thousands of Romans, to escape the tax gatherer, fled over the frontiers to seek refuge among the barbarians. Seeking to check this elusive mobility and to facilitate regulation and taxation, the government issued decrees binding the peasant to his field and the worker to his shop until all their debts and taxes had been paid. In this and other ways medieval serfdom began.

Have the 2008 bailouts done the same thing, cementing a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to fund the excesses of the financial and corporate elite?

Only time will tell.

 

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Tue, 05/01/2012 - 09:54 | 2387933 WALLST8MY8BALL
WALLST8MY8BALL's picture

ManBernKrug!

Tue, 05/01/2012 - 09:58 | 2387938 MillionDollarBonus_
MillionDollarBonus_'s picture

I feel sorry for libertarians after seeing Ron Paul get totally annihilated by Dr Paul Krugman in yesterday's "debate" with the senile congressman. Throughout the show, I felt embarrassed from Ron Paul as he struggled to produce a single coherent argument but each time failed miserably. I find it saddening that after countless rebuttals of their discredited arguments, libertarians, Austrians, rednecks, goldbugs and anarcho-losers still cannot grasp the most basic elementary principles of economics.

Tue, 05/01/2012 - 09:59 | 2387950 bigdumbnugly
bigdumbnugly's picture

well, you are a sad, sorry dude so no surprises here

Tue, 05/01/2012 - 10:09 | 2387975 Bay of Pigs
Bay of Pigs's picture

Not his A game today. Too much ass ramming from Larry Summers yesterday.

Tue, 05/01/2012 - 10:20 | 2388007 bigdumbnugly
bigdumbnugly's picture

true.   it's tough to pen good stuff from a sitz bath.

Tue, 05/01/2012 - 11:05 | 2388160 Leopold B. Scotch
Leopold B. Scotch's picture

While I disagree that Ron Paul was destroyed by the genius of Krugman, RP is never a great debater.  There are many valid points left on the table and / or poorly delivered.  Probably why he hasn't taken a bullet yet from the establishment.

Krugman, on the other hand, is a elitist joke.  A classic example of academic arrogance and hubris, if ever there was.   His sycophants eat that shit up ("...He's a Nobel Prize winning PhD from Princeton, after all... I said PRINCETON, and NOBEL PRIZE, didn't you hear??? Hmmm?  Hmmmm? Danny?  Hmmm?), but it's just the same old socialist shit with a newfangled shine that Mises destroyed 70 years ago, Hayek after him, and then Rothbard, and now a ton of others.  

Krugman-fart-sniffers all high-five each other when dissing the Austrian School in Krug's shadow, oblivious that Krugmaniac himself constantly demonstrates his own ignorance in that he fails to understand some of the most basic concepts at at the core of Austrian theory. Or, as I believe, he constantly misstates Austrian theory, deliberately, in order to discredit it from his NYT pulpit of socialism, because the Krugster himself holds at the highest the idea of autocratic socialism, to be run by elites like himself who are just smarter than the rest of us disposable dimwits...  Krugman and his lapdog minions all share the common hatred for liberty.  The idea that "the people" can outshine the elites is a real bugger for them.

Austrian Theory = defends Liberty

Krugman / neo-Keynesian = pro Fabian (hidden from sight) Socialist Authoritarianism

 

Tue, 05/01/2012 - 10:11 | 2387980 fuu
fuu's picture

<yawn>

Tue, 05/01/2012 - 10:20 | 2388008 Major_Freedom
Major_Freedom's picture

I feel sorry for statists after seeing Paul Krugman get totally annihilated by Dr Ron Paul in yesterday's "debate" with the senile NYT pundit. Throughout the show, I felt embarrassed for Paul Krugman as he struggled to produce a single coherent argument but each time failed miserably. I find it saddening that after countless rebuttals of their discredited arguments, statists, Keynesians, hippies, fiatbugs and archo-losers still cannot grasp the most basic elementary principles of economics.

Tue, 05/01/2012 - 10:23 | 2388019 brewing
brewing's picture

krugman has a face made for radio...

Tue, 05/01/2012 - 10:40 | 2388087 lotsoffun
lotsoffun's picture

cooking socks.  everyday i wake up and tell myself i should be shameless and get ahead.  (no pun intended)  what's wrong with me? 

Tue, 05/01/2012 - 21:06 | 2389837 Umh
Umh's picture

The easiest thing to do on any day is what you did the day before.

Tue, 05/01/2012 - 10:33 | 2388060 malikai
malikai's picture

Solid 10 there mate. Excellent work.

Tue, 05/01/2012 - 11:28 | 2388265 francis_sawyer
francis_sawyer's picture

'Major'... We're promoting you to Lt. Colonel... Congratulations sir!

Tue, 05/01/2012 - 10:42 | 2388096 jomama
jomama's picture

3/10

Tue, 05/01/2012 - 10:54 | 2388137 asteroids
asteroids's picture

Dear MDB: Pleae stick to droll sarcasm. You are better at it.

Tue, 05/01/2012 - 13:44 | 2388674 RickC
RickC's picture

I am assuming when you say "cannot grasp the most basic elementary principles of economics" you are refering to eynesian Economics.  But Keynesian Economics is easy to grasp: its fundamental belief is of a free lunch.  Borrow, spend, and never worry about paying back.  Everything will be great. 

 

But Keynesian Economics is what has gotten us into this fix.  The strange thing about guys like Krugman is they believe this borrow, spend, aggregate demand crap is a step funciton.  If you do only a little, you get no benefit.  You have to do a certain large amount and then, voila, everything gets fixed.  But, none of the Keynesians actually wants to tell us what the large amount is.  Whatever does not work, just proves we needed to do more.  Keynesan Economics never works, but is impossible to prove wong.  What a con.

 

So, the pipe dream of a free lunch continues on.

Tue, 05/01/2012 - 10:04 | 2387954 FEDbuster
FEDbuster's picture

"the government issued decrees binding the peasant to his field and the worker to his shop until all their debts and taxes had been paid. In this and other ways medieval serfdom began."

 

Hence the recent move to take passports away from citizens whom owe .gov more than $50K in back taxes?  The number will only be there for a short time, then it will apply to all whom owe any back taxes.  In addition, the inability to discharge student loan debt which ofcourse is now run by .gov, creating a new class of debt serfs.

Tue, 05/01/2012 - 11:32 | 2388278 Marco
Marco's picture

They will have to tackle the problem of democracy at some point if they want to go that far. Otherwise at some point just owning the media won't be enough ... leftists or nazis will be voted in.

(Libertarians might get a shot for one term too, but with peak fucking everything and the initial asset distribution holding back growth they can produce nothing but social darwinism at least in the short term ... they won't get enough time to turn it around, even if in theory they could.)

Tue, 05/01/2012 - 13:56 | 2388714 ConfederateH
ConfederateH's picture

Don't forget the exit tax (or pre-paid death tax) required of those few audacious enough to dare to renounce their citizenship...

Tue, 05/01/2012 - 09:55 | 2387934 Shizzmoney
Shizzmoney's picture

Only time will tell.

What country are you living in, pal?

Tue, 05/01/2012 - 10:03 | 2387956 Aziz
Aziz's picture

A commenter on my site answered my question perfectly:

"Have the 2008 bailouts done the same thing, cementing a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to pay taxes to fund the excesses of the financial elite?


Do the bankers with their private jets have to go through the porno scanners and get groped by the TSA?" 

Tue, 05/01/2012 - 10:04 | 2387964 Vince Clortho
Vince Clortho's picture

No scanners, but I understand they really dig the groping.

Tue, 05/01/2012 - 10:12 | 2387981 Dr. Richard Head
Dr. Richard Head's picture

Even gansta-banksta's have standards.  Have you seen the male and female Sea-Cows that conduct said groping.  It would be better if the TSA just gave us some sort of glory-hole screening methods.  It beats closing one's eyes.

Tue, 05/01/2012 - 10:07 | 2387974 FEDbuster
FEDbuster's picture

Worked out great for Zimbabwe didn't it?

Tue, 05/01/2012 - 09:57 | 2387941 Sudden Debt
Sudden Debt's picture

Easy! Inflation should be ZERO!

Tue, 05/01/2012 - 10:03 | 2387957 Vince Clortho
Vince Clortho's picture

Another way of saying End the Fed.

Tue, 05/01/2012 - 14:07 | 2388750 ConfederateH
ConfederateH's picture

Inflation should be -1*productivity growth.  Anything else is the government/Fed looting any gains in productivity from the workers who have earned it.

Tue, 05/01/2012 - 09:58 | 2387944 bigdumbnugly
bigdumbnugly's picture

the middle class to krugman = the christians of diocletian.

both pretty much wiped out.

Tue, 05/01/2012 - 12:09 | 2388442 AnAnonymous
AnAnonymous's picture

Maybe.

It all depends on what one expects wiped out to mean.

Christians were a few decades from seeing their religion declare state religion.

Diocletian is the guy who started the solidus but hint, the same guy who made christianity the state religion, was to bring the Ponzi on line by supporting christian raids on non christian temples that had hoarded gold so far and pufff, minted in solidus.

Yes, they were being wiped out.

Tue, 05/01/2012 - 10:10 | 2387953 Mercury
Mercury's picture

War can only be a (broad based) economic stimulus if you win.

Tue, 05/01/2012 - 10:40 | 2388088 Terminus C
Terminus C's picture

and... you destroy the other side's capital goods.  if you take them over it is merely a transfer of wealth, not an opportunity for 'growth'

Tue, 05/01/2012 - 12:31 | 2388507 A Nanny Moose
A Nanny Moose's picture

Bingo. A point lost on Kruggybear as he struggles to explain our exit from TGD 1.0

Tue, 05/01/2012 - 10:03 | 2387958 bigdumbnugly
bigdumbnugly's picture

oh!  it must be 10 o'clock eastern.

gold and silver just nosedived right on schedule.

Tue, 05/01/2012 - 10:17 | 2387990 Chaffinch
Chaffinch's picture

It must be that guy with fat fingers trading again ; )

Tue, 05/01/2012 - 10:05 | 2387960 theTribster
theTribster's picture

Yes it has, we don't need to wait and see. This was a concious intention and by-product of the policies being implemented here and in Europe. All this does is guarentee that the rich stay rich and the poor stay poor, when I say rich I really mean th ultra-mega-wealthy, people that make up 1/10 of 1%.

Tue, 05/01/2012 - 10:05 | 2387963 Racer
Racer's picture

Nice for the UK banksters today that put up mortgage rates yet at the same time having savers in essence paying them to lend it out at this even higher rate, because the savings rate is miniscule and way lower than inflation

Tue, 05/01/2012 - 10:06 | 2387966 eddiebe
eddiebe's picture

After all is said and done, a lot more is said than done.

Tue, 05/01/2012 - 10:05 | 2387967 Milton Waddams
Milton Waddams's picture

The bolded and underlined text of the last block quote is both thematic and...delicious.

Tue, 05/01/2012 - 10:06 | 2387968 GMadScientist
GMadScientist's picture

Sure, let's pretend the Empire wasn't half-way into the crapper when Diocletian was a boy. These pointless analogies to (quite frankly misunderstood) sections of history are obviously tailored to provide the author with some kind of credibility for their pre-chosen economic views. At least you didn't abuse the US founding fathers for a change.

 

 

Tue, 05/01/2012 - 12:10 | 2388450 AnAnonymous
AnAnonymous's picture

Well, Romans knew of socialism. They had their socialist era.

It is written in the text. So they had.

Tue, 05/01/2012 - 10:17 | 2387996 prains
prains's picture

the difference between the ancient roman serf and the present day american serf is about 150lbs and the ability to apply sweat to something more than their next burger. there can be no 150 year decline only a 150lb decline before any fundamnetal change in ideology can be effective.

Tue, 05/01/2012 - 10:19 | 2388004 TheSilverJournal
TheSilverJournal's picture

"Tying a peasant to his field or a worker to his shop."

Kind of like gathering a few hundred thousand in education debt that's not dischargeable through bankruptcy and being forced to work a high paying job even if it makes you miserable, just to pay off the debt.

Tue, 05/01/2012 - 11:38 | 2388318 Umh
Umh's picture

That sounds like alimony and child support.

Tue, 05/01/2012 - 10:25 | 2388024 Sandmann
Sandmann's picture

It is a bit fatuous to complain about lack of discussion in mass media, all of which is owned by leveraged corporate interests dependent upon FIRE sector advertising. The farce that is "Economics" masquerading as a Normative Science rather than a highly partisan Social Science - and which betrays its original name - Political Economy.

 

As Political Economy it was more honest. There is no TINA Path in Economics - there is always a Choice. Political Economy is about Choosing and living with the Consequences. People have been duped into thinking it is all a bit complex and the man Without the white coat knows best - but he is simply a lobbyist for some interest group.

  • The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.
    • Ch. 24 "Concluding Notes" p. 383
Tue, 05/01/2012 - 10:28 | 2388042 razorthin
razorthin's picture

Off topic, but what begot the sudden market pumpitude?  News anyone, or just the garden variety covert Fed operations?

Tue, 05/01/2012 - 10:42 | 2388098 Dr. Richard Head
Dr. Richard Head's picture

No gnews is good gnews with Gary Gnu - http://www.youtube.com/watch?v=mAwVIZDAUF0

Tue, 05/01/2012 - 10:51 | 2388121 kridkrid
kridkrid's picture

Every morning before school... I'm thinking sometime around 1981.  Come and ride a fantasy, to a place where dreams fly fast and free... with new friends and new things to see, we'll spin you through the galaxy!!!!!!

Tue, 05/01/2012 - 10:29 | 2388043 Paul Bogdanich
Paul Bogdanich's picture

The people who fled the tax gatherers under Diocletian were roundy Christians and Jews.  He did not put up with this every man for himself with no duty to the broader society bullshit.  He also preserved the Empire and other than this clown author Diocletian is roundly credited with being one of the better Cesars who preserved the Empire.  Read Gibbon on the matter.  Hell even Wikipedia,  This author is poorly educated. 

Tue, 05/01/2012 - 11:45 | 2388345 Umh
Umh's picture

You are the one who needs to visit Wikipedia.

https://en.wikipedia.org/wiki/Colonus_%28person%29

 

Tue, 05/01/2012 - 12:44 | 2388537 LFMayor
LFMayor's picture

I'm going off memory, but didn't Diocletian empty the prisons when they became too expensive to maintain/feed?  His solution was to burn the prisoners on pyres at each street corner.  So Rome really was the city of Eternal Light.

Now that, that had merit. Taking the useless and the willfully useless and making something useful out of them.  Involuntary organ donors, anyone?

Tue, 05/01/2012 - 10:29 | 2388045 Major_Freedom
Major_Freedom's picture

This is all wrong.  We all know from our statist friends that the proper guage for understanding the effects of current trends is whether or not there is totalitarianism one minute from now.  

If there isn't, then we know it's just fear mongering.  Oh look, it's been about a minute, and there isn't totalitarianism, so that means everything everyone has done up until this point are not responsible for the march towards totalitarianism.  See?  I can still type these words.  My office is still here.  The world is fine, people.  Go back to watching American Idol.

Tue, 05/01/2012 - 10:30 | 2388050 ebworthen
ebworthen's picture

Q.  "Have the 2008 bailouts done the same thing, cementing a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to fund the excesses of the financial and corporate elite?"

A.  YES

"...zombified wreck."

Exactly.

TPTB are busy at this moment planning how to keep U.S.S.A. serfs tied to the country:  ending physical currency, outlawing PM transactions, international police actions to repatriate any asset along with the "flee'r".

Tue, 05/01/2012 - 10:32 | 2388059 spanish inquisition
spanish inquisition's picture

I heard Krugman had a debate on the MSM somewhere.... Anyone know who he debated?

Tue, 05/01/2012 - 10:33 | 2388061 Nukular Freedum
Nukular Freedum's picture

Friedmans view, which is the correct view, is that the artificial peg of the dollar to gold in the 1930s meant that markets could not clear, were sent into permanent disequilibrium (by government action).  Keynes used this disaster to justify still more intrusive government intervention to artificially boost aggregate demand (ignoring the real cause which was the gold peg), thereby making the situation still worse. Instead of drawing conclusions from the failure of their analysis and policy (that classical Liberal economics was correct all along) they stuck to their guns and so now we have Krugman, who is America's village idiot.
Really what they peddle is religious faith or metaphysics, there is no means of falsifying it (or they ignore the repeated falsifications presented to them).

Tue, 05/01/2012 - 10:51 | 2388103 Sandmann
Sandmann's picture

You know zilch.

http://books.google.co.uk/books/about/The_economic_consequences_of_Mr_Ch...

http://www.jstor.org/discover/10.2307/2123289?uid=3738032&uid=2129&uid=2...

http://www.abebooks.co.uk/servlet/BookDetailsPL?bi=2975317185&searchurl=...

Keynes OPPOSED the Return to the GOLD STANDARD in 1925 which Winston Churchill imposed at $4.8675 because of THE CITY OF LONDON and caused the whole economic dislocation of Britain throughout the interwar period.

http://www.guardian.co.uk/business/2009/mar/24/john-maynard-keynes-econo...

Keynes was strongly opposed to the idea that governments should raise their exchange rates to their old gold standard parities - a policy that he warned would only deepen the slump and lead to deflation. Three years later this was precisely the policy introduced - in the teeth of opposition from Keynes - by Winston Churchill.

 

It seems you know neither History nor Economics. The only remedy to the huge Unemployment in Britain was to boost demand instead of imposing Pay Cuts  see MAY COMMITTEE and then look at INVERGORDON MUTINY.

Why doesn't Obama impose Wage Cuts throughout the US Military as the British Government did in 1931 ?  Keynes opposed Churchill who was the dimmest bulb in the arcade and a serial disaster zone from 1906 onwards usually taking a bow for covering up his own errors of judgment.

Tue, 05/01/2012 - 11:03 | 2388161 Nukular Freedum
Nukular Freedum's picture

@Sandmann.
Nothing in what you posted contradicts anything I said. You may want to revise your views about which one of us knows zilch! Im just advocating free markets that can clear, whats wrong with that? You seem to think markets shouldnt clear but instead governments should boost aggregate demand, like your hero Keynes suggested. Yup, Im the one who knows nothing about economics and your the one who know everything!

My, made me laugh though!! Good one!

Tue, 05/01/2012 - 11:14 | 2388198 Sandmann
Sandmann's picture

So you want Walrasian Models with the Smoot-Hawley Tariff ?  Why did the US have a Smoot-Hawley Tariff ? How did that help free trade ?

Tue, 05/01/2012 - 11:23 | 2388232 Nukular Freedum
Nukular Freedum's picture

Obviously Im not in favour of the Smoot Hawley tarrif you fool. That was part of tge problem. Ever heard of the theory of comparative advantage? Ricardo not Walrus.

Tue, 05/01/2012 - 12:08 | 2388436 Sandmann
Sandmann's picture

Ricardian Trade Theory is distinctly unpromising and very flawed.

 

How do you feel about Fordney–McCumber Tariff of 1922.......you failed to mention Smoot-Hawley which was opposed by 1000 Economists and rabbited on about Gold which considering the US was slapping import controls on seemed a bit bizarre to focus on the Gold Standard and equilibrium

Tue, 05/01/2012 - 12:46 | 2388542 LFMayor
LFMayor's picture

Easy boys, one of you is going to tear a nail or something  LOL

Tue, 05/01/2012 - 14:35 | 2388843 Sandmann
Sandmann's picture

Hardly. But you have to fight the Forces of Unreason or they end up governing you !

Tue, 05/01/2012 - 13:02 | 2388577 Nukular Freedum
Nukular Freedum's picture

So the theory of comparative advantage (a logical truism) is "unpromising", whereas Keynes' opinionated drivel, so liberally quoted by you upthread is something to be adored So speaks the great oracle, case closed. 

I never said that trade tariffs were not a problem, Ricardian trade theory which you affect to despise implies that they are always wrong, even in 1922. I merely made the point, for simplicity's sake, that the gold peg was the fundamental cause of the persistant disequilibrium, which it was, the subsequent trade wars were simply a symptom of this and an aggravating factor.
The solution was therefore not to boost aggregate demand (Keynes and Roosevelt) which never works, but rather to eliminate the peg. But you cannot see this for some reason.

Tue, 05/01/2012 - 14:33 | 2388839 Sandmann
Sandmann's picture

Roosevelt pursued a DEFLATIONARY policy and Keynes' policies were never implemented. Word war Two saved the United States in 1939 with massive weapons oirders from France and Britain - and of course Churchill ordered weapons with no money to pay for them having given British gold to Roosevelt so he deficit financed a war to boost the US economy. So maybe Churchill was a Keynesian in the end to save his mother's country from ruin by destroying his father's country.

Tue, 05/01/2012 - 16:49 | 2389282 Nukular Freedum
Nukular Freedum's picture

Okay you're an interventionist not a free-marketeer I get it. Nuff said. About the rest of this bizzare post and your other recent equally bizzare posts we'll just have to differ.
So much for the "forces of reason" that still continue to "govern" us, to "govern" us good and hard.

Tue, 05/01/2012 - 14:42 | 2388865 Sandmann
Sandmann's picture

BTW Ricardian Trade Theory is flawed - it requires a Labour Theory of Value and Comparative Advantage is BS.  Brazil grows oranges cheaper than Florida or California, peanuts cheaper than Georgia, and makes steel cheaper than Pennsylvania........China never made computers in 2000 years until Clinton decided it should by granting MFN status.

What is the comparative advantage in making BMW Z4 cars or X5 4x4s in the USA and 750i cars in Regensburg ? What is the comparative advantage in SONY making remote controls in Mexico and selling its TV plants in Slovakia to Foxconn ?

What is the comparative advantage in building Cruise MIssiles in the USA but exporting them to Iraq, Afghanistan, Libya ?

What is the comparative advantage in having Investment Banks in New York over London ?

What is the comparative advantage of growing almonds in California instead of Turkey or Spain ?

Tue, 05/01/2012 - 16:53 | 2389324 Nukular Freedum
Nukular Freedum's picture

Crikey Im not your college Professor you know! Read a text book!

Tue, 05/01/2012 - 10:48 | 2388113 Nukular Freedum
Nukular Freedum's picture

My substantive point being that Krugman is being a shameless liar about Friedman.
Oh, and a hearty welcome to Major_Freedum!

Nukular Friedman.

Tue, 05/01/2012 - 10:57 | 2388146 Sandmann
Sandmann's picture

Milton Friedman did not have views so antithetical to Keynes as I know because I asked him. Friedman's view of the Fed was simply Monetary Contraction following the death of Benjamin Strong in 1928  ledto a sharp reversal of his monetary policy which he had pursued to enable Europe to recover from war. It seemed pretty logical that the US would have a surplus of GOLD having sold weapons for GOLD to the combattants and that with starvation in Poland and Hungary (see Herbert Hoover as hero providing food relief in Poland) and Germany needing loans from New York banks to get Dollars to pay Reparations as its trade was blocked by Versailles - you can see a more complex picture than the cartoonversion you make Friedman out to be. He was an intelligent man not some nut job spouting half-baked junk theories

Tue, 05/01/2012 - 11:17 | 2388210 Nukular Freedum
Nukular Freedum's picture

Well Im sorry if you think neo-classical economics is a junk theory and Keynesianism/monetarism are some kind of godsend. May I suggest that you, (who are obviously not a nut job) have your value system back to front?

Also im well aware of the minutiae of 1920s and 1930s economic history and the subtlties or otherwise of Friedmans thought (this is not the economic journal after all). Cartoonish. Lol.

Tue, 05/01/2012 - 12:05 | 2388423 Sandmann
Sandmann's picture

Well Im sorry if you think neo-classical economics is a junk theory

 

Do point out where I stated that..........btw do you still beat your wife ?

Tue, 05/01/2012 - 13:08 | 2388548 Nukular Freedum
Nukular Freedum's picture

So what exactly is your point then? That Friedman once told you that really he was a Keynesian all along? Okay, Ill grant you that happened in your mind. Next question?

Heavens man! When your in a hole stop digging!

Tue, 05/01/2012 - 14:30 | 2388824 Sandmann
Sandmann's picture

That Friedman once told you that really he was a Keynesian all along?

Did I say that ? No. You simply made it up.  Do you still beat your wife ? You have not answered yet so I must draw conclusions

Tue, 05/01/2012 - 10:36 | 2388075 geewhiz190
geewhiz190's picture

if the m2 velocity chart is accurate, then Hugh Hendry's observation about a rally in the trade  weighted dollar makes sense. Greater odds of a hyper-deflation before a hyper inflation.  commodities are at risk (CHina now wants to SELL copper) and yesterday's gold trade may indicate that someone wanted out badly.  Really not much to be learned from either Krugman or Paul.  Not a conversation, just a contest of competing dogma, no new insights. pretty dull stuff

Tue, 05/01/2012 - 10:41 | 2388089 BobPaulson
BobPaulson's picture

I wouldn't place Krugman in the same basket of Diocletian. If you set aside his penchant for persecuting christians which was terrible when vied through a modern lens (but perhaps not so out of the ordinary for his era), he was a damn successful emperor quite frankly. He was a good miltary commander, reorganized the empire, delegated authority very well and bascially brought things back from the brink. He managed to hold back the inevitable for arguably a century. I'm no expert on the topic but if the focus of the empire was already moving east to what would soon be Constantinople, this period of dividing up the empire into blocks perhaps was what was needed to prevent the entire collapse. Don't forget that only Rome was sacked later. It was the "christian" crusaders who put Constantinople to then torch 8 centuries later (proving that the only people christians hate more than muslims is other christians). Eight centuries is a long time.

Tue, 05/01/2012 - 11:11 | 2388193 Leopold B. Scotch
Leopold B. Scotch's picture

Rather than allow the current body politic to fall as it should, he ripped open the stores of economic seedcorn and began distributing them to one and all. That works for a while, always making the distributor's policies look good for a while... Until the future harvests are bare, and the entire empire goes "poof".

Economic gravity is a real bitch for authoritarian policy -- then and now.

Tue, 05/01/2012 - 14:06 | 2388748 Gohn Galt
Gohn Galt's picture

Krugman worships the devil.  He knew he had to play the truth game with Paul as Paul would call out his mistakes.  So in his truthful slippery responses, he proved that he understands history and economics very well.  And is in fact extremely aware of what is going on with the destruction and oppression of people the world over.  A planned and willing accomplice from the beginning, completely aware and delighted to see it through.

Don't you worry, if Krugman and his friends haven't topped Diocletian and their killing of christians, they will very soon get the desired numbers you are seeking.  And with these other deeds and altered histories, one only needs the will to find and understand the truth.  Maybe put out the lust for lies and murders.

 

 

 

 

Thu, 05/03/2012 - 05:21 | 2393174 DrunkenMonkey
DrunkenMonkey's picture

It's just a tale of contrasting personalities. One believes the means justifies the end and the other doesn't. I'll leave you to work out which is which.

Tue, 05/01/2012 - 10:42 | 2388102 Monedas
Monedas's picture

The Socialists tax us by day.....the Trayvon Martins tax us by night !   Monedas  1929    Comedy Jihad Serfers Shithole

Tue, 05/01/2012 - 10:52 | 2388123 socalbeach
socalbeach's picture

From the article,

Ron Paul said it’s pretentious for anyone to think they know what inflation should be and what the ideal level for the money supply is.

Actually Ron Paul said the central bankers don't know the proper rate of interest and the money supply:

http://www.valuewalk.com/2012/04/ron-paul-vs-paul-krugman-exciting-debat...

“I want a natural rate of interest. I don’t want the government or Federal Reserve fixing the rate of interest. That’s price fixing…This idea that somebody or some group might know what the proper amount of money might be or what the proper rate of interest should be is sort of presumptuous."

Tue, 05/01/2012 - 11:01 | 2388154 socalbeach
socalbeach's picture

Paul Krugman calling for a housing bubble in 2002,

 

Dubya's Double Dip?

By PAUL KRUGMAN
Published: August 02, 2002

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

"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."

Tue, 05/01/2012 - 15:44 | 2389088 SeanJKerrigan
SeanJKerrigan's picture

I'm not Krugman fan, but if you read carefully (like a lawyer would) he doesn't call for one, he simply says one would restart the economy -- which was true in a sense. He should be commended for accurately calling what was going on.

Tue, 05/01/2012 - 11:18 | 2388203 overmedicatedun...
overmedicatedundersexed's picture

IF the mafia was running wall street and DC..would the results look similar or not? what we have is mafia style leadership which pays off for the reptiles (men) who benefit from the loan sharking banks and gov debt.

buffet soros names that hardly sound sacilian. cosa nostra bitchezs.

economics of crime by any other name is still crime..corzine knows how to play the rape game and you all are talking economics?? LOL

Tue, 05/01/2012 - 11:31 | 2388262 JR
JR's picture

Fortunately, it’s not difficult to determine who’s right in the Paul/Krugman standoff.

Krugman’s combination Keynesian and crackpot economics, whether he will admit it or not, is now in full force and has been intensifying over the past decade.

One has only to check the results of this policy to determine how maniacally dangerous this path has been for America and the world.

By intentionally attacking sound money to artificially inflate the stock market and to keep corrupted bankers and public officials in their positions, the Fed cartel is purposely putting savers and investors seeking safe havens at substantial risk; consistently eroding their reserves through a transfer of wealth.

Krugman and Bernanke have created massive wealth inequality by manufacturing money at zero percent for the bankers while siphoning off savers’ stored labor at negative rates with confiscatory inflation.

By hitting sound money, the only thing left is risk. That’s all Krugman and Bernanke are offering -- on purpose.

“Countless seniors, widows and orphans would vehemently disagree with Mr. Krugman,” says Pater Tenebraum of Acting Man. “There are currently about $6.3 trillion in savings deposit and about $730 billion in small time deposits.”

To which Krugman offers his typical collectivist response:

“Finally, how is expansionary monetary policy supposed to hurt the 99 percent? Think of all the people living on fixed incomes, we’re told. But who are these people? I know the picture: retirees living on the interest on their bank account and their fixed pension check — and there are no doubt some people fitting that description. But there aren’t many of them.”

The typical retired American these days relies largely on Social Security — which is indexed against inflation. He or she may get some interest income from bank deposits, but not much: ordinary Americans have fewer financial assets than the elite can easily imagine. And as for pensions: yes, some people have defined-benefit pension plans that aren’t indexed for inflation. But that’s a dwindling minority — and the effect of, say, 1 or 2 percent higher inflation isn’t going to be enormous even for this minority.”

Krugman and Bernanke simply make up things as they go along. It’s the same old story using the same old people. Theirs is a completely fabricated program with the elites using the word inflation back and forth to justify whatever they are doing.

This is American Pravda; fortunately, people just don’t buy it anymore.

Tue, 05/01/2012 - 11:35 | 2388297 The Alarmist
The Alarmist's picture

"While Krugman does not by any means endorse the level of centralism that Diocletian introduced ..."

OK, let's stipulate that he's only advocated a half-Diocletian thus far. How long can you go down that road before you decide you need to keep following it to reach the promised land?

Tue, 05/01/2012 - 11:36 | 2388301 johnjkiii
johnjkiii's picture

This will end in the same way all socialist, money manipulation ends: In tears. As long as the bankers are in charge, it will be more gradual - maybe over all of our lifetimes. If/when the politicians take over, it will be faster, suddenly we will Weimarize the economy. Meanwhile, find a way to set yourself & your family up to survive it. Enjoy the Fed pumped stock run-up & then the inevitable inflation that will begin by vaporizing your mortgage but lead to the inability to borrow. There will be government restrictions on money movement and personal freedom, so have those plans in place. We are on the downside of the slope, it is icy and there is only the swamp at the bottom. Be a boy scout - be prepared.

Tue, 05/01/2012 - 11:50 | 2388361 surfsup
surfsup's picture

Krugman is a blind tool with no clue and to think students would take out loans to be shoveled this guys horse shit?  Paul is schreding these guys like no one's business.   Krugy is deflecting most of the conversation and can't take any of it straight on -- even the news presenter shill is holding a pathetic line.

 

THIS IS GOOD -- the more people who see this the MORE WHO WAKE UP!  Keep it up dorks!  You are waking SO MANY PEOPLE UP!  

tic toc

Tue, 05/01/2012 - 12:02 | 2388410 New American Re...
New American Revolution's picture

The only reason Congress is doing a worse job, is because they are not doing their assigned job of our Constitution.  To say that the FED is doing a better job at what they're doing is ludicrous, as they are as great a failure at performing their assigned power of Congress, as Congress is doing with the job they are not suppose to do.   The problem is that the entire mechanism of government is suppose to take place within the Public Forum, and this is how our Constitution is designed.   That is not the case anymore and its getting worse, not better.   Restore the mechanisms of the Constitution back into the Public Forum and everyone will either be out of a job, doing their job, or in the case of the states, doing a new job.   See www.nar2012.com

Tue, 05/01/2012 - 12:03 | 2388411 falak pema
falak pema's picture

its called totalitarian regimes where free will does not exist.

Tue, 05/01/2012 - 12:16 | 2388465 AnAnonymous
AnAnonymous's picture

and (most frighteningly) his insistence that war can be an economic stimulus (in reality, war is a capital destroyer) all put him firmly in Diocletian’s economic planning camp.

_______________________________________________

What is the opposition between an economic stimulus and capital destroyer?

Last time I checked, nothing in war tells that war should work wonders for people on whom the war is waged.

This does not mean that it does not provide an economic stimulus for the warmongers, war profiteers and US citizens of all stripes and sorts.

Tue, 05/01/2012 - 12:23 | 2388490 AnAnonymous
AnAnonymous's picture

Neofeudalism? What is that?

Actually, feudalism is a loose word that gather several different systems.

For example, during karl der grobe's period, fiefdom was not based on private property inheritance but on merit, the king leasing his land to his lords and taking it back if they misbehaved.

Viking invasions and it changed in a pretty solid property inheritance systemm.

Feudalism regroups various systems of social promotion, no day one with noble titles distributed once for all.

One has been adopted by US citizens: it constitutes in stealing wealth from others and to distribute it to the elected ones.

Eg: land. Same principle used by US citizens to promote their citizenry in the US.

Was it feudalism or something?

What is in action right now has a name: US citizenism.

It is useless to look elsewhere but at US citizenism.

Tue, 05/01/2012 - 12:39 | 2388530 MrBoompi
MrBoompi's picture

The way banks should add to the money supply is by issuing loans to businesses, and even this seems rather corrupt when you realize banks can lend out money that is just created out of thin air.  But lately they aren't really adding money to the money supply this way, at least not much.  When they monetize bonds, or give ZIRP loans to banks, this leaves the newly created money out of reach of the general economy, and both Krugman and Paul should be critical of this, as it increases inflation and provides no benefit to 99.9% of us.

Tue, 05/01/2012 - 13:12 | 2388600 JR
JR's picture

"Krugman brought up Milton Friedman, who traversed the ideological spectrum to criticize the Fed for not doing enough during the Great Depression. It’s the same criticism Krugman is leveling at the Fed now. 'It’s really telling that in America right now, Milton Friedman would count as being on the far left in monetary policy,' Krugman said." – The Guardian

It’s telling that Nobel Prize winning economist Friedrich Hayek was blocked from gaining a post in the University of Chicago economics department by Milton Friedman and George Stigler, because they deemed him not scientific enough, that is, not a positivist.

http://www.economicpolicyjournal.com/2012/04/revealed-men-who-blocked-hayek-from.html

Friedman was seventh-eighths libertarian; but in the end, he was not about turning his back on the authorities who run the country. Friedman agreed that the free market will not work without assistance. He never acknowledged that the Federal Reserve is at the center of our modern economic crisis which disqualifies him as an American economic patriot.

Tue, 05/01/2012 - 14:01 | 2388728 Nukular Freedum
Nukular Freedum's picture

Friedman's case is a little more complex than you suggest. This paper shows how close Friedman moved to the free-market model (and by implication away from interventionism) later in his life:

http://www.cato.org/pubs/journal/cj28n2/cj28n2-12.pdf

Tue, 05/01/2012 - 15:18 | 2388969 JR
JR's picture

The Monetarists adhere to the theories of Milton Friedman that money should be created out of nothing but with the supply determined by a strict formula established by Congress; the Supply-siders want the quantity of money determined by the gold-price rule but not gold-backed. They are alike in their underlying philosophy. They may have different goals and formulas, says G. Edward Griffin, but “they agree on method: manipulation of the money supply. They share the same conviction that the free market will not work without assistance.”

Keynes, of course, was a fake, and brilliant.  He knew exactly what he was doing, advocating policies that would lead to total state control by the elites whereby the State provides the market. He was brilliant enough to know that his policies would lead to the elites controlling the world’s economies, which, as a Fabian, was his goal. He was the main theoretician behind the Bretton Woods agreement that established the IMF and World Bank as mechanisms for eliminating gold from world finance in order to escape its discipline and, thereby, enable money to be created out of nothing without paying the penalty of having their currencies drop in value on world markets  -- the prelude to world socialism.

I willl digest your paper tonight. Thanks.

Tue, 05/01/2012 - 17:08 | 2389385 Nukular Freedum
Nukular Freedum's picture

Your welcome JR. Thoroughly agree with you about the Hayek issue btw. Bad business and similar things befell Mises also at the hands of the interventionist crowd. They're complete shits really and total control freaks.

Tue, 05/01/2012 - 13:42 | 2388670 penexpers
penexpers's picture

Fuck you, Diocletian!

Tue, 05/01/2012 - 13:47 | 2388692 james larson
james larson's picture

Good article I sure think... and amplifies what most of us surmise around Krugman:  Inflation seems to be the only way to validate the massive spending premise.

Real growth sure wont so lets inflate the results.

 

More here that points to the same points and I happen to agree with what Higgs sees for near/mid term

 

http://blog.independent.org/2012/03/08/likely-fiscal-and-monetary-legacies-of-the-current-crisis/

Do NOT follow this link or you will be banned from the site!