Guest Post: Krugman, Diocletian & Neofeudalism

Tyler Durden's picture

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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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.

bigdumbnugly's picture

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

Bay of Pigs's picture

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

bigdumbnugly's picture

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

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


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.

brewing's picture

krugman has a face made for radio...

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? 

Umh's picture

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

malikai's picture

Solid 10 there mate. Excellent work.

francis_sawyer's picture

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

asteroids's picture

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

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.

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.

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.)

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...

Shizzmoney's picture

Only time will tell.

What country are you living in, pal?

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?" 

Vince Clortho's picture

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

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.

FEDbuster's picture

Worked out great for Zimbabwe didn't it?

Sudden Debt's picture

Easy! Inflation should be ZERO!

Vince Clortho's picture

Another way of saying End the Fed.

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.

bigdumbnugly's picture

the middle class to krugman = the christians of diocletian.

both pretty much wiped out.

AnAnonymous's picture


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.

Mercury's picture

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

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'

A Nanny Moose's picture

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

bigdumbnugly's picture

oh!  it must be 10 o'clock eastern.

gold and silver just nosedived right on schedule.

Chaffinch's picture

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

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%.

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

eddiebe's picture

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

Milton Waddams's picture

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

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.



AnAnonymous's picture

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

It is written in the text. So they had.

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.

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.

Umh's picture

That sounds like alimony and child support.

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
razorthin's picture

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

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!!!!!!

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. 

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?