Sunday, December 19, 2010

The Evil Paul Krugman Attacks Ron Paul

Wow, I guess Paul Krugman got spoken to about calling Ron Paul consistent. I mean he must have gotten really reamed.

He is out with a new absurd attack on Congressman Paul that ranks up there with the Kennedy Assassination  magic bullet theory for absurd reasoning. The year is not quite up yet, but I'm pretty sure this post alone will result in Krugman getting this year's Gene Callahan Award for Absurd Argumentative Style.

Krugman writes this:

I used that term — it’s probably not original, but who knows? — in a recent post about the increasingly obscure meaning of the money supply. The best example would surely be Ron Paul, who’s now going to have oversight over the Fed. If you read his stuff, it’s very clear: money is a well-defined quantity that the Fed controls, and inflation comes from — indeed is defined as — increases in that quantity.

What he means, I guess, is monetary base. Here’s the actual relationship between monetary base and inflation:

It’s also worth nothing that in normal times (not now), monetary base consists overwhelmingly of currency (bank reserves are normally very small), and the majority of US currency isn’t even being held in the United States.

It’s kind of terrifying, in a way, to realize that the politically dominant faction in America right now has a view of money, what it is, and how it works that hasn’t been true since the early 19th century, if it ever was.
Let's take a part this nonsense, piece by piece. Krugman writes:
What he [Ron Paul] means, I guess, is monetary base.

Krugman knows damn well that the monetary base is not the same thing as the money supply--and that the distinction became important once excess reserves started piling up, to the tune of a trillion dollars, in the monetary base. Further, Krugman knows this trillion dollars in excess reserves is money sitting outside the system, i.e., it is not in the economy. It is pure evil when Krugman suggests that Congressman Paul thinks that the monetary base is the same thing as the money supply. During television interviews, I have heard Congressman Paul on many occasions comment that there was a huge amount of excess reserves in the monetary base and that it was a threat to explode the money supply. This clearly indicates that Congressman Paul knows the difference between the monetary base and the money supply.  (Note: Don't send me an early clip of Congressman Paul talking about the monetary base, without reference to excess reserves, as Krugman points out, monetary base was different in "normal times". Once it became clear that excess reserves were flooding the monetary base, Congressman Paul clearly noted that the monetary base was not moving in correlation with the money supply)

Thus, the chart Krugman runs to show the supposed disconnection between the monetary base and price inflation, and implying that Congressman Paul thinks there is a connection, is deception far beyond that of his Princeton buddy, Ben Bernanke, who claimed that he is currently not printing money.

Krugman goes on with even more nonsense by calling Ron Paul's view the politically dominant view. Ron Paul subscribes to the Austrian School of Economics. While gaining in popularity, it's about as politically dominant as the legalize LSD movement.

Labeling Paul's view as the politically dominant view appears to be a slick attempt to muddy Ron Paul with the economic mess that is surely coming. "Hey, the politically dominant paleomonetarism/Ron Paul view is what got us in this mess."

Krugman will most surely please his masters with this latest nonsense, but how he is able to sleep at night, I have no idea.

You might say, it’s kind of terrifying, in a way, to realize that the New York Times is willing to give space to Krugman who writes such rubbish that distorts and confuses America about what is really going on in the economy.


  1. Sadly, my niece attended Public Health Policy at University of Michigan and they actually, when in economics, studied it real time based on Krugman's columns. She was an the best student the profs every had, my brother was told, and I thought poor thing will never undo the damage those profs did to her.

  2. These guys are up against the wall. The con has been exposed and the marks are angry. They are trying desperate to reestablish their credibility. What is worrisome is that in the past their modus operandi in these situation has often lead to assassination of the messenger. Dr. Paul, perhaps both of them, needs to be alert and cautious. Perhaps the best thing that libertarians and Austrians can do is to expose and publicize the connections between previous American political assassinations and attempts to decouple the banks from monetary policy. The more Americans understand what is going on, the less likely the banking elite is to attempt such a thing or or to believe it could be covered up.

  3. Wenzel,

    Notice that Ben Bernanke, on 60 Minutes, referred to the money supply as the monetary base (when he lied that it wasn't increasing) and yet Krugman never went to town on him for his paleomonetarism.

    What do you call that in psychology, when you blame others for the errors you make? Projectionism?

  4. The saddest part, is that the people that read Krugman do not read economically sound blogs (i.e. EPJ)....I only hope that people who read his column will dig deeper into Ron Paul's ideology, and realize he is a true Constitution abiding elected official.

  5. Who cares? The NYT is dying a slow death anyway.

  6. I think that just in general for Dr. Krugman to use the CPI given its manipulations ( is extremely disingenuous, but that's not something beyond him.

  7. So Krugman is a shill, what's new?

    For the daughter mentioned above who studied economics via Krugman's columns, her parents should give her Richard Maybury's book "Whatever Happened to Penny Candy?" EVERYONE to whom I've given a copy or recommended it to has come back with the comment "WE'VE BEEN LIED TO ALL THESE YEARS??????"

    Even my eleven year old understands inflation of the money supply and the resultant effect of increasing prices/reduced purchasing power.

    Krugman's an idiot.

  8. I managed to post a link to the Bob Wenzel’s post on the Krugman blog here.

    The italics I used for the Wenzel quote do not appear in the comment.

  9. Hey, not all us Krugman-haters are JFK Conspiratoids. I think Oswald did it alone. I was persuaded years ago by Jean Davison, Oswald's Game.

  10. @Stephan

    I'm curious. Do you believe in the magic bullet theory?

  11. Thanks for the suggestion on Richard Maybury's book "Whatever Happened to Penny Candy?" But possibly I failed to explain. She received a Masters from a very exclusive program in Michigan. Her mother, my sister-in-law has taught Sociology at a University most of her life and the whole family thinks I'm cracked.. Ever since I left the fold after realizing the insanity of redistribution and its unintended consequences and how it was ruining lives. That was where I started. Then I moved to Libertarian party where I heard many similar views and when Ron Paul decided to run, I put my money where my mouth was .. and did all I could to help his cause, including driving to Des Moines more than once with a carload to swell his numbers. If I gave her a book, it would end up in trash, I fear.

  12. It will be interesting to see what kind of tactics and cheap tricks Krugman will resort to as time goes on. More and more people are seeing the nature of game.

    His economic voodoo and tap dancing can only work for so long.

    BTW, has anyone heard anything from Krugman regarding Dr. Murphy's economic debate challenge?

  13. I tweet on Cspanwj almost every morning. While there are still many who can't or won't see, many have read my blog here <-- How federal reserve helps the rich and understood the concept Feel free to comment or advise. I'm no economist. Thanks
    And if you tweet, we could always use another tweeter who understands fiat dollar and the damage it causes.

  14. He's able to sleep at night because like most Ivy League, elitist, self-important, condescending, smug, arrogant intellectual douchebags, he's completely devoid of any sense of reality but that one which he ideologically sticks to, no matter how often it is debunked. Just like so many of his ilk, when he's wrong, he lies, uses obscurantist jargon, and like the lying weasel he is, avoids, deflects and lies because his ego is too invested in being correct... and in those fancy letters behind his name, which I've found, tend to indicate the actual lack of true intelligence of a person.

    B.S. = we all know what that means
    M.S. = More of the Same
    Ph.D. = Piled Higher and Deeper

  15. Paul Krugman's interpretation is completely fair. Ron Paul through out the past two years has claimed that the federal reserve has doubled the money supply dozens and dozens of times. He doesn't even mention the monetary base or excess reserves. He just tells people that the fed has literally doubled the money supply without even trying to make any distinction between the base and the money supply.

    here's from 2009.

    "I think the fact that they can double the money supply like they did in the last year… that is horrendous amount of inflation."

    "But the Federal Reserve doubled the money supply last year, so if you have a treasury bill that is 5 years and you finally go and take the money out in 5 years, instead of getting $1,000 back you might $500 worth of purchasing power or $400 worth of purchasing power."

    Here's from 2010:

    "We spent much more, we borrowed much more, we inflated much more, doubling the money supply, and then we go and pass this financial reform package, massive amount of new regulations and they wonder “why hasn’t the economy responded?”

    "Yeah, I think so. People know the prices are going up. But you know, that emphasizes the difference between the Keynesian definition of inflation versus an Austrian. Keynesians say, “When the prices rise,” but the prices go up as a consequence of inflation. Inflation is when you increase the money supply. So, we’ve had inflation when Greenspan had interest rate of 1%. He did that through inflating the money supply. And just think, with what Bernanke has done since then, doubled the money supply. There again, he spent $2 trillion bailing out his buddies. That’s unauthorization and appropriation and it’s off the books. We can’t even find out what they did."

    He's clearly referring to the monetary base as the money supply. If he actually doesn't think the monetary base is the moneys supply, why does he constantly say that the fed has doubled the money supply? M1 and M2 certainly have not doubled.

    What exactly do you expect from Krugman? Anyone else would come up with the exact same conclusions that Krugman did about Ron Paul's definition of the money supply. He's not a mind reader. God forbid Krugman might have missed the one interview out of dozens where Ron Paul shows he understands that the monetary base isn't the money supply.

    I'll just give Ron Paul the benefit of the doubt and assume he's just making an honest mistake. If this is the case, Ron Paul is being really sloppy. But how can you fault Krugman when Ron Paul was the one who who has been referring to the monetary base as the money supply? Not just once, but dozens of times. Look it up yourself in the archives.

    Either way, it doesn't change the fact that Ron Paul has been telling his supporters the money supply has doubled. It may be a technical mistake, but it's a damn critical one, especially for someone who has been named head of the House subcommittee on monetary policy.
    Do you guys honestly find nothing wrong with Ron Paul telling regular Joes with no econ background that hyperinflation is coming because Ben Bernanke has doubled the money supply? Keep in mind that for the regular Joe, there's only one money supply. All of it. There's no way they would know Ron Paul is talking about the monetary base.

  16. post don't seem to be going through. This is just a test post. Maybe my previous was too long to accepted or something.

  17. @Thisguy

    Oh puhleez.

    Like I said in the post, don't send me nonsense about Paul referring to money supply doubling. As Krugman himself says, during "normal times" the excess reserves don't pile up the way they did this time.

    The point is that when Paul realized that the excess reserves were piling up he specifically started to mention the difference between the monetary base and money supply.

    Since Krugman new this was a new phenomena it was his responsibility to see if Paul ultimatelr recognized and differentiated between the monetary base and the money supply--which he has long before Krugman came out with this nonsense post.

    Half the working economists still don't understand the difference. and Krugman knows it. In other words Paul understands the nuances of money supply better than a lot of economists.

  18. "As Krugman himself says, during "normal times" the excess reserves don't pile up the way they did this time. "

    Yes, exactly. Krugman isn't claiming that the excess reserves is part of the money supply though. Ron Paul still IS. Those 2010 quotes was just barely two months ago. It's one thing if those quotes were pre-recession, but there's no excuse now. The only way one could say the money supply has doubled is if one defines the money supply as the monetary base including excess reserves. Ron Paul may have recently understood that most of the increase of the monetary base is excess reserves, but he's still referring to the monetary base (including excess reserves)as THE money supply. And as you mentioned, the money supply does not include excess reserves. So Krugman is completely correct in his interpretation.

    "The point is that when Paul realized that the excess reserves were piling up he specifically started to mention the difference between the monetary base and money supply"

    Excuse me if I don't take your word for it. Please, find me a recent quote where he makes a concrete distinction between the monetary base and the money supply. I found a couple quotes where he mentions the monetary base and the piling of excess reserves, but he doesn't make the specific distinction.

    It's possible that Ron Paul does understand the difference, but why does continue on insisting that the money supply has doubled?

    Simple question for you. True or False. Has the money supply doubled since the recession started?

    If true, the only way that makes sense is if one defines the money supply has them monetary base, including excess reserves. This vindicates Krugman's interpretation. If false, then Ron Paul is wrong in repeatedly saying the money supply has doubled. So how can you blame Krugman for his interpretation when Ron Paul keeps on saying the money supply has doubled?

    And again, I would like you to take into consideration the implication that he does understand the difference between the money supply and the monetary base, but yet continues on saying that money supply has doubled. If one were ignorant in basic economics, which I imagine a large portion of Ron Paul's base is(I don't mean this any insulting way. The majority of the the US, liberal or conservative, doesn't know what the monetary base is. No shame in that), and if one were to hear Ron Paul saying that the money supply has doubled (without even mentioning the the monetary base), one would naturally assume ALL of the money has doubled. So Ron Paul has effectives been telling people that hyperinflation is coming because Ben Bernanke doubled the money supply, which isn't correct. Do you not find anything wrong with that?

  19. If you're going to edit the submitted data on quotes, then please define "normal times" with dates. Otherwise, you're going to have people sending you things because they're normalizing with a difference reference.
    I'll concede that Ron is imperfect. But if he is a zombie, then Paulian's are zombies by association. Yet how do they explain why Krugman and Bernake's brains don't look remotely edible??? In fact the idea makes me nauseous.

  20. Here here- I too am amazed at how Krugman is so far out there- there was a time when I thought the man was ok but his recent attacks on Ron Paul using distortions have crossed the line. Not surprising the New york Times published this tripe as they have a history of obscuring the facts when the facts threaten the "status quo."

    The question is how do we change it especially now when it seems net neutrality will soon be a thing of the past.

    Oh Obama wherefore art thou!

  21. www.freemarketfan

    What is truly pitiful is that Krugman and Bernanke do not realize that lowering the rate of interest artificially will lead to malinvestment. We have had two examples of this in just the past decade alone with the Dot-com and then housing boom.

    Ron Paul understands this truth and it will be a pleasure to see him grill Bernanke and expose the Fed's mischief to the masses.

    See above link for short explanation:

  22. That's a good point about how Ron Paul has referred to the money supply. I remember correcting someone (not economically literate) a year ago who quoted Paul and interpreted what he had heard as a doubling of the money supply causing a doubling of prices. I told him that it was the doubling of the monetary base which is currently locked up at the Fed and that we won't see price increases until the banks start lending and the money multiplier kicks in.
    Ron Paul has unfortunately carelessly worded it and opened himself up to this. And if an idiot like me understands the concept, I know Ron does.
    I think perhaps it just has to do with Ron's way of simplifying the message for laymen, something for which he usually has a knack. As a stickler for precision though, I wish he had made the distinction even if most people wouldn't understand it.

  23. @Anonymous 12:54

    Very true, of course, he understands the difference. Ron Paul is not trying to provide a graduate level course on monetary policy in a 15 second sound bite on television.

    Krugman clearly understands this as does Thisguy.

  24. @Thisguy

    It's clear Ron Paul knows the difference between monetary base and money supply.You say so yourself:

    " I found a couple quotes where he mentions the monetary base and the piling of excess reserves, but he doesn't make the specific distinction[between monetary base and money supply]"

    Paul has made these type statements about the monetary base on the House floor:

    For you to say that he doesn't understand the difference between the monetary base and the money supply is absurd. This is like saying that someone who is talking about jeeps isn't aware of other types of transportation, and that he thinks jeeps are luxury cars.

    You are beginning to sound like Gene Callahan.

  25. "Paul has made these type statements about the monetary base on the House floor:"

    This doesn't show whether or not he understands that the monetary base isn't the money supply. It shows that he understands what the majority of recent increase is excess reserves, but it doesn't show if considers the excess reserves as part of the money supply. Another possibility is that he does understand the mainstream difference, but he doesn't care and has his own definition for the money supply that includes excess reserves. Or he's just cherry picking from the various money aggregates to strike the most fear about hyperinflation. Nothing in that speech contradicts Krugman's assessment.

    Okay, fine. I'll just assume he does understand the difference. He just hasn't been clear on it. But here's the main point I'm trying to make. If Ron Paul continues on saying that the money supply has doubled, then there's nothing wrong with Krugman's interpretation. Maybe Krugman is wrong about Ron Paul's internal understanding, but he did not misinterpreted Ron Paul's actual words. If Ron Paul truly doesn't believe the monetary base isn't the money supply, then it's actually Ron Paul's own fault that people misinterpret him because he's being sloppy with his terminology. Here you are calling Paul Krugman evil because of Ron Paul's own sloppy mistake that he has repeated dozens of times.

    Last question. Can you at least agree that telling people that the money supply has doubled is horribly horribly incorrect? There's way too big of a difference between the monetary base and the actual money supply to simplify it to the extent that Ron Paul has the past two years.

  26. Bob, if I undersatnd your question--the "magic bullet" theory is a disparaging term used for the official explanation. I believe the official explanation is correct. Oswald did it, and acted alone.

  27. Hi Stephan,

    No my question is if you believe specifically in the "magic bullet" theory, or do you discount that part of the official explanation.

    I am not a ballistics expert by any means and so I am not questioning the validity of this view, but simply curious as to your view on that specific part of the official theory.

    I haven't heard many that support that view, and if you do, I was just going to pay closer attention to those who support that part of the official theory.

  28. The technical distinction between monetary base and money supply is irrelevant in practice. The part of the monetary base that is not technicaly in the money supply - deposits of commercial banks in the central bank - is already money. It exists. What money exists for? To mediate transactions, to allow indirect exchange to happen. The banks´ money in Fed´s vaults is already money in existence - inflation therefore did already happen - and it´s a matter of time before they circulate and exerts pressure on prices - price inflation. Ron Paul is right in ignoring this techicality.

  29. I guess the reason the NYT continues to devote a column to this moron's views is because they don't have anyone on staff to edit his comments. After all, to edit his comments would require someone who has knowledge of basic economic theory. Or at least, more knowledge than that moron Paul Krugman, which would be easy to achieve; but I guess no one on the staff of NYT can fill the bill.

    The pathetic thing is, that jerk was awarded a Nobel Prize in Economics! But that says more about the committee that awards Nobel Prizes than it does about the disgusting absurdity of the lack of economic knowledge possessed by Krugman.

  30. Despite the difference between monetary base and money supply, its still as if they're doubling the bad bet the Fed already made, with Krugman and others fending off critics.

    It works in Blackjack, after all, if you have enough money to double indefinitely that is... of course, every loss doubles your risk, and the best you can ever hope for when facing consecutive losses is to break even in the end.

    Surely, that's worth plunking down another Trillion, right?

  31. "It’s kind of terrifying, in a way, to realize that the politically dominant faction in America right now has a view of money, what it is, and how it works that hasn’t been true since the early 19th century, if it ever was."

    excellent! so good to see that krugman has finally been pushed into a debate about the definition of money.

    now we've really got him!

  32. "What is worrisome is that in the past their modus operandi in these situation has often lead to assassination of the messenger.

    And that is exactly what happened the last time someone seriously took on The Fed.

  33. Irrelevant as one other person stated on here. Jackboots thinks he can confuse us with his jargon. Increase of dollars in existence is an increase of admission ticket to be redeemed for gross domestic product and capital at some point. Reserves, monetary base, and money supply are just convenient ways of separating now versus later inflation created at the end of the money printing press and expanding Fed asset sheet and when people/banks realize its time to cash in on real goods and production then watch out. The stampede of buffalo won't model after any of their equations and their terminology and jargon will be pointless, kind of hard to explain infinite money velocity with continuous equations that never predicted it in the first place. Their equations and terminology is so good they forgot to predict the housing bubble. The problems is that economist are like our global warming scientist. They think they can predict nonlinear differential equation even when a inconsequential butterfly is ignored. Usually the more ideal and theoretical the less real and stupid. If anything I'm more scared of reserves piling up like an avalanche effect. One of these days all these brilliant A-holes are going to realize just exactly why gold was made so it couldn't be counterfeited by the politicians and educated fool elite. Power to the people, more for the individual less to the politicians, and educated yes men.

  34. @thisguy and/or @robert wenzel

    So my question to you two is, and feel free to school me as you clearly know more about economics than I do, will the excess reserves in the monetary base always be excess? Or if we get back to "normal times" wont they in fact flood the market therby doubling the money supply?

    I think Ron is just putting it into simple terms, I am an avid supporter but with the quotes you throw up there I certainly understand why Krugman could come to that conclusion (although he should do more research and however he is still wrong about 90% of the time about everything). However isnt it true that the monetary base will become the money supply at some point in the not to distant future?

    For Instance, I mean if you have been to LRC today they have a article that gives an analogy of a economy that has a money supply of $3 trillion. The fed gives me $1 trillion. Obviously if I sit on it no inflation will occur, if I take years to spend it the inflation will be slow, if I flood the market with it as soon as I get it, inflation would be 33%. So unless the Fed was putting billions and trillions into accounts like AIG's (as they dont even have to print anymore than can just click a mouse) I doubt very seriously they put stipulations on the money like for instance they could only spend 15% of the money each year. And since they didnt do that isnt it true that if the market ever begins to grow again this money (excess reserves) will flood the market thereby inciting inflation and likely hyperinflation? Granted if the Fed had given away the money with stipulations this may not be the case but since they didnt isnt that sort of inevitable?

    I think that is what Ron is saying when he warns of hyperinflation, at this point it is not even in Helicopter Ben's hand....correct? Dont know which would be better in Ben's hands or companies Timothy Gietner used to run...(albeit into the gound haha)

  35. 1. Austrian economists generally define inflation as an increase in the money supply. Mainstream economists typically define inflation to be an increase in prices. That explains part of the misunderstanding.

    2. Personally, I don't care what the standard definitions of the money supply are.

    If the Fed executes an electronic transaction that allows it to buy assets (bonds?) from banks with money that did not already exist, it is printing money regardless of whether it ends up as excess reserves or gets lent out. The very act of buying assets like bonds is increasing the value (INFLATING) those assets and lowering interest rates. Inflation is applicable to financial and other assets, not just consumer prices.

    3. Krugman obviously has a political agenda. He's trying to attack and discredit sound money and anti Fed political opponents. He's not trying to engage in open dialogue with better communication.

    What is not clear is if Krugman is a moron that doesn't understand why his economics are so destructive, the cause of repeated booms and busts, guilty of transferring billions of dollars from the bottom of the economic ladder to the top via artificial interest rates (truly evil) or whether he fully understands his policies and is a scumbag with badly misplaced values.

  36. Ron Paul is correct, the total supply of money has doubled. Just because some of it is being held in reserve doesn't negate this fact and prices are already starting to reflect this reality. If oil reserves doubled, even though they hadn't been put into circulation, would you expect the price of oil to be unaffected by this? When the money reserves are finally put into circulation, watch out. Lucky for Krugman and Bernanke that most people (even educated one) don't have clue.

  37. "it’s kind of terrifying, in a way, to realize that the New York Times is willing to give space to Krugman who writes such rubbish that distorts and confuses America about what is really going on in the economy"

    scary, maybe, depressing, more likely, but not as a surprise considering the things The New York Times stand for, like openly praising communists or by acquiring their current building through the use of Eminent Domain.

  38. Who wants to bet on how long it will take Dr. Paul to make Benny cry? If someone actually holds the FED's proverbial "feet to the fire" The Bernank will have to admit to the GIANT GOVERNMENT / CORPORATE FRAUD that has sent the American middle class and our formerly great country into a death spiral of Facsisim and Economic Collapse.

    Ron Paul 2012 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  39. Krugman == retard/sellout

    Ron Paul == Political Rock Star

    Ron Paul in 2012!
    Get ready cause it's going to happen!

  40. Krugman is not a moron. He is an intelligent, well-paid shill for the ruling class who can articulate the philosophy of Keynes to the masses and thus provide cover for the (former Goldman-Sachs) political appointees when they shovel our money into the pockets of the Banksters.