Monday, December 6, 2010

Who Knew Bernanke and Krugman Had Cult Followers?

This is really getting out of control. With signs of price inflation everywhere, the Princeton deflation cult, led by Ben Bernanke and Paul Krugman, continue to pick up followers.

This morning we have Fortune's Chris Barr writing:
Like it or not, history shows Ben Bernanke is right to say inflation isn't knocking at the door.
Barr then just regurgitates Krugman's post of yesterday, which I discussed the problems with here.

At Bloomberg, Greg Quinn writes:
Montreal undergraduates may help reshape the Bank of Canada’s monetary policy and give Federal Reserve Chairman Ben S. Bernanke and Bank of Japan Governor Masaaki Shirakawa clues about how to ward off deflation.

Quinn goes on:
About 240 students so far have spent two hours in a 25th- floor computer lab near McGill University, earning an average of C$30 ($29.88) by viewing combinations of economic data, including unemployment and gross domestic product, and then predicting what would happen to inflation. Central bank researchers are taking part in the project to see whether people can make such forecasts more easily if policy makers target specific levels in the consumer price index instead of the inflation rate -- which might help households and companies make better decisions about spending and investing.

Of course, as Mises and Hayek taught us, there are no quantitative constants in the world of economics, like there are in the natural sciences, e.g. there is nothing equivalent in economics to water freezing at 32 degrees, these models will eventually blow up. Just like the models Long Term Capital Management used and buyers of subprime mortgage paper used.

Secondly, if the students are starting with a formula that indicates we are in a deflationary period, then there equation is already out of whack and they are just a bunch of Krugman-Bernanke Kool Aid drinkers.

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