Saturday, April 2, 2011

Krugman Disses Himself

In a blog post titled, The Pain Caucus of 1937, Paul Krugman stretches reality far beyond anything Lady Gaga would even try. In other words, Krugman's post is beyond even arriving at the Grammy Awards in a giant egg that is carried by four men.

He quotes from a 1937 article in the Harvard Crimson, in order to prove his vies that "The Pain Caucus" is always wrong. The "Pain Caucus" being the Austrian School of economics and any other group in favor of fiscal responsibility.

The 1937 article reports on a radio forum which, according to Krugman, references:
 Associate Professor Seymour E. Barris [sic], and instructors Richard V. Gilbert and John K. Galbraith of the Economics Department in a radio symposium [where the then]dangers of a threatening business boom were outlined.
Krugman then shows a chart of prices and the economy going into a tailspin, because the Fed took heed of such warnings. But what does this have to do with current day Austrian economists or other anti-Keynesians?

Seymour Harris was as Keynesian as you can get.  In 1948 he wrote an article for the Harvard Crimson that was so Keynesianism that it could have been written by Krugman himself:
In the war years, New Dealism was forgotten; even Harry Hopkins, according to Sherwood, was sick of "those Goddamn New Dealers." In this period the economy needed no shot in the arm. But even in 1946-48, the demise of New Dealism seemed definitely to be on the way; and it was difficult for the objective observer to understand the unpopularity of a public policy which had done so much for the masses. As we look back now, it may well be that what was interpreted as a repudiation of New Deal or Keynesian economics, upon which it was largely built, was in fact merely a registering of wartime fatigue and annoyance with the party that had imposed innumerable petty restrictions in war.

It is now clear that the country wants a second New Deal, and that the 19th century brand of liberalism which supported favors for business from government but would not tolerate intervention on behalf of the workers or consumers waging an unequal fight against business is definitely on the toboggan.
Even better, Richard Gilbert was an economic adviser to FDR, who took the Keynesian stance that the U.S. government should increase expenditures. He charged that the failure of doing so was because of a "poverty of imagination."

Finally, we have John Kenneth Galbraith, who was a Keynesian/socialist. His book, The Affluent Society,was spent contrasting the affluence of the private sector versus the lack of support for the public sector. Galbraith called for major new in investment in parks, transportation, education, and other public amenities as a means to help the poor in the country.

In short, Krugman's column is about his dissing of three Keynesians, who were as hardcore Keynesian as he is.

His attempt to paint Austrian economists and other fiscal conservatives with this brush falls completely on its face. The example from 1937 that he is using is an example of three who thought they could micro-manage the macro-economy. The errors that were made in 1937 were made by those in Krugman's own tribe. He is really dissing himself.

The Austrians for sure would never attempt to micro-manage the economy, just to stop climbing prices and then attempt to reverse that stance if prices fell. For Austrians, it's the entire money manipulations of the Fed that cause these mad gyrations in prices and economic activity. The Austrian prescription would be to get the Fed completely out of the money manipulation business, which would settle the economy down so that the likes of Harris, Gilbert, Galbraith and Krugman wouldn't need to conduct their micro-managing that only causes the roller coaster economy that Krugman so aptly points out occurred in 1937-39.

Finally, the Austrians wouldn't clip the story just around this short period, the way Krugman did. They would look at the entire money printing that started the rise in prices in the first place. Krugman is showing us a movie trailer version of what really went on. He wants us to buy a ticket to his Keynesian thinking based on this trailer, without ever attempting to show the full length version that tells a completey different story. Total fraud.

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