Thursday, May 3, 2012

Krugman's Caught in Lie on Housing Bubble


Not sure if you saw this, but I watched the video mentioned in the comment section on your site and the poster is correct.

Starting around 19:40 or so of this video from his Bloomberg appearance the other day:

Krugman claims that it is the "great lie" that the Fed created the Housing Bubble.  However, he wrote this in his blog in 09:

"What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened."

This is hardly unique, just as his editor at the NY Times pointed out in his final column:

"Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults."

And then the exchange between Krugman and his editor showed how Krugman cannot handle being defeated in a debate, just as we are seeing now after the Ron Paul showdown.


  1. Hi Bob,
    See my articles from 2009 on Krugman's infamous pro-housing-bubble quotes:

  2. Krugman is an intellectual fraudster. Period.

  3. These quotes aren't even the best quotes.

    Here's a "case closed" quote:

    “In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.”

    There is NO way that this quote can be taken in any way OTHER than normative. It is not descriptive in any way, shape or form. This is an advocacy for a housing boom brought about by artificially lowering interest rates.

  4. Everybody knows the Austrians are right. The connected Elite are just making rules for who shall be in the lifeboats.

  5. Ever since watching Ron Paul intellectually annihilate Paul Krugman on Bloomberg TV a few days ago, I have been thinking: Is Krugman actually an Anarcho-Capitalist Austrian economist pretending to be another statist Keynesian in academia in order to once and for all discredit Keynesian economics in the public sphere? My roommate -- a typical statist "progressive" slowly becoming a Ron Paul supporter -- couldn't believe how well the "good ol' country doctor" fared against Mr. Nobel Laureate Princeton professor.

    Think about it. It's kind of like Ashton Kutcher's show "Punk'd," but for economics. At the Republican Convention Krugman would be a mystery guest speaker who comes out and says, "You got Rothbard'd, academia" while detailing how for years he had been building his Keynesian credentials in order to ultimately show the follies of Keynesianism in newspaper columns and on TV interviews/debates.

    What else could explain why Krugman is "pretending" to be so incensed after the Bloomberg TV debate and has written no fewer than three blog posts on the issue while Ron Paul continues to spread economic truth to thousands of college students? I mean, it can't possibly be that the "good ol' country doctor" got under the skin of this master of economics, right?


  6. I guess spitting out a bunch of incoherent nonsense that has nothing to do with our current predicament counts as winning a debate. Ron Paul supporters really are grasping at straws...I understand how he tricked backwater hicks into thinking there'd be a dollar crisis 20 years ago, but surprisingly people still believe him... Some people here seem somewhat intelligent too...

    1. Hey Paul,

      Nice of you to stop by.

    2. Hey Krugs what's up? Since you stopped by did you bring that 20 bucks you borrowed from me last week?

      In regards to your comment, the dollar crisis has been on going for quite some time, look at energy and food prices. I'd consider how much more it costs me to fill my tank and feed my family compared to just a few years ago a crisis.

      Just because the bottom hasn't fallen out below the dollar doesn't mean our ultimate end is going to be any different. Fortunately(?) these transitions take a long time to work themselves out. The dollar has the undeserved status as world reserve currency, that fact alone has delayed the day of reckoning for a long time. Otherwise we'd be Argentina by now.

    3. I would encourage you to read the large amount of literature on oil speculation on wall street before you make any claims about prices rising as a result of the declining dollar. Libertarians hate wall street right? Don't see any of you blasting speculation.

      So an excuse for why the dollar hasn't collapsed since RP sold pamphlets saying it would for $99.99 twenty years ago, then a confused analogy about Argentina. Argentina abandoned its equivalent of a gold standard (convertibility laws), devalued, and has since been the most successful country in South America. So what's your point?

      No wonder RP uses arcane history to subvert real dialogue... Otherwise he'd of shot himself in the foot, like everyone here does, all the time.

    4. Mr Krugman,

      It is hardly "splitting hairs" when taking exact quotes of yours and comparing them to other exact quotes. I can see why you are upset. Stuff like this is just adding salt to the wounds Dr No created.

    5. Anonymous at 8:48,

      You believe Argentina has been a success? LOL. They destroyed their middle class overnight by creating large amounts of fiat currency. The crime in the country has been out of control, and the quality of life has gone to hell since they went to fiat money. Whoever makes an argument like that has not been to Argentina or knows anyone there. After it instituted the IMF nonsense and drastically increased its money supply, the place went to shit.

    6. I would encourage anonymous at 848 to watch some of the videos of rioting in Argentina at grocery stores and for other basic needs in what was once a first world nation that quickly became a third world nation after monetizing its debt. Seriously, that was one of the dumbest comments I have read about economics. Please research Argentina before making a post like that!

  7. I think we all know what a liar Krugman is, but I particularly enjoyed reading the exchanges between his former editor and him in the NY Times.

    For those who haven't read this link, I highly suggest going! Here is one funny sample:

    "I offered him only three examples of “shaping, slicing and selectively citing” (for some reason, he’s left one out of his rebuttal) because I was at home when he began bombarding me with outraged demands for retraction and apology; I’d completed my tenure as public editor the preceding week, and did not have any files with me. When I had the chance to consult some of my reader mail later in the week, some of his greatest mis-hits immediately came to the fore."

  8. Argentina has had the highest per capita growth of GDP since 2002 of any South American country. Maybe if you did some research instead of off-the-cuff impressions you would know that though. I wouldn't expect people here to pay much attention to facts however. Just thought I'd enlighten you folks is all. Yes, there were riots, but their heterodox policies have led them to the best growth of any country in South America. I'll repeat that, they've had the best growth of any country in South America. That's a fact. So, what other smoke screens can you throw up?

    1. First of all, the bar of "highest GDP for south america" isn't exactly set too high. It's like "the best basketball player in mexico." Next, GDP numbers by themselves don't mean a whole lot, since government spending is counted as growth. Ask the many, many keynesian economists who believed the soviet union to have a high GDP how that went for them.

      You also chose the 2002 year because from 99 to 2002 it was an outright collapse that brought the economy drastically far down in real losses to wealth in pretty much every demographic with results still seen today. You also left off the fact that hyperinflation has taken place in argentina in the past with krugman like money creation, so the money velocity there has never been good because of a justifiable complete lack of confidence.

      Next, you talk about GDP, but the inflation rate there is astronomical and in the teens every year. Wage have seemed to increase, but that is because inflation has skyrocketed and is at least in the teens every year. When the government is raising tariffs and begging companies to stick to a certain price level, it is hardly the economic utopia you are trying to describe. Not to mention how many of the truly productive people with capital either sent their money out of the country or left themselves.

      The quality of life because of the massive inflation has really taken a dive, too. Crime is absolutely through the roof in places like Buenos Aires and makes American inner cities look creampuff in comparison. If you don't believe me, how about just walking around there for a few hours at night and see what happens. Or check out the grocery stores, where the quality of meat has taken a massive nosedive because the cattle farmers can make so much more money exporting to the EU than selling internally because of the inflation rate and govt pressure to have prices lower than what the market dictates. This is also a country where workers simply occupy factories and decide to take them over. Good luck drawing foreign capital to a third world place like that.

      Seriously, you are coming across just as ignorant as Krugman with this!

    2. My sources were inflation-adjusted across the entire Latin American region. I understand that these countries are a nightmare for tight-money types, as inflation generally is an issue with emerging markets. And yes, they do have higher inflation but that's to be expected with a hot economy.

      So, mentioning the fact there's high inflation means nothing when a country's standard of living is rapidly increasing. And that's the point. They took a heterodox approach to getting out of their crisis, went through a couple years of pain (which would've been mitigated had it not been for tight money and their peg) and have emerged as the fastest developing South American country.

      Their quality of life hasn't taken a nosedive because of inflation. Inflation is just the consequence of rising living standards in this situation. I've noticed people on this site are now arguing against how data is collected, and it's telling because once your arguments are disproved, you call into question the source, a classic last ditch effort to save face.

      There will always be crime in developing countries, and no one ever called it a utopia. The point is, they did the opposite of what you would have them do, and they have been massively successful in terms of raising their overall standard of living. Massively successful. Any more deliberately misleading smoke screens?

    3. But that is the problem. The standard of living has not improved since the debt was monetized. Among other things, my sources are people who live or lived there and eventually left because crime skyrocketed and how bad the economy is, not some econometric person looking at GDP and determining things must be booming.

      Inflation isn't just some minor issue as you dismiss it, the best estimates are that inflation being in the teens is on the low end. Many believe it has been in the 20s, which is one of the many reasons why a survey by an argentinian newspaper showed around 1/3 of all people had recently been involved in some form of mass demonstration. Again, you are arguing that inflation has been good there, but revenues from real producers have been down so much the govt has increased tariffs, have asked companies to keep prices at a certain level(!), and workers regularly just take over factories and plants there. Sure sounds like a booming economy to me!

      You are trying to represent this as some sort of developing South American country, while neglecting to mention it had already been the largest economy by far prior to the money printing going crazy. After all of the massive destruction to its wealth, it then has resumed somewhat, but still is in a much more miserable place than prior to the IMF measures being implemented.

      You kept pointing out that Argentina has the best gdp growth in south america since 2002, a very, very narrow guideline of data considering the time frame and who else is in argentina. Most of that gdp has been massive government spending and not real job creation, and as I said above, they were already the biggest economy and were supposed to be a new superpower economically prior to the IMF measures destroying most of the middle class overnight.

      I noticed you ignored how crime has skyrocketed since the inflation measures you supported were implemented, but feel free to continue arguing about data when you ignore a huge part of quality of life!

      Speaking of smokescreens, you realize as a krugman fan you are posting under a topic about how he was caught in a blatant lie and how his own editor said he did this on a regular basis, right? I am sure you did, and I am sure you are trying to distract from the overall point. Too bad your arguing is only drawing more attention to krugman's lying.

    4. "they have been massively successful in terms of raising their overall standard of living. Massively successful"

      The actual citizens of Argentina would disagree with you.

      "Inflation is the big issue right now. The government says the annual rate is currently just under 10%, but unofficial figures put it as high as 25%. Independent inflation specialists have been heavily fined for not toeing the government line, and it's even alleged the state had words with McDonald's so they wouldn't be embarrassed in the Economist's Big Mac index. Economists argue that, taking this inflation into account, the country's growth could be pushed down into negative figures.

      Living in Argentina, you can't fail to notice it. Whereas shopkeepers used to balk when you tried to pay with a 100-peso note, now the same amount gets eaten up on a few groceries. A friend who supplies goods to a supermarket told me he renegotiates prices many times a year. More publicly, a group known as the Housewives Union recently tried to call a boycott of tomatoes and onions in protest against sharply rising prices."

      "In her second term, she has talked about "fine tuning" the economy. This will involve reigning in huge levels of public spending and phasing out government subsidies for transport and industry. She's also already made the controversial step of introducing new foreign currency controls to make it harder to change pesos for dollars. It was a way to prop up a weak peso and curb capital flight, although the official line is that the state was moving to combat money laundering."

      So a 9% GDP that includes massive government spending when even the government admits there is a 10% inflation rate, and fines those who point out it is really in the high teens or 20s, means there is growth? I also like how you claim everything was "adjusted for inflation," but what number? The 10% that the Argentine government claims, or the real numbers that are much, much higher? Now the government is making it much harder to exchange the peso for the dollar?

      Yup. Sure sounds like a roaring economy. Glad to see your face saving data posted on that one!

    5. One other thing. When the government comes close and threatens to jail those for suggesting the real inflation rate is 25%, telling producers to keep their prices at a certain level and not raise them, picking a fight with the economist big mac index -- and talk to a real argentinian who will tell you that the idea of a big mac being on the menu at that price is a joke and does not happen -- and making it harder to convert to dollars and get out of the peso sure sounds like an economic boom with real wealth just exploding and the standard of living being a "massive success!"

  9. "I understand how he tricked backwater hicks into thinking there'd be a dollar crisis 20 years ago, but surprisingly people still believe him"

    Yeah, those foolish hicks probably bought some gold back then too. Almost as amazing to me is Krugman's lack of understanding of price theory. Note his comment about oil speculation

    1. Yeah, just imagine those backwater hicks outperforming warren buffet and almost all the wall street funds by buying gold in the last decade. What fools! Why didn't they lose a fortune in their 401ks like all of the smart people?

  10. The myth that the Fed caused the housing bubble? What did the Fed have to say about that?

    "If the Fed as a regulator had tried to thwart what everyone perceived as a fairly broad consensus that the trend was in the right direction, homeownership was rising and that was an unmitigated good, then Congress would have clamped down on us," he told a questioner at a congressionally appointed commission investigating the financial crisis.

    "There's a presumption that the Federal Reserve's an independent agency, and it is up to a point, but we are a creature of the Congress and if ... we had said we're running into a bubble and we need to retrench, the Congress would say 'we haven't a clue what you're talking about'," Greenspan said.
    At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties--selling them quickly at higher prices."

    Had Guynn's warning been heeded and the housing market cooled, the financial collapse of 2008 could have been avoided. But his comment was kept secret until Friday, when the central bank released the transcripts of Federal Open Market Committee meetings for 2004 and CalculatedRisk spotted it. The transcripts for 2005 to the present are still secret.

    "The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy," Guynn warned.

    But when the Fed released contemporaneous minutes of the meeting, the bank downplayed Guynn's concerns.

  11. On Krugman's denials, from my book:


    On June 17, 2009, Paul Krugman responded to criticisms that he had called for low interest rates to create housing bubble with a blog post titled, “And I was on the grassy knoll, too”—the implication being that his critics were loony conspiracy theorists, a tactic by which he attempted to obfuscate the legitimacy of the criticism throughout his post:

    One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc. The latest seems to be that I called for the creation of a housing bubble—in fact, the bubble is my fault! The claim seems to be based on this piece. [“Dubya’s Double Dip?” New York Times, August 2, 2002] Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.

    By conjoining the spurious charge that the bubble was his “fault” with the legitimate criticism that he had called for it, he could create the strawman argument that since he hadn’t personally created the bubble (and whoever claimed that?), therefore his critics were not only wrong, but so bizarre in their criticism that they must be delusional. The fact remained that he had repeatedly argued in favor of artificially low interest rates specifically in order to spur a housing boom. As for his denial that this had been “just economic analysis” and not “policy advocacy”, is it possible that he did not know the meaning of the noun “advocacy”, meaning “supporting a cause or proposal”, or the verb “advocate”, meaning “to plead in favor of”?

    When Krugman wrote, “let’s have at least one more rate cut, please” (May 2, 2001), he was not advocating cutting interest rates? When he wrote that creating a demand for “housing, which is highly sensitive to interest rates, could help lead a recovery” (August 14, 2001), he was not advocating lowering interest rates to create demand for housing? When he expressed that he was “a little depressed” because “long-term rates haven’t fallen enough to produce a boom” in housing (August 2, 2001), it did not qualify as advocacy for cutting interest rates to spur a housing boom? When he wrote that, to “reflate the economy”, the Fed had to increase demand and that “housing, which is highly sensitive to interest rates, could help lead a recovery” (August 14, 2001), he wasn’t advocating that the Fed cut interest rates? It was not policy advocacy when he wrote that “economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer” (October 7, 2001)? It would be superfluous to continue. The fact is that Krugman did advocate a policy of creating a housing bubble to replace the dot-com bubble, his disingenuous protests to the contrary notwithstanding.


    Krugman again argued in the New York Review of Books in September 2010 that the Fed had had no choice but to lower interest rates following the collapse of the dot-com bubble. “It’s hard to see,” he wrote, “even in retrospect, how the Fed could have justified not keeping rates low for an extended period.” However, now his argument was that “it would be wrong to attribute the real estate bubble wholly, or even in large part, to misguided monetary policy.”

    Yet how could Krugman reconcile his argument here that the Fed was not “wholly, or even in large part” responsible for creating the housing bubble with his earlier arguments that the Fed should lower interest rates to spur investment in housing? How could he reconcile this argument with his earlier statement that “Millions of Americans have decided that low interest rates offer a good opportunity to refinance their homes or buy new ones” (May 2, 2001)? Or with his observation that “those 11 interest rate cuts in 2001 fueled a boom both in housing purchases and in mortgage refinancing” (October 1, 2002)? Or with his acknowledgment that it had been “the Fed’s dramatic interest rate cuts” that had “helped keep housing strong” (December 28, 2001)? Or his statement, “Repeated interest rate cuts encouraged families to buy new houses and refinance their mortgages” (December 22, 2002)? Or his remark that “Mortgage rates did indeed fall briefly to historic lows, extending the home-buying and refinancing boom that has helped keep the economy’s head above water” (July 25, 2003)? Or, “Low interest rates … have been crucial to America’s housing boom” (May 20, 2005)? Or, “interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt”(May 25, 2005)? Or, “A snarky but accurate description of monetary policy over the past five years is that the Federal Reserve successfully replaced the technology bubble with a housing bubble” (August 7, 2006)? Or, “Back in 2002 and 2003, low interest rates made buying a house look like a very good deal. As people piled into housing, however, prices rose—and people began assuming that they would keep on rising. So the boom fed on itself” (July 27, 2007)?

    What can explain Krugman’s self-contradictions? When he thought the housing bubble was a good thing, the road to recovery, he was all for it, lavishing the Fed with praise for single-handedly rescuing the economy from the much more painful recession that otherwise would have occurred without it. Once the devastating consequences of the housing bubble became clear, however, he changed his story, denying that he had ever called for a bubble and even denying that the Fed was responsible for having created it.

    1. Good posts about Krugman's lies.

  13. Krugman has really been owned by this entry thanks to almost everyone responding. Thanks, Wenzel! This is pathetic on Krugman's part to try and deny this when there is so much evidence against him stating the Fed caused the bubble, not to mention how he advocated doing it. Either way, his claim that it is a "great lie" that the Fed caused the bubble is funny considering how many times he stated the Fed did cause the bubble.

  14. I never thought I would feel sorry for Paul Krugman, but after watching the debate and reading Krugman's pitiful follow ups on his blog, I have to say I feel sorry for the guy.


    Here is more evidence of the booming Krugman Argentine economy! LOL

  16. Hey everybody, you know I have street cred on disliking Paul Krugman, but this particular accusation isn't right. Go listen to that exchange again. The guy from Bloomberg is talking about the federal government (not the Fed) and its role in the housing crisis, by providing low-interest-rate loans etc. Then Krugman says the big lie is that the fedS (with an "S") caused the housing bubble.

    So this is consistent. Krugman for years has been denying that the Community Reinvestment Act, Fannie & Freddie, etc. caused the housing bubble. Don't get me wrong, he made a bunch of misstatements over the years in making this case, and somebody (I forget who) busted Krugman pretty good on his evolving position.

    But my point in this comment is to say, that in this particular video clip, Krugman isn't denying that the Federal Reserve caused the housing bubble.

    1. I thought that at first too, but if you go back and watch it again prior to the question being asked to see the set up, the questions were prefaced about the Federal reserve and federal government policy creating student loan bubbles, the housing boom, and other asset bubbles and economic problems: Krugman then dismisses the idea that the "feds" caused any of these things, but the Federal reserve's role is clearly the topic of the question.

      Krugman has claimed in other instances that the fed did indeed create the Housing bubble, like in his Grassy Knoll column from 09.

    2. I should add though that it is actually somewhat up for debate, and he is pretty clearly wrong in either case, but that while he did say "feds" after the topic of student loans were brought up, he also just prior to that question had stated it was an issue for the Federal Reserve to act and restore the economy. Immediately after that, the bloomberg guy brought up the counter criticism that the federal government caused the recent problems.

      So a case could be made either way, and Krugman could very well have even been specifically choosing his words Bill Clinton style in a way his old NY times editor referenced to try to issue a denial of the Fed without actually denying it. It is important to remember though that Krugman had brought up the Fed and how it needed to act immediately before the claims about the government creating the housing and education problems as a response, so the reporter and Krugman may have also just been speaking in broader general terms about government vs private sector policies, and the Fed is certainly not free market.

  17. I just double checked one more time to make sure I wasn't remembering what happened incorrectly. Prior to Krugman referencing the feds, there was a discussion about his belief that there should be equal fiscal and monetary stimulus from both bernake and the white house/congress. Then after discussing the unemployment situation for recent college grads, the host asked krugman what can be done.

    Krugman continues the trend of combining the reference of fiscal and monetary policy by saying at around the 19 minute mark that it was the job of the Fed to launch higher inflation targets and do whatever it takes to get the economy moving, and reversing the "austerity" at the state and local levels in a combined effort.

    Then the host responds by saying that the criticisms is that the federal government made getting housing and student loans too easy. Then Krugman states that the feds weren't responsible for the housing bubble. So you are right that Krugman does state "feds" instead of "The Fed" about the housing bubble, but he had just been speaking for the last several minutes about the need for fiscal and monetary policy to be combined in its efforts as one policy.

    So to be fair to both sides, a lot of it comes down to how the bloomberg host meant for the question to be interpreted. Was he responding directly to Krugman's efforts for a joint fiscal and monetary policy from the government for the last few minutes and advocating the Fed do whatever it took to get the economy back? Most people I know who don't specialize in monetary econ frequently refer to the Fed and the federal government as pretty much being one and the same, which is what I would bet the tv host was doing. And was Krugman interpreting that question to be just about fiscal related policies, despite his last few minutes of dialogue merging the two?

    I will grant you it is possible for one of them, but I personally doubt it after watching the previous two segments not really separating fiscal and monetary aspects. If it was done, as I mentioned earlier, it was probably an intentional thing by Krugman capitalizing on the host interchanging federal government and the Fed with his questioning about complaints. In any case, Krugman has pretty obviously lied about some of his other claims, so i am sure he would claim that is not what he meant anyway -- though in the past he has denied the Feds created the housing bubble anyway, so he might not even disagree with the theme of this article to begin with.

    Anyway, that is way too much effort to try and figure out what is going through the mind of Krugman at this point! No more for me! Maybe it is good you spotted this, Murphy, just in case he ever does agree to debate you. That way you can be prepared for some Clinton style word parsing -- "that depends upon what your definition of the word "feds" is, Bob" in the debate :)