Saturday, September 15, 2012

Milton Friedman as Inflationist

Paul Krugman can sure spot the inflationists, even around a crowd of sound money people. Of course, he's with the inflationists. He writes:

How times have changed. Back in 2004, Greg Mankiw declared, in the Economic Report of the President, that
Aggressive monetary policy can reduce the depth of a recession.
But now, after the Fed has finally moved a bit in the direction of doing something about the Lesser Depression, Mitt Romney – supposedly advised by Mankiw among others – is outraged:
[T]he American economy doesn’t need more artificial and ineffective measures. We should be creating wealth, not printing dollars.
That word “artificial” caught my eye, because it’s the same word liquidationists used to denounce any efforts to fight the Great Depression with monetary policy. Schumpeter declared that
Any revival which is merely due to artificial stimulus leaves part of the work of depressions undone
Hayek similarly decried any recovery led by the “creation of artificial demand”.
Milton Friedman – who thought he had liberated conservatism from this kind of nonsense –must be spinning in his grave.
I should note, it's Schumpeter and Hayek, who are making sound money comments here, and that Krugman has correctly identified Romney as a political weasel, who will flip flop on the sound money position and any other position, if it suits his political goals.

Also of note, Krugman distorts the theoretical framework being used by Hayek and Shumpeter, probably because he doesn't know it. (I am going with this new premise that Krugman doesn't know much economics, since he has demonstrated that he doesn't understand the broken window fallacy and doesn't understand the difference between supply side activity and demand side.) 

In his post, he writes about what he calls "liquidationists":
The Romney/liquidationist view only makes sense if you believe that the problem with our economy lies on the supply side – that workers lack the incentive to work, or are stuck with the wrong skills, or something.

In fact, Schumpeter, and especially Hayek, held no such view. Hayek clearly saw a maldistribution of capital problem caused by prior money printing, not a supply problem. It is at the heart of why Hayek was awarded the Nobel Prize. From the Royal Swedish Academy of Sciences press release announcing his award:
von Hayek showed how monetary expansion, accompanied by lending which exceeded the rate of voluntary saving, could lead to a misallocation of resources, particularly affecting the structure of capital. This type of business cycle theory with links to monetary expansion has fundamental features in common with the postwar monetary discussion.
And as Doug French points out:
In a speech to the American Economic Association in 1948, Schumpeter told an audience of Keynesians that Keynes was blinded by his ideology of stagnationism: underemployment equilibrium that required government stimulus to be overcome. He went on to remind the audience that the heart of the capitalist process was its endless dynamism, which was the opposite of Keynesian stagnationism.
This is far from the supply side problem view that Krugman wants to link Schumpeter with.

Besides advocating inflation, Krugman can be counted on for little. But he does come on strong as an inflationist advocate:
Now we face a more severe slump, probably driven by deleveraging, in which even a zero rate isn’t low enough, so monetary policy has to work in unconventional ways – in particular, by changing expectations about future inflation, so as to reduce real interest rates. 
When Krugman says "changing expectations about future inflation," he is calling for more inflation. This nutty focus on inflation to get the economy going is probably why he understands that Friedman is also an inflation advocate. Krugman is a major money printing advocate and quickly spot who really, and is not, in his camp.


  1. Wait, I thought that Friedman was a free-market economist.

  2. Make sure he is held accountable next time this one spikes up. Give it another 6 months.

  3. Krugman The Mad Scientist is at it again. It's obvious the Keynesians think of us little people as rats in their experiment. Krugman, Bernanke et al. want to speed up price inflation and make American consumers disgorge savings, leverage up, pile on new debt and kick start the boom cycle again. They are using monetary policy to deceive consumers into thinking times are good when really they're not.

    They also want to deceive investors/consumers into creating another housing boom since the last one worked out so well. If it all blows up they will escape blame entirely because thats the way America is now, corrupt and morally rotten to its core. Being a left- liberal icon means never having to say your sorry and never having to admit you screwed up.

    They don't care that American consumers are already too indebted and financially vulnerable. They don't really care about the lab rat's they experiment on. They have as much real compassion as Joseph Mengele. It's all about the power, influence, fame and money mixed together with their Positivist love of experimentation and control. They really are just a bunch of mad scientist control freaks.

    Besides, I thought Herr Krugman believed that in a liquidity trap monetary policy doesn't work.

  4. "..I am going with this new premise that Krugman doesn't know much economics..."

    I don't think this idea is particularly new, but please pursue it vigorously. I believe I understand Keynesian economics, I just don't agree with it. Krugman is just a state shill who truly doesn't seem to understand differing viewpoints, and this can't be emphasized enough.

    "That word “artificial” caught my eye...." I'm sure it did, Krugman, in the same way that a shiny object attracts the attention of a child. There are many ways to "prosper" in the short term by firing up the printing presses, especially when you're creating the world's reserve currency. But why should we expect a Nobel Prize winning Ivy League economist to understand?

  5. Accountants only count explicit costs. Economists count explicit AND implicit (opportunity) costs. Krugman is no economist; with apologies to the innocent, he is an accountant at best.