New York Times columnist Paul Krugman actually won a Nobel Prize in Economics. It was for work about the effects of international trade. That ought to mean that Krugman knows more than just a thing or two about economics, but it really does not seem so. He writes columns that are more exercises in ideology than economics. Today, however, Krugman really hit a new low. His column entitled "The Deflation Caucus" is about why there are some misguided people in America who want "tight money". Krugman's answer is that tight money would help the very wealthy and that it is really the rich who are behind that position.
As I read the column, I was amazed. Krugman was describing a world that does not exist. The issue he was considering was whether or not the Federal Reserve should end Quantitative Easing, the creation of money by the Fed to buy bonds that finance the national debt. There's more to it than this, but the essence of QE is paying for budget deficits by just printing more money rather than through taxation or borrowing. Since the practice began, the Fed has printed roughly three trillion dollars for this purpose.
The net effect of the Fed's policy has been to drive interest rates to historic lows and to keep them there. Anyone who used to keep money in a savings account for 5% interest understands that the same account now pays roughly 0.1% interest. In the short term, the low rates were supposed to provide very low cost money for companies to invest in new plant and equipment that would result in more production, more jobs and more income for everyone. But it really did not work that way. America has had bargain basement interest rates for years now but investment by business has not risen as Krugman expected. Instead, the low rates have forced many investors out of bonds or savings and pushed the money instead into more speculative places like the stock or commodities markets. That's right, low interest rates let speculators borrow money for next to nothing to buy oil and push the price of gasoline to new highs. Low interest rates funneled billions and billions of dollars into the stock market so that the wealthy people with large investment portfolios made major profits. The truth is that the Fed's policy of which Krugman is so enamored probably did more to make the rich much richer than anything else over the last five years. At the same time, all those middle class people who have money in savings accounts had their incomes slashed because they no longer got any interest on their money. The policy made the rich richer and the rest of us poorer. It made income inequality much, much worse in America.
So when Krugman blames the rich for wanting the Fed's policy to be changed, he has it totally backwards. The people who want the policy to end are those who recognize that it has not worked. They are the people who want to restore the control of the market to our economy. They are the people, in other words, who can separate reality from fantasy. (Perhaps Krugman should take a course in that last discipline. He seems to have a big problem with living in a fantasy world.)
But Krugman is not just wrong; he is also dishonest. Krugman speaks of those who want Quantitative Easing to end as favoring "tight money". Tight money exists when there is more demand for capital than there is supply. When money is tight, interest rates rise steeply to levels America has not seen for decades. And, by the way, there are no economists in America today who are advocates for tight money. But Krugman is out there arguing against the tight money crowd. It can't be that he doesn't know what the words mean; he still is an economics professor, and he must know. I suppose it is just easier to argue against a phony straw man than to discuss the realities of Quantitative Easing. This sort of argument is one that is a favorite on the left. You know, if a group argues that it does not want one of eighteen types of birth control used because it is tantamount to abortion, NARAL will scream about people who want to end all birth control. If people say that the first step to correcting the immigration problems facing America is to get control of the border, then La Raza will denounce those people as racists who want to deport all Latinos from the country. No one actually takes the positions that these left wing groups denounce, but the media covers their statements as if they were true. It is the joint effort of the media and the left to bamboozle the vast group of Americans who really don't pay much attention to politics most of the time.
I wonder if the Nobel Committee has the ability to take back a prize once awarded. If so, they ought to consider repossession of the one they gave to Krugman. (It goes without saying that the Peace Prize they gave president Obama based upon the hopes of what he might do ought to be returned as well. Sadly, the Committee has no strategy yet to repossess Obama's prize.)
As I read the column, I was amazed. Krugman was describing a world that does not exist. The issue he was considering was whether or not the Federal Reserve should end Quantitative Easing, the creation of money by the Fed to buy bonds that finance the national debt. There's more to it than this, but the essence of QE is paying for budget deficits by just printing more money rather than through taxation or borrowing. Since the practice began, the Fed has printed roughly three trillion dollars for this purpose.
The net effect of the Fed's policy has been to drive interest rates to historic lows and to keep them there. Anyone who used to keep money in a savings account for 5% interest understands that the same account now pays roughly 0.1% interest. In the short term, the low rates were supposed to provide very low cost money for companies to invest in new plant and equipment that would result in more production, more jobs and more income for everyone. But it really did not work that way. America has had bargain basement interest rates for years now but investment by business has not risen as Krugman expected. Instead, the low rates have forced many investors out of bonds or savings and pushed the money instead into more speculative places like the stock or commodities markets. That's right, low interest rates let speculators borrow money for next to nothing to buy oil and push the price of gasoline to new highs. Low interest rates funneled billions and billions of dollars into the stock market so that the wealthy people with large investment portfolios made major profits. The truth is that the Fed's policy of which Krugman is so enamored probably did more to make the rich much richer than anything else over the last five years. At the same time, all those middle class people who have money in savings accounts had their incomes slashed because they no longer got any interest on their money. The policy made the rich richer and the rest of us poorer. It made income inequality much, much worse in America.
So when Krugman blames the rich for wanting the Fed's policy to be changed, he has it totally backwards. The people who want the policy to end are those who recognize that it has not worked. They are the people who want to restore the control of the market to our economy. They are the people, in other words, who can separate reality from fantasy. (Perhaps Krugman should take a course in that last discipline. He seems to have a big problem with living in a fantasy world.)
But Krugman is not just wrong; he is also dishonest. Krugman speaks of those who want Quantitative Easing to end as favoring "tight money". Tight money exists when there is more demand for capital than there is supply. When money is tight, interest rates rise steeply to levels America has not seen for decades. And, by the way, there are no economists in America today who are advocates for tight money. But Krugman is out there arguing against the tight money crowd. It can't be that he doesn't know what the words mean; he still is an economics professor, and he must know. I suppose it is just easier to argue against a phony straw man than to discuss the realities of Quantitative Easing. This sort of argument is one that is a favorite on the left. You know, if a group argues that it does not want one of eighteen types of birth control used because it is tantamount to abortion, NARAL will scream about people who want to end all birth control. If people say that the first step to correcting the immigration problems facing America is to get control of the border, then La Raza will denounce those people as racists who want to deport all Latinos from the country. No one actually takes the positions that these left wing groups denounce, but the media covers their statements as if they were true. It is the joint effort of the media and the left to bamboozle the vast group of Americans who really don't pay much attention to politics most of the time.
I wonder if the Nobel Committee has the ability to take back a prize once awarded. If so, they ought to consider repossession of the one they gave to Krugman. (It goes without saying that the Peace Prize they gave president Obama based upon the hopes of what he might do ought to be returned as well. Sadly, the Committee has no strategy yet to repossess Obama's prize.)
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