Thom Hartmann is joined by Nobel Prize winning economist Dr. Paul Krugman, professor of economics and current affairs at Princeton University and columnist on the New York Times. His new book is titled: End This Depression Now. Europe is in crisis mode. The United States could be headed off a fiscal cliff at the end of the year.
Part 2:
Comment:~ Paul Krugman believes in big government and big unions and dismisses the alternative as “voodoo economics”. The issues are more complicated than this. John Maynard Keynes was right in some areas — austerity does not restore confidence in a shrinking economy — but over-simplistic in others. If governments do run deficits — I believe this is a necessary evil during a financial crisis — increasing government spending on welfare payments and non-productive assets simply carries the country to the next crisis — ballooning public debt. The only way to avoid this is to channel fiscal deficits into productive investment which will enhance GDP growth and help to repay the debt incurred.
Paul Krugman is just wrong on so many accounts – where should one begin?
How about Krugman: “The Euro is like a replay of the gold standard because countries can’t print money”. Individual countries could & did print money and devalued while on the gold standard. See evidence of the currency wars during the great depression.
The problem with the gold standard was that currencies were fixed in relation to gold but this need not be so. If as Ron Paul suggests gold is used as a “competing currency” (and not that “All the problems of world would be solved by making little gold coins” according to Krugman) then currencies may devalue against gold. Excessive fiat money creation is EXACTLY how this would be achieved. BUT the fact that currencies will be devalued against gold is the necessary break on governments wanting to engage in unsustainable borrowing.
Next…
What if say Switzerland adopted a gold standard and, instead of pegging the CHF against the euro, bought gold with the capital inflow? Outflows from gold purchases would balance the inflows on capital account, keeping their export industries competitive while giving a massive boost to their financial sector. I am sure many investors would prefer to hold cash in gold-backed CHF, even at zero interest, rather than in any fiat currency.
I agree Colin – so why don’t they? Why did they decide to go off their “gold standard” back in 2001?
I think we are getting to the crux of it: because to do so now (or stay on the gold standard in 2001) would drive the price of gold into the stratosphere (at least in terms of other currencies which would “flee” into CHF). That’s not how the “Great Game” is played and would also be somewhat hypocritical for the country which is home to the Bank of International Settlements which offers gold market intervention (read: suppression) services to its government clients.
But why should any currency need to “flee” into CHF unless it is being debased. Implementing “competing currencies” (eg. gold & silver with flexible pricing but WITHOUT capital gains tax being payable on holdings) puts a limit on this fiat money debasement. Failure to grow the money supply sustainably (through excessive borrowing or printing or both) means you either run out of gold & silver as its removed from the system by hoarders (eg. savers/the Swiss) or you end up with hyperinflation (worthless fiat currency) or both.
Interestingly, we are headed into this scenario even without a gold standard. It is just less obvious although equally lacking in monetary discipline.
“Just because something is inevitable, does not mean it is imminent”… but we are certainly into the end game.
Switzerland only dropped their gold standard in the year 2000. Last year the Swiss Peoples Party started a campaign to create a gold-backed franc because:
“I want Swiss people to have the freedom to choose a completely different currency,” said Thomas Jacob, the man behind the gold franc concept. ”Today’s monetary system is all backed by debt — all backed by nothing — and I want people to realize this.” Marketwatch, July 08, 2011
It appears that the Swiss decision to leave the gold standard may be linked to their experience in the 1930s. The United Kingdom and Scandinavian countries were forced to drop the gold standard in 1931, but Belgium, the Netherlands, and Switzerland had sufficient reserves and stay on gold until 1935/36. This weakened their recovery, prolonging the recession, as their currencies were over-valued compared to their trading partners.
Monetary Policy Autonomy under the Gold Standard: Switzerland in the Great Depression ~ Peter Rosenkranz, Tobias Straumanny, and Ulrich Woitekz — Department of Economics, University of Zurich, August 1, 2011
This is all fine – we are certainly not arguing against each other here. But the whole concept of competitive devaluation only works in the short run and has never really made sense from the point of view of classical economics since any trade advantage through a weaker currency should over time be eroded by domestic inflation…unless it can also disguise a fall in real (sticky) wages. “The Con” is not “investing in gold” as Krugman suggests which since 2001 has provided more than just preservation of purchasing power. “The Con” is trying to justify more government debt financed spending and/or QE as a solution to the world’s problems…. imho.
Strange that Colin and I seem to be the only ones commenting on this. I guess most people are not even interested in watching (understandable) or find the whole interview just a ludicrous waste of time. Well I have some spare time (and sadly nothing better to do) so here is my commentary for Part I. maybe someone else can pick up the ball for part II.
So “End this Depression Now” according to Krugman’s own definition means we are not heading down anymore?
Funny when one group of people suggest reducing government spending, the other group will jump to specific conclusions and argue how can slashing teachers jobs and closing schools help. Clearly it won’t but these weren’t the spending cuts the original group was suggesting. Have a look at some of the other several hundred government departments. Hint: Start with defense!
Krugman says “Government has been saviour with medicare and welfare spending” but this has been a short term patch to the problem they created in the first place and only exacerbates the problem long term. I am not proposing I have the answer here but making sure we understand the problem to begin with.
And the whole thing about business confidence? Do we really need to reopen the public vs private efficiency & equity debate? Who says “the right hates Keynesianism”? On the contrary the right loves Keynesianism. Just look at their fiscal policy…tax cuts and spending are great for the economy… and don’t worry about the long-run. “We’re all dead” remember… certainly politically at least!. Yes we have been trapped “in JMK’s world” since 1945.
The government is already the “employer of last resort”, just look at some of our politicians.
Nobody complained when interest rates went to 1% in 2001 and everyone decided to borrow “at the same time”. Can we really have it both ways?
It’s “hard to explain” because men of supposed learning wish to obfuscate the obvious via complexity and rhetoric.
“40 years of government demonization” could be cured with some honest answers and politicians committed to the constitution.
The “confidence fairy” – Great contribution. Thx paul.
Personally I would like to see some of the evidence that “completely discredits Reaganomics”. Name calling such as “voodoo” and “zombie” is not a very convincing start. How about comparing economic performance through the 1970’s, 1980’s and 1990’s.
“Just amazing” that people believe Paul Krugman, but give some credit to his sidekick Thon Hartmann, not very smart but great thrust and parry in this enthralling interview. Quite a dynamic duo!
Sorry “scam” not “con” in my previous post. Hopefully no one will be too bothered by semantics here. But re gold, maybe Paul could explain why central banks around the world are all now accumulating this “not very useful metal”.
“Wow”… just …gosh… “wow”… : )
Krugman does his reputation no favors in this interview. He comes across more like a politician with flippant answers and generalizations rather than a great mind with insightful analysis.
And, as you say, the interviewer allowed him to get away with it.
This BBC interview with Paul Krugman is far more on message: http://www.bbc.co.uk/news/business-18281669. Now is not the time to implement austerity. We have vast unemployed capacity/resources — the private and public sector are not competing for them. We need to put these unemployed resources to work before we start to lose the additional capacity.
So many of Krugman’s comments are proven wrong and he just goes on and on. The St. Louis FED has done a study that shows the multiplier for government spending in the U..S. is less than 1:1. $1 of debt creates less than a dollar of economic activity. They showed that the multiplier for Canada was !.21. During the debate over ObamaCare, Krugman held up the VA system as a model government run health system after touting the Canadian health system. The VA system has now been shown to kill people with wait times and to criminally hide the facts. The Fraser Institute in Vancouver has reported that wait times in Canada run up to 39 weeks. (See England). A rational person would associate wait times with government run health care. But not progressives like Krugman. Additionally, nine of the top 12 states for job growth are right to work states. But unions are the answer according to these people. Krugman is only one step removed, and a small one at that, from Nancy Pelosi’s weird comments. Krugman’s remarks get more attention because of the Nobel. But the “soft” Nobels are more like political statements and reflect the political bent of the Committees. Witness our Nobelist in the White House.
Who was it who said “the road to hell is paved with liberals”?