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Forum Post: Krugman skewers Ron Paul and Austrian Econ

Posted 10 years ago on Dec. 17, 2011, 2:07 a.m. EST by anonwolf (279) from West Peoria, IL
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Mr. Paul identifies himself as a believer in “Austrian” economics — a doctrine that it goes without saying rejects John Maynard Keynes but is almost equally vehement in rejecting the ideas of Milton Friedman. For Austrians see “fiat money,” money that is just printed without being backed by gold, as the root of all economic evil, which means that they fiercely oppose the kind of monetary expansion Friedman claimed could have prevented the Great Depression — and which was actually carried out by Ben Bernanke this time around.

O.K., a brief digression: the Federal Reserve doesn’t actually print money (the Treasury does that). But the Fed does control the “monetary base,” the sum of bank reserves and currency in circulation. So when people talk about Mr. Bernanke printing money, what they really mean is that the Fed expanded the monetary base.

And there has, indeed, been a huge expansion of the monetary base. After Lehman Brothers fell, the Fed began lending large sums to banks as well as buying a wide range of other assets, in a (successful) attempt to stabilize financial markets, in the process adding large amounts to bank reserves. In the fall of 2010, the Fed began another round of purchases, in a less successful attempt to boost economic growth. The combined effect of these actions was that the monetary base more than tripled in size.

Austrians, and for that matter many right-leaning economists, were sure about what would happen as a result: There would be devastating inflation. One popular Austrian commentator who has advised Mr. Paul, Peter Schiff, even warned (on Glenn Beck’s TV show) of the possibility of Zimbabwe-style hyperinflation in the near future.

So here we are, three years later. How’s it going? Inflation has fluctuated, but, at the end of the day, consumer prices have risen just 4.5 percent, meaning an average annual inflation rate of only 1.5 percent. Who could have predicted that printing so much money would cause so little inflation? Well, I could. And did. And so did others who understood the Keynesian economics Mr. Paul reviles. But Mr. Paul’s supporters continue to claim, somehow, that he has been right about everything.




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[-] 2 points by GypsyKing (8708) 10 years ago

Correct. Unfortunately, however, most of that money did not go directly into public infrastructure projects. This would have not only ended the recession/depression; it would have gotten the economy booming.

One problem though. Employing people directly redistributes wealth to the middle and lower classes, both directly - through the Keynesian multipliyer (the newly employed spend their money, employing more people), and by raising the relative value of labor. The 1% don't like that, and neither does "Dr." Paul.

Why don't they like it? Because they are engaged in class warfare. They call this "Starving the beast." That's how the 1% view the rest of us; at best as surplus population. I'm sorry to have to say this, but it's true, and their own terminology (sp) gives away their true beliefs.

[-] -1 points by anonwolf (279) from West Peoria, IL 10 years ago

All true.

[-] 0 points by GreedKills (1119) 10 years ago

Glad to see others exposing Ron Lawl's BS.

[-] 0 points by FrogWithWings (1367) 10 years ago

Bullshit. Everything has risen far disproportionately to working persons wages. If half the working people who owed me, had a job and could pay me, I'd be on Pearl Island right now.

In the last ten years, my cost of living and operating has doubled, and since I'm not a stuff shirt money exchanging wealth extractor, what I can bill and justify for my products has dropped, even working for 1%ers, as they have no problem taking their needs to a person who commands less and they are all too aware of what the market will bear.

You left out one huge problem, the Fed Criminals do not have to print a single piece of 2 1/2 cent paper currency to screw the working world and tax them with heavy wealth extracting inflation, they have proven having no problem accessing at least $29 trillion of keystroke'd account entries of which they have done without any oversight or agreement from Congress.

Besides, the Treasury department is also a private charter and sister company to the Fed.