Paul Krugman’s inconvenient track record
If there is one economist who embodies everything that is wrong with the modern economics profession and the influence it wields, it is Nobel Laureate, Princeton Professor, and New York Times columnist Paul Krugman. For nearly a decade, Krugman has consistently blamed any free elements of our mixed economy for our economic problems, and held more government intervention as the solution. Given his prestige in the field of economics, most Americans are inclined to regard him as a source of sage wisdom on economic recovery. For his part, Krugman’s recurring theme has been that the Obama administration is absolutely right to increase government control over the economy at unprecedented levels — it should just do it more.
I know from painful personal experience of discussions with disciples of Krugman’s New York Times columns that many, many Americans regard Krugman as an economic sage with unimpeachable credentials.
Well, in my opinion every column of Krugman’s is an impeachment of his economic ideas, his political convictions, and his cherry-picking intellectual dishonesty. But let’s leave that aside for now and focus on one particularly impeachable fact about Krugman that has been evaded for way too long: his advice early this decade, post dot-com bust, when the government was beginning to inflate the housing bubble.
From 2002: “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” (Emphasis added.)
That’s right, in 2002, Krugman prescribed a government-induced housing bubble — the very thing that, by artificially driving up home prices with seemingly no end in sight, encouraged exorbitant home purchases, encouraged reckless lending, encouraged reckless borrowing, encouraged reckless securities based on reckless lending and borrowing, etc.
Krugman’s only reservation about this economic goal was that Alan Greenspan might not be up to the task (this time he was wrong in an unfortunate sense): “Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately…”
Just to make sure I am not misrepresenting Krugman, here are a couple more (thanks to Stefan Karlsson’s blog and one of its commentators for these):
From 2001: “KRUGMAN: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing…. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know.”
Also from 2001: “The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”
These quotations should have been spread far and wide long ago, as should other inconvenient facts against today’s vaunted economists. For example, the fact that of all the members of Obama’s vaunted economic team, charged with solving our economic crisis, not one of them predicted it. Or the fact that most of the economists who did warn of this crisis attributed it to government intervention — by the inflationary Federal Reserve, and the morally hazardous Fannie Mae and Freddie Mac.
The more one pursues such facts, the more light is shed on the intellectual bankruptcy of today’s economic establishment.
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