In his New York Times column earlier this week, Paul Krugman tried to make a case for increasing government spending in order to combat wealth inequality (i.e., wealth redistribution), but some of the premises upon which he constructed his argument illustrate his deep intellectual dishonesty.
Krugman asks: “Isn’t it more important to restore economic growth than to worry about how the gains from growth are distributed?Well, no.”
How ironic, given the fact that Krugman constantly advocates more Federal Reserve money printing, which redistributes wealth from the poor and middle classes to the wealthier members of society who are able to profit from the easy credit.
This is not unlike how Krugman pretends to care about workers by calling for an increase in the minimum wage and arguing that this won’t exacerbate unemployment while at the same time advocating for higher inflation in order to rob workers of their purchasing power so as to help fight unemployment by reducing their real wages and acknowledges in his own economic textbooks that raising the minimum wage causes unemployment.
Or how he pretends to care about workers by advocating for unemployment benefits and arguing that they don’t also exacerbate unemployment by incentivizing people not to find jobs while writing in his own textbook that this policy “reduces a worker’s incentive to quickly find a new job.”
Further into his column, Krugman writes, “It’s now widely accepted that rising household debt helped set the stage for our economic crisis; this debt surge coincided with rising inequality, and the two are probably related (although the case isn’t ironclad).”
How ironic, given that Krugman was encouraging this kind of household spending, advocating that the Fed inflate the money supply in order to lower interest rates to encourage people to borrow and spend more. Here are a few particularly outstanding examples culled from my book Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis:
“American consumerism … has allowed the United States economy … to sail through a global financial storm unscathed…. There is a strong element of rat race in America’s consumer-led boom, but those rats racing in their cages are what have kept the wheels of commerce turning.” – Paul Krugman, June 1, 1999
“And if people are hesitant about spending enough money to keep those resources employed, well, the central bank should just cut interest rates until spending money is an opportunity too good to refuse.” – Paul Krugman, March 11, 2001
“To fight this recession the Fed … needs soaring household spending to offset moribund business investment. And to do that … Alan Greenspan needs to create a housing bubble to replace the NASDAQ bubble.” – Paul Krugman, August 2, 2002
As I write in the book:
Later that month [August 2002], Krugman said that the “economic funk” was “not over”. He wrote that there was “no mystery about the cause of our funk”. The problem in his view was that “the bubble years left us with too much capacity, too much debt and a backlog of business scandal.” The question remained: why had such malinvestment occurred? What Krugman identified as the disease, Ron Paul had identified as the symptoms. Furthermore, if “too much debt” was admittedly part of the problem, how, then, could Krugman possibly rationalize advocating a Fed policy of encouraging even more spending and more debt as the solution?
Or as I summarize a paragraph from p. 35 in the book in this post reviewing Krugman’s record on the housing bubble,
In October 2003, Krugman acknowledged that the “boost from housing” to the economy “can’t go on” forever because “in the long run, consumer spending can’t outpace the growth in consumer income”, and that consumers had taken “advantage of low-interest financing, cash from home refinancing and tax rebate checks to accelerate purchases they would otherwise have made later”, but there was still no hint that he might reconsider his argument in favor of keeping rates artificially low in order to encourage borrowing and spending in the housing sector.
Next in his article, Krugman attempts to blame the financial crisis on “deregulation”, writing that, “In the years before the crisis, there was a remarkable bipartisan consensus in Washington in favor of financial deregulation”, and that “Deregulation helped make the crisis possible”. He doesn’t bother to explain how so. And we’ve just seen how Paul Krugman actually advocated the Fed policy that caused the housing bubble that precipitated the financial crisis and resulted in the ongoing “Great Recession”.
“A snarky but accurate description of monetary policy over the past five years is that the Federal Reserve successfully replaced the technology bubble with a housing bubble.” — Paul Krugman, August 7, 2006
Krugman closes his column by writing, “Inequality is, indeed, the defining challenge of our time. Will we do anything to meet that challenge?”
Krugman’s professed concerns about wealth inequality are hard to square with his advocacy for Fed policies that punish savers with low interest rates, which rob consumers of their purchasing power for the benefit of the government and the wealthy and reduce workers’ real wages through inflation, and which caused the recession and all its ill-effects like high unemployment in the first place. If he wants to do something about the wealth inequality that results from having a government-legislated monopoly over the supply of currency and credit print money out of thin air, he could just stop being a shill for the banks and quit advocating in favor of the very system that causes all the problems he claims to want to solve.