Here is a brief article from mises.org followed by the email debate I had after sending it to a friend:
“Last Monday evening, Lew Rockwell, from a tip by someone named ‘Travis,’ posted this damning quote of Paul Krugman’s from a 2002 New York Times editorial:
To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Krugman. 2002. Calling for a housing bubble.
What’s more, by explicitly calling for a new bubble to replace the recently burst one, he anticipated by 6 years the Onion‘s hilarious “report” that “demand for a new investment bubble began months ago, when the subprime mortgage bubble burst and left the business world without a suitable source of pretend income.” Except Krugman was being serious.
The quote caught on in the blogosphere, to such an extent that Krugman actually responded in his New York Times blog Wednesday morning:
Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.
So with a deft little two-step, Krugman paints himself as a doctor who gave an excellent diagnostic, and not a disastrous prescription. One of his ditto-heads posted on his blog that saying Krugman advocated or caused the housing bubble was ‘Like saying Nostradamus caused the rise of European fascism.’
. . . .
Mark Thornton on the Mises blog followed up with a devastating collection of 2001 Krugman quotes clearly documenting his support for inducing a housing bubble. The most damning of this batch is the following from a 2001 interview with Lou Dobbs:
Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. [emphasis added]
How the hell can anyone spin that as a purely academic musing, and not a policy recommendation for artificially inducing housing spending?” (Read more from mises.org)
Hi Roman,
Read the “quote” which isn’t a quote at all really. If you read the article by Krugman he was paraphrasing another guy, some investment banker and that “quote” was his words not Krugman. I don’t think Krugman was advocating that at all. I think the most salient part of the eight year old article lies in the last two paragraphs.
Misquoting and manipulating other peoples words smacks too much of FoxNoise. So I think that Lew Rockewll and the mysterious “Travis” are full of crap.
www.npr.org/templates/story/story.php?storyId=105783108
W.r.t. Paul Krugman, I read your email and was appalled by the possibility that both Lew Rockwell and the Mises Institute made a very sloppy (mis)quotation. I was going to write to them. But after looking at Krugman’s editorial, I don’t think they did.
Word for word:
“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.”
Krugman clearly calls for a housing bubble.
This is consistent with his unrelenting justification of government spending, and the philosophy of his hero, Maynard Keynes, who thought that all problems could be spent away without future reprocussions. Unfortunately, the future is now here. In 1927 Keynes famously said there would be no more market crashes, ever. Somehow his disastrous policies and predictions have not diminished their persistence.
Not surprisingly, I disagree outright with the NPR story you sent. You’re welcome to disagree, but I’ll tell you the basic arguments.
I recently read Murray Rothbard’s book, “America’s Great Depression,” which I think is a very thorough refutation of Milton Friedman’s explanation of the Great Depression. After reading about Hoover’s massive and unending interference in monetary policy, trade policy, labor laws, industry, I’m really not sure how Milton Friedman can claim Hoover didn’t do enough. In fact, during the 1932 presidential campaign, Hoover was accused of being socialist.
It was his “help” which caused the depression. In 1921 the market suffered a bigger proportional crash than in 1929, but president Harding resisted the urging of then-secretary-of-commerce Hoover and didn’t “help.” By the time Hoover convinced him to help the economy recovered. Eight years later Hoover was ready, willing and able to take advange of the crash and institute a bunch of government controls which kept the economy crippled for a decade. FDR’s New Deal was an expansion of Hoover’s policies.
A quick note about the causes of the crash.
The AUSTRIAN BUSINESS CYCLE THEORY is what makes Austrian Economics different from other libertarians, like those of Milton Friedman’s Chicago Monetarist school.
Milton Friedman, like Krugman, Keynes, Marx and most television commentators believe that crashes spring from the bowels of capitalism. This is implied in the NPR article you sent. Freedom doesn’t work. We are asked to believe that all of a sudden, many entrepreneurs, who make a career out of predicting and meeting human desires, make bad predictions.
The Austrian Business Cycle Theory offers an explanation for these clusters of entreupreneurial errors. They are caused by loose monetary policy. Specifically, artificially low interest rates. This, incidentally, is exactly what Krugman called for when he suggested Greenspan create a housing bubble.
Monetary expansion by both banks and government in the 1920s caused the 1929 crash. Monetary expansion in the 90’s caused the internet bubble, then the 2001 crash, which was papered over by more monetary expansion i.e. the housing bubble. It is government, not free markets causing these crashes.
The worst thing that can come of this crisis is the condemnation of economic freedom.
Roman,
I stand corrected. You are right. And I admit that you have piqued my interest in Rothbard’s book, as long as it is not more right wing revisionist history. It sounds like it is not.
But “Waterloo” for Krugman sounds a bit overly dramatic to me.
The fact of the matter is that I believe in the “Tragedy of the Commons”. And i apply this to economics, the market as well as the environment. Man is by nature greedy. That is not in itself a bad thing. And enlightened self-interest is a positive outgrowth of that but that is not always what happens when markets are deregulated and self serving politicians are bought of by big monied interests. . I believe we need government to do certain things like enforce child labor laws, environmental and health standards, taxes to fund the military, interstate highways, etc. How much control and intervention is open to debate the democratic process.
Stay tuned for a discussion of child labor laws from the Austrian perspective. . . .