One of the more seamy characteristics of Paul Krugman’s columns has been his hyper-partisan pronouncements, which is something I never have seen from a “conservative” economist on the other side. For example, Don Boudreaux of George Mason University, is well-known for his public pronouncements, and he definitely falls into the “I Like Markets” category of academic economists, yet I never have seen him outright shill for the Republican Party in the way that Krugman shills for the Democrats.
Thus, we see more of the same today, as Krugman claims that the move by some Republicans to want abolition of the Federal Reserve System or are angry about the bailouts is nothing more than unwarranted, insane extremism. He writes:
Utah Republicans have denied Robert Bennett, a very conservative three-term senator, a place on the ballot, because he’s not conservative enough. In Maine, party activists have pushed through a platform calling for, among other things, abolishing both the Federal Reserve and the Department of Education.
To be specific, Bennett lost his spot on the Republican ballot in Utah because he voted for the bailouts and he voted to expand the federal government’s role in medical care. These are not trivial things, to put it mildly. The bailouts were aimed at propping up a reckless financial culture complete with out-of-kilter bonuses for CEOs and the government’s newest excursion into medical care is going to mean less care at higher real costs.
The notion that our entire economy would have collapsed had Congress and the Bush administration not pushed through the bailouts is false. In fact, if there was “extremism,” it was in taking resources from productive people and giving those resources to people who were wasting money. The bailouts, both the Wall Street kind, and the GM/Chrysler giveaways, were much more extreme than anything that the Maine or Utah Republicans have wanted to see.
However, I need to concentrate now on the subject of the title, the abolition of the Federal Reserve System. First, I need to point out that the Fed was not even in existence until 1914, when it opened for business. From the end of the American Revolution until the eve of World War I, the U.S. economy grew at astounding rates, yet there was no “Fed” to backstop the losses from banks.
It is true that there were “panics,” as commercial, fractional-reserve banks became over-extended, but each time, the economy corrected itself and prosperity returned quickly. Compare that record to the 1930s, when the U.S. economy suffered double-digit unemployment for a decade.
Unfortunately, Krugman literally considers anyone who believes that a central bank is harmful to an economy as a “nut job” or an “extremist,” and I would say that his statements demonstrate a “religious” faith in the Fed that simply do not reflect the real record of this entity. Krugman, who subscribes to Keynesianism the way that an Imam subscribes to Islam, does not offer any reason as to why having religious belief in the Fed is good, but seeking its abolition is dangerous extremism.
For Keynesians, the key to economic success is the government’s “ability” to create new “money” through the printing press. If government prints money, then an economy will have “adequate purchasing power” to keep the engine running. (Granted, Krugman realizes that if an economy does not have a “hard” currency, then the Zimbabwe experience of hyperinflation may be the result. However, Krugman does not explain why it is that the U.S. Dollar cannot turn out like the Zimbabwean Dollar if the Fed continues its expansion of the stock of new money. For Krugman, the USD holds its value no matter what, which is a foolish proposition.)
Because Keynesians hold to the view that “purchasing power” (which to Krugman and others is the REAL source of wealth) comes from the government printing presses, one can see the real fear they would have if the Fed were abolished. And while I have not heard any Keynesian say why it was that the U.S. economy went along quite nicely before the establishment of this central bank, most likely they would claim something like, “Things were different then.”
Uh, the laws of economics do not change over time, no matter what Keynesians and Historicists might think. The Law of Demand, the Law of Supply, and the Law of Marginal Utility exist in any situation at any time in history. (In the Book of I Kings, the Bible says that silver was so plentiful in Israel during Solomon’s reign that its value shrank to next-to-nothing. That is the Law of Marginal Utility in action.)
Contra Krugman, Austrian economists do not believe that the Fed, through its massive efforts to print money and paper over huge financial losses by the banks and certain politically-favored firms like GM, has “saved” the economy. All the Fed has done has been to extend the crisis and to put off a real Day of Reckoning in the future. Like the 1970s, in which the economy lurched from inflation to unemployment time and again, we are seeing an inflation-fueled “recovery” which really is no recovery at all.
My sense is that in future columns, Krugman will try to claim that anyone who believes the Fed should be abolished is a racist and Lord-knows-what-else. I’m beginning to wonder who the real “extremist” really is.