Krugman Takes on the Austrians and Ron Paul

Gee, hoodathunkitt? Paul Krugman hates Ron Paul. It is not enough for Dr. Paul to want to leave abortion to state legislatures (where the U.S. Constitution would place it), but the very fact that Dr. Paul is personally opposed to abortion and would not perform one is enough to send Krugman into a rage.

Furthermore, Krugman attacks Dr. Paul on the matter of civil rights. Now, keep in mind that Dr. Paul is not against civil rights per se, given that no other person on the scene, Democrat or Republican, that is running for president that openly opposes the police state that both parties have created. (Sorry, Krugman. One cannot support both civil rights AND a police state. So, who is against civil rights?)

Anyway, Krugman is not referring to Dr. Paul’s views on race, but rather Dr. Paul’s view of the 1964 Civil Rights Act. Like all Progressives, Krugman holds that any law or regulation that is created in the name of something like civil rights is in itself the very essence of those rights. As Frederic Bastiat wrote in The Law in 1848, socialists (and I should add, Progressives) always couched beliefs within a specific government action:

Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.

We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.

Likewise, according to Paul Krugman, the only reason one could oppose sections of the Civil Rights Act which give government huge swaths of control over private property is racism. (Likewise, if one thinks that ANY environmental regulation is bad or unnecessary, then one is in favor of having feces wash up on beaches, to paraphrase Anthony Lewis, who also wrote his columns at the NYT.)

But Krugman was only getting warmed up when he accused Ron Paul of being a racist and a misogynist. (And why else would one be opposed to abortion than out of hatred for women? Gloria Steinem has declared such, and so it is an established truth, at least at Princeton University and the NYT.)

Ron Paul, writes Krugman:

…(ignores) reality, clinging to his ideology even as the facts have demonstrated that ideology’s wrongness. And, even more unfortunately, Paulist ideology now dominates a Republican Party that used to know better.

Given the open opposition that Republican stalwarts have exhibited toward Dr. Paul, the idea that his “ideology” is dominating the GOP is a very sick joke, but Krugman seems to be full of humor these days. Unfortunately, he totally misstates the position that Austrians have on money, and he further writes that all Austrians believe that the monetary base is exactly the same as money that is circulating.

First, as he points out in the article, the Fed massively increased the monetary base and some Austrians have said that sooner or later if that base is turned into large-scale lending, we are going to have inflation. That is a no-brainer. However, because some Austrians have said that maybe inflation will occur sooner rather than later, according to Krugman, that means that all Austrian theory on money is wrong. (This is what the ancients once called a non sequitur, but without the non sequitur, Krugman would not have any columns.

Second, Krugman continues in that insistence:

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.

Austrians are not shocked at what has transpired. The economy, thanks to the bailouts, explosion of regulations, and incendiary rhetoric from the White House, is mired in depression, just as Austrians predicted it would be if the policies of the past four years were followed. As long as the monetary base remains just that — a base — and the money does not circulate, the official rate of inflation will be low. What I do find interesting, however, is Krugman’s insistence that commodity prices have nothing to do with inflation, that the only reason they rise and fall is because of demand from “emerging economies” and “volatility.” (Of course, “volatility” is an effect, not a cause, but since Keynesians regularly confuse cause and effect, we should not be surprised at Krugman’s conclusions.)

You see, if Austrians are wrong in their belief that an expansion of money in circulation will force up prices (and that is what Krugman insinuates), then all of monetary theory is turned upside down. For that matter, Krugman already is on the record in calling for the Fed to directly purchase U.S. Government securities on the primary market, which in essence would be financing government via the printing press. Does Krugman also believe that such an action would not have a huge effect upon prices of goods, or does he want us to believe that any predictions of inflation here would be wrong?

Krugman’s insistence that Austrians are ignorant about money is, well, ignorant. Austrians say that money is a secondary good which has a primary use to facilitate exchanges, and its productivity exists in the fact that it allows exchanges to occur that would not happen in a barter economy. Austrians further hold that money is subject to all of the laws of economics, including the Law of Marginal Utility (no, we don’t hold that it simply is a quantity variable).

However, one of the most important aspects of Austrian thinking on money is that Austrians emphasize the transmission mechanism of new money being injected into the economy, and that transmission is non-neutral, for those receiving the new money first will be able to pay for goods at the old prices, but with new incomes. This view contrasts with the Keynesian viewpoint that monetary transmission is neutral, and that the only thing which matters is that money get put into the economy so that someone can spend it.

Moreover, Austrians also point out that the injection of new money into the economy also will have an effect upon the relative prices of goods, and that the relations will change as more money pours in. This contrasts with Krugman’s view that new money has no such effect, and that everyone benefits equally from monetary injections. (In Krugman’s view, while inflation benefits debtors at the expense of creditors, that is OK because he falsely assumes that all creditors are the “one percent” and that all debtors are in the other category.)

So, because hyperinflation has not hit, Austrians are totally ignorant about money, and that includes Ron Paul. We are dealing with timing, not monetary theory, and Krugman by confusing the former and latter, demonstrates his own ignorance about monetary matters.

About William L. Anderson 48 Articles

Affiliation: Frostburg State University

William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

Anderson was formerly a professor of economics at North Greenville College in Tigerville, South Carolina.

Visit: William Anderson's Blog

14 Comments on Krugman Takes on the Austrians and Ron Paul

  1. Good call on dropping the Bastiat quote.
    Bastiat was an excellent at trolling the French Assembly. I especially liked his proposal of passing a law requiring the disuse of everyone’s right hand, under the assumption that creating more work for everyone would produce more wealth.

  2. An economy fueled by debt creates slavery and oppression by distributing wealth to the very top. We create more debt as a country by printing money, fighting wars and expanding government, all on the backs of the American taxpayer whose wages have remained stagnant while the prices of energy and goods continues to increase.

    How is this sustainable? Punchline: it’s not.

    It would be all too convenient for billions of people to just die, leaving the wealth and the world to the very few elite.

  3. i love the bastiat quote: although my favorite might very well be

    “Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.”

    – i think that greatly defines our state as is; especially with all the crony capitalism and the fed’s actions benefiting the rich and the middle class/poor getting in on the action as well – but no where receiving the amount of money or benefits that the rich do – hence proving why the rich are so rich right now, the poor so poor – exactly as bastiat says.

    well done.

    ron paul 2012

  4. Great job!

    IMHO, Krugman and his ilk are not just misguided hacks but they are treasonous propagandists. When analyzing both Keynesian and Austrian theories, it is clear to anyone with measurable intelligence that the former is utterly flawed and the latter is filled with plain old common sense. I for one think Keynesian economic theory was was created to cover / advance the dastardly plan to establish a global oligarchy (masked behind statist socialism). Therefore I conclude that Krugman knows his position is BS but, like a cheap prostitute, is simply propagandizing. Joseph Goebbels would have loved Paul Krugman.

    • Your post makes you sound incredibly ignorant. Your lack of understanding of the term “common sense” is one thing, but to compare Krugman to Goebbels shows an inexcusable ignorance of history. And then to call Krugman’s post treasonous, when the entire point of Paul’s libertarianism is to allow further personal liberty.

      I like Ron Paul, but people like you make me utterly ashamed to be involved with these politics at times. Go back to your bunker and read some books. Learn something before you spout off your stupid fucking politics.

  5. William:

    Your point that because inflation has not occurred yet does not mean that it will not occur eventually is fair. After how long a period will you relinquish this point, though? After a few more years you’re going to have to admit that there’s a 95% chance you’re wrong.

  6. If Ron Paul really wanted to leave abortion to the States, and didn’t want to use his personal opinion to influence the law, why would he sign something like the Susan B. Anthony pledge, which basically says the signee will only appoint pro-lifers to the bench and to office and that they will advocate for the abolition of abortion, no matter what?

  7. Great article. Thanks for calling out the misguided and poorly supported claims of Krud Man. People like him are in danger of losing credibility as Austrian economic thought is being proven more and more each day. Let’s prove that it can not only predict catastrophe, but it can also help prevent it.

    Ron Paul 2012!

  8. I can’t believe you actually made me laugh a couple times as your wonderful article on one of my favorite hacks was quite amusing. Krugman really is the dolt you paint him to be so I feel no guilt for laughing at someone while they are being gutted by someone else. Very nice job.

  9. Can I be a nitpicker and please make a request? If you insist on listing Ron Paul as Dr Paul, can you do the same and list Paul Krugman as Professor Krugman? Repeating ‘Krugman’ ad naseum makes it seem like he’s a defendant in a court case- or worse, a sports star.

  10. I read the linked article by Krugman. How do you deduce Krugman hates Ron Paul because of his civil rights views and abortion views. A sentence or two suggests Krugman disagrees with Paul about some other views he has, but the article is clearly about monetary policy. I didn’t even know what our views Paul might have and reading Krugman didn’t,t enlighten me.

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