The Madness of Fiat Money

Yes, I know that Paul Krugman has yet another budget screed in which he calls for higher taxes, more government spending, and all that. Surprise, surprise, surprise: he falls down and worships the proposal that comes from the hard-core socialist wing of the Democratic Party (the “Progressive Caucus”).

However, I am more interested in his recent blog post, “Money Madness,” in which he once again explains his belief that a system of fiat money is just fine with him, and if it is fine with Krugman, then it is the Way, the Truth, and the Life. He writes:

The whole tone of this discussion is reminiscent of the way people talked about the gold standard back when it was widely thought that any meddling with the sacred role of a metal with precisely 79 protons would mean the demise of civilization. But it has been 80 years since Britain went off gold, and last I noticed, William and Kate weren’t getting married in a desolate wasteland. We’ve had freely floating exchange rates for almost 40 years….

There you have it. Since we have been outright printing money for nearly a century, everything is just great, right? Furthermore, what Krugman really is saying is that we would not have had prosperity at all. We would be stuck in depression with high unemployment and a very uncertain future.

Oh, wait! After massive new spending, QE2 (which, contra Krugman, turned out to be a big deal), we have high unemployment and a very uncertain future. Krugman’s reply? Print more money.

Are food and energy prices rising? Why, that is due to speculators and demand from elsewhere. It couldn’t have anything to do with Ben Bernanke’s showering of the world with dollars. Why? If it did, then Krugman would have to admit that maybe inflation was not a good thing.

But, Krugman does not stop there. No, he gives us his monetary philosophy of life:

Anyway, money and monetary policy are basically technical issues, albeit important ones. The fate of Western society is not at stake, nor is there a deep moral issue in allowing the purchasing power of the medium of exchange to depreciate modestly over time. Calm down, everyone.

I would beg to differ. If I were to enter your household and take your property, albeit slowly, you would still call it theft.

However, when the government says that you have to use its money for exchanges, and then purposely depreciates that money, leaving you poorer in the process, that is a moral issue. Krugman would counter, of course, that it is the very inflation that makes the economy grow, but he gives no methodology of this “technical” claim.

By the way, when Krugman claimed last year that those who opposed QE2 did so because they wanted people to suffer and be out of work, was he not making a “moral claim”? When he claims that opposition to Keynesian policies is done out of racism, is that not a “moral claim”?

So, I guess that when Krugman attacks people who disagree with him and calls them racists, he is making a “technical” statement. Anyone who points out that deliberate government depreciation of money just might have a moral connotation is engaging in metaphysics.

In the end, with Krugman it is “heads I win, tails your lose.”

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