Economic Shill in Chief, Paul Krugman, came out with a deserved but hypocritical criticism of the Maestro, former Federal Reserve Chairman Alan Greenspan, yesterday. He pens:
He’s the man who presided over an economy careening to the worst economic crisis since the Great Depression — and who saw no evil, heard no evil, refused to do anything about subprime, insisted that derivatives made the financial system more stable, denied not only that there was a national housing bubble but that such a bubble was even possible.
Krugman is trashing the man who followed exactly what Krugman thought was the solution to the economic slump of the early 2000’s: inflate a housing bubble. While Krugman has tried to dance his away around this fact by saying it was merely “economic analysis,” one quote, of many compiled here, stands out the most:
In time this overhang [excess capacity of capital equipment] will be worked off. 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. But it seems inevitable that there will also be a fiscal stimulus package.
Rather than even acknowledging the role that low interest rates had in inflating the housing bubble (which he surprisingly foresaw in his “economic analysis”), he instead lays the blame on the inept regulation of subprime mortgages. This diversion makes the unsuspecting/uninformed reader think that it is not the Federal Reserve itself that was the problem, but its failure to fulfill its duties. Furthermore, this criticism of subprime regulation is not even consistent with what he had said in 2001. Ten years ago, Krugman said any fallout that would have resulted from a real estate bubble would have been due to the Fed not cutting rates quickly enough:
That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments.
It’s pretty clear that this change in opinion is because Krugman has now become a full fledged shill for the Fed. Yet even the original criticism provides another discrepancy from Krugman:
During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
Surely, rates could be lowered to artificially “stimulate alternative investments,” but that would require generating new capital on top of the menacing “excess capacity,” further making the “drag” on the economy much, much deeper. This also lends credence to the Austrian theory that recessions are not a result of excess resources, but the misallocation of them. Since interest rates are prices, and the most vital in any economy, ill effects come to be when they are manipulated. Arbitrarily deciding when to further lower interest rates solely in order to pick up slack for the slow housing market is not an organic decision made by the market. It is, instead, one decided by those that know best in Wall Street and D.C.
Krugman’s justified criticism of the Maestro notably leaves out one huge player: current Federal Reserve Chairman Ben Bernanke. This is, of course, no surprise. Bernanke is using unconventional, to say the least, monetary policies to try and revive the dying American economy. These same policies are one that have been championed by Krugman time and time again. However, I will pick up the slack for Krugman who is either too lazy or too dishonest to criticize one whose cut from the same cloth.
In July 2007, a mere five months before the Great Recession, Ben Bernanke made this disturbingly erroneous statement (emphasis mine):
The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.
There is also a wonderful video that shows 5 straight minutes of Bernanke’s remarkably inept forecasts called “Ben Bernanke was Wrong.” I highly recommend that everyone watches this video to realize the trouble that America is in: our economy is being run by a man, touted as a genius by the regime and its shills like Krugman, who did not foresee the greatest economic calamity of our generation five months before it happened.
As Robert Wenzel, an authority on all things elite, pointed out yesterday, Krugman has prepared for a major shift in opinion. Whether this will involve his bedfellows and not merely graphs and charts is still to be seen.