A Whiff of Stupidity
In his column today, "A Whiff of Stagflation," Paul Krugman correctly notes that we may be in for a rise in stagflation.
Unfortunately, he then goes on to demonstrate why his John Bates Clark award should be revoked. (I often have fantasized of holding a "defrocking" ceremeony for people like Krugman in which we rip the stripes from his gown, cut his hood, and rip up his diploma.) The cause of inflation in Krugmanland? Why it is HIGHER PRICES. Yes, fellow economists, the cause of inflation is the fact that prices rise.
One would like to think that we have gone beyond the stupidity of "cost-push" inflation, but it apparently is showing its ugly face again. One wonders if the economics students at Princeton should sue for malpractice.
Comments (13)
In Keynesian "logic," does not a weak job market point to insufficient aggregate demand, and do not rising prices mean too much aggregate demand? Well then, given this contradiction, let's create a fancy sounding term, stagflation, to deflect attention away from the nonsense, the collection of fallacies that is the Keynesian system of economics. As I'm sure most Mises Blog readers understand, stagflation logically should not exist in the Keynesian system, but even with this fundamental problem, Keynesianism remains the profession's dominant macroeconomic paradigm.
Published: April 18, 2005 2:26 PM
"the vast majority of Americans - aren't feeling particularly prosperous. By two to one, people tell pollsters that the economy is "only fair" or "poor," not "good" or "excellent."
Well im sure glad we make laws based on how people feel. This guy is an economist?? He sounds like Dr. Phil. It's amazing how "great" things were under clinton - with 5.2% - but with Bush, unemp rte = 5.2%, we're about to head into the abyss of stagflation. What a loon.
Published: April 18, 2005 4:55 PM
the cause of inflation is the fact that prices rise.
And it rains because the sidewalk is wet.
Published: April 18, 2005 6:15 PM
I assume many readers of the Mises Blog already know this, but inflation used to be defined as an increase in the money supply, not as a rise in prices. This definition, an increase in the money supply, focuses attention on the cause and not the effect of inflation. The change of definition is just another example of Orwellian concepts permeating economics.
Published: April 18, 2005 7:22 PM
While as followers of the Austrian School, we believe that what Mr. Krugman generally argues is illogical and ridiculous, some time back someone associated with the Mises Institute stated that someday Krugman would likely win the Nobel Prize in economics. While crazy, I guess such an occurrance would accurately reflect the state of the profession.
Published: April 18, 2005 7:35 PM
OMG, is there really such a place as Frostburg State University? (Did you mean Iceberg?)
Published: April 18, 2005 8:41 PM
The problem is USA near Chapter 11
In 1998, Japanese business leaders predicted US bubble burst, and their strategy is hiding their power and money because US have legal power to sue any Japanese companies to win big money from them. The best way to hide money is to talk about that their banking system has big problem. But we all know that US owe Japanese big money, UK owe them big money, so do Australia, Canada and even China. I remember that Japanese's conclusion was that Microsoft's market value is a political decision such as intellectual properties, Intel is worth 10% of its market value. They took manufacture as the key of the wealth. They never believe new economy, and Greenspan's theory about the quickly mass shift of people’s judgment about wealth. So Gold, metal, crude oil are the materialized wealth, it is the richest country's judgment. USA is a country near Chapter 11, the only economical advantage is the power of printing greenbacks, every country hold big amount of greenbacks, so no one like to see its becoming worthless, Fed take advantage of that fear and print much more US$ than before.
Published: April 18, 2005 9:28 PM
I think Krugman accurately describes our current economic malaise, although there are certainly no deep insights worthy of a Princeton professor.
Then at the end he says "Republicans suck" (paraphrasing a bit). This is typical Krugman, always putting something in his column to get Republicans mad at him.
Published: April 18, 2005 10:25 PM
A clarification regarding one of my previous postings. Inflation, i.e. a rise in prices, can also be caused by a fall in the demand for money. And this is what occurrs in the later stages of a hyperinflation. However, using a supply/demand, marginal utility framework to analyze the purchasing power, i.e. price, of money, while theoretically correct, is foreign to most of the non-Austrian economics profession, as Krugman's comments above illustrate.
Also, any reference to unsold goods and services, including labor (unemployment), without a discussion of price is nonsense and displays a lack of understanding of basic supply/demand analysis.
Published: April 19, 2005 6:45 AM
Not only are his comments on inflation wrong, we get a traditional statist approach on how to fix things. It seems that we should have been conserving oil when the price was cheap, rather than have consumers switch to alternatives as prices rise due to natural scarcity. Krugman's right on one thing though - with the bind we're in from the current level of interventionism, I wouldn't want to start from here either.
Published: April 19, 2005 8:57 AM
Sounds like someone never heard of a supply shock.
Published: April 20, 2005 8:31 AM
Actually it is all very simple:
The accounts deficit is growing at a rate of somewhere around 20% a year ($600 billion last year, more than $700 billion this year at the present rate). This can not be sustained. It is true that no one wants the dollar to lose its value, but it will be forced down and is being forced down by the hand of the market.
The real problem is the yuan (and other Asian currencies) dollar peg. The market is being bent into a pretzel by the unwillingness of the Asian countries to allow the market to work and our going along with them for political reasons (all those cheap goods!!!). The market will work though. The dollar will drop. There is no free lunch...
Published: April 21, 2005 12:13 AM
Why does Anderson spend so much time refuting that complete hack Krugman? Krugman has a lesser understanding of economics than a 1st year undergrad in an Austrian program. He also has a vested interested in remaining ignorant.
Published: April 21, 2005 2:30 PM