This is for all those economics nerds out there. This is a very fascinating ‘debate’ — Ron Paul vs Paul Krugman, earlier today.
Personally, I cannot see the logic behind Krugman’s belief that increasing the debt levels, the money supply, and inflation is the solution to this recession. We have already been spending like crazy and has it worked? I think there is enough evidence to show that it hasn’t.
The solution is we need more spending? I don’t know about that.
Here’s the short ‘debate’ Ron Paul vs Paul Krugman:
What peeves me is that Krugman claims that he believes in free markets and that he believes in capitalism, but then he blames the free market for those recessions, and claims the solution is increased government intervention, and decreased free markets. In my opinion, shoveling debt onto the people is not a solution, it is a farce.
Some bubbles are inflated by massive government spending. When they pop, it creates a recession. The housing bubble collapse can be traced to government laws and intervention into the housing market. Basically, through mandates, the US government forced banks to finance loans to subprime borrowers. This caused a large increase in subprime loans, which, I am sure anyone can agree, is very risky.
So, the market then hot potatoes the loans until they explode, leaving the mess for the rest of us.
Politicians in Washington wanted to give subprime borrowers a chance to own a home despite their credit, so they basically said, ‘we will pay you banks to finance these subprime loans.’ Then, when the bubble pops, the same politicians in Washington blame the market, and say the solution is to give those same banks more money…
It’s absolutely ludicrous to me.
So Krugman, from one amateur economist to another: Presenting the argument that boosting aggregate supply through debt will provide a boost to aggregate demand as the solution to our down economy is both misleading and dangerous. I call it a false choice. Here’s why:
In our current economy–where people don’t have enough money to spend–debt and spending carries heavy (and in our case, unsustainable) liabilities that can wreck the entire currency when those same people have even less money to spend on the new supply. If there is no increase in the monetary value of the dollar, people can only spend more on less stuff–as the prices for everyday things like food, gas, etc rise. This does not help the poor and the middle class, but rather, cripples them even further.
Remember this: “Increased spending” decreases the spending power of the dollar, sir.
If the currency devalues too far, we risk a very real collapse of the dollar in the world market through hyperinflation (the same route as Rome’s, Italy’s, Germany’s and many other past civilization’s currencies). Doesn’t this frighten you sir?
So Krugman, if we happen to collapse our currency through your proposed policies, what would be your end-game?
Aside, to the reader: How can anyone, especially an economist, support a possible 30% plus increase in prices across the board? Does that really help the poor and the needy?
That is insanity! When will the insanity stop?!?
If you wish, follow and respond to the comments on the original Bloomberg video, “Economy Face Off: Ron Paul vs Paul Krugman.”
So what did you think of Ron Paul vs Paul Krugman? Did Ron Paul slam Paul Krugman? Did Paul Krugman wipe the floor with Ron Paul? Let me know in the comments below.