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Friday, December 16, 2011

Paul Krugman: G.O.P. Monetary Madness

Ron Paul's hard-money doctrine has taken over the GOP:

G.O.P. Monetary Madness, by Paul Krugman, Commentary, NY Times: Apparently the desperate search of Republicans for someone they can nominate not named Willard M. Romney continues. New polls suggest that in Iowa, at least, we have already passed peak Gingrich. Next up: Representative Ron Paul. ...
Mr. Paul identifies himself as a believer in “Austrian” economics... Austrians see “fiat money,” money that is just printed without being backed by gold, as the root of all economic evil, which means that they fiercely oppose the kind of monetary expansion Friedman claimed could have prevented the Great Depression — and which was actually carried out by Ben Bernanke this time around. ...
After Lehman Brothers fell, the Fed began lending large sums to banks as well as buying a wide range of other assets, in a (successful) attempt to stabilize financial markets... In the fall of 2010, the Fed began another round of purchases, in a less successful attempt to boost economic growth. The combined effect of these actions was that the monetary base more than tripled in size.
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 ... risen ... an average annual ... 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.
Still, while the original proponents of the doctrine won’t ever admit that they were wrong ... you might think that having been so completely off-base about something so central to their belief system would have caused the Austrians to lose popularity, even within the G.O.P. ...
What has happened instead, however, is that hard-money doctrine and paranoia about inflation have taken over the party, even as the predicted inflation keeps failing to materialize. ...
Now, it’s still very unlikely that Ron Paul will become president. But ... his economic doctrine has, in effect, become the official G.O.P. line, despite having been proved utterly wrong by events. And what will happen if that doctrine actually ends up being put into action? Great Depression, here we come.

    Posted by on Friday, December 16, 2011 at 12:34 AM in Economics, Inflation, Politics | Permalink  Comments (87)


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