By Kevin Meyer
I'm continually amazed that some folks, fewer and fewer thankfully, still consider Paul Krugman to be a reliable thought leader on any subject. Oh, "but he's a Nobel laureate" some say. Yes, he received the prize on an obscure niche of economics since proven mostly wrong. I wonder if those willing to listen to his blatherings on general economics would also be willing to have their dentist operate on their brains. A "medical expert" by any other name.
Bill took Krugman to task a few months ago, using far more fluourishing language than I could.
This guy sounds like someone who goes into the bank and asks for a loan – even though he is already in debt up to his ears and has no job and no realistic plan to pay it back. The security he offers is that "something will turn up – it always has in the past", and when he is flatly turned down, he proceeds to lecture the banker on the arcane details of lending theory and its history and berates him for being ignorant of just how lending works. In short, he sounds like an idiot.
I used to think my lack of formal education in economics was a hindrance, but when you read guys like Krugman you realize that it is actually a great benefit to not be burdened with having to unlearn so much nonsense.
No kidding. But what really gets to me are the multiple inconsistencies in Krugman's message that he never seems to get called on, unless you happen upon sites like KrugmanWatch. However Tom Maguire and Glenn Reynolds recently brought another instance to my attention that directly impacts our current discussion on debt-o-nomics.
So here we are in a financial crisis. Let's ponder the following statement:
[L]ast week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.
…How will the [fiscal] train wreck play itself out? …[M]y prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.
And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.
That's what most rational economists are saying these days. Our high debt will lead to the inevitable temptation to print money which will lead to devaluing the dollar and inflation. Krugman of course calls that nonsense, and even unpatriotic.
But I bet by now you can guess who pontificated on the horrors of deficits and printing money – back in 2003.