The Evil Paul Krugman Attacks Ron Paul

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by Robert Wenzel: D.C.
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Wow, I guess
Paul Krugman got spoken to about calling
Ron Paul consistent
. I mean he must have gotten really reamed.

He is out with
a new absurd attack on Congressman Paul that ranks up there with
the Kennedy Assassination magic bullet theory for absurd reasoning.
The year is not quite up yet, but I’m pretty sure this post alone
will result in Krugman getting this year’s Gene Callahan Award for
Absurd Argumentative Style.

Krugman writes
this
:

Paleomonetarism

I used that
term – it’s probably not original, but who knows? –
in a recent post about the increasingly obscure meaning of the
money supply. The best example would surely be Ron Paul, who’s
now going to have oversight over the Fed. If you read his stuff,
it’s very clear: money is a well-defined quantity that the
Fed controls, and inflation comes from – indeed is defined
as – increases in that quantity.

What he
means, I guess, is monetary base. Here’s the actual relationship
between monetary base and inflation:

It’s
also worth nothing that in normal times (not now), monetary base
consists overwhelmingly of currency (bank reserves are normally
very small), and the majority of US currency isn’t even being
held in the United States.

It’s
kind of terrifying, in a way, to realize that the politically
dominant faction in America right now has a view of money, what
it is, and how it works that hasn’t been true since the early
19th century, if it ever was.

Let’s take
a part this nonsense, piece by piece. Krugman writes:

What he
[Ron Paul] means, I guess, is monetary base.

Krugman knows
damn well that the monetary base is not the same thing as the money
supply – and that the distinction became important once excess reserves
started piling up, to the tune of a trillion dollars, in the monetary
base. Further, Krugman knows this trillion dollars in excess reserves
is money sitting outside the system, i.e., it is not in the economy.
It is pure evil when Krugman suggests that Congressman Paul thinks
that the monetary base is the same thing as the money supply. During
television interviews, I have heard Congressman Paul on many occasions
comment that there was a huge amount of excess reserves in the monetary
base and that it was a threat to explode the money supply. This
clearly indicates that Congressman Paul knows the difference between
the monetary base and the money supply. (Note: Don’t send me an
early clip of Congressman Paul talking about the monetary base,
without reference to excess reserves, as Krugman points out, monetary
base was different in "normal times". Once it became clear
that excess reserves were flooding the monetary base, Congressman
Paul clearly noted that the monetary base was not moving in correlation
with the money supply)

Read
the rest of the article

December
22, 2010

2010
Economic Policy Journal

The
Best of Robert Wenzel

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