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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)
December 22, 2010
