When the Republicans retook the U.S. House of Representatives last November, it meant that Ron Paul would be in line to chair the subcommittee that oversees the Federal Reserve System. Despite the intense lobbying by Ben Bernanke and others who loathed the prospect of Rep. Paul being able to subpoena them to appear before Congress and then to ask them pointed questions about their secret operations, the Republican leadership still gave Rep. Paul his rightful position.
Obviously, the Usual Suspects on the Right and the Left are not happy, and today, I wish to concentrate on the attacks on Rep. Paul by another Paul, that being Krugman, who has deliberately misrepresented Rep. Paul's positions in recent columns and blog posts. Krugman's December 20 column called Rep. Paul a "zombie," and then proceeded to attribute false views to the congressman. All in a day's work for the man whose name disgraces the Nobel Memorial Prize for Economics.
Actually, Krugman's smears began over the weekend when he first gave Rep. Paul a backhanded "compliment" for being consistent in his thinking, but then wrote that his ideas were "crazy." Wrote Krugman:
In a way, I almost welcome the frankness of someone like Ron Paul, who tells us that there's no need for any kind of bank regulations. It's crazy, of course – even Adam Smith called for bank regulations, comparing them to building regulations designed to prevent the spread of fires. But at least the guy's consistent.
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However, this is what Rep. Paul actually said:
"I don't think we need regulators. We need law and order. We need people to fulfill their contracts." He added: "The market is a great regulator, and we've lost understanding and confidence that the market is probably a much stricter regulator."
What Rep. Paul wants is not government regulation, nor does he approve of "self-regulation," but rather he wants market regulation which comes about via profits and losses. For example, the banking crisis that came about in the fall of 2008 existed because consumers and investors were telling the banks they made wrong choices, and that they needed to pay.
However, Congress (with Krugman's approval) intervened and then pretty much proceeded to nationalize the country's financial system. As Austrians (and we count Dr. Paul among our number) have noted, this will not make the financial regime more stable and it certainly will not make it more solvent. It just makes the hole deeper and the Day of Reckoning even more sinister.
Krugman hardly was through. He then created another post for his blog in which he misrepresents Dr. Paul's views on money. Krugman writes:
I used that term (paleomonetarism) – 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.
Krugman then goes on to compare the changes in the monetary base with the changes in the CPI in order to claim that Dr. Paul is wrong on money and wrong on inflation. Robert Wenzel deftly challenges Krugman in this blog post.
However, Krugman was just getting warmed up, and his December 20 column not only refers to Dr. Paul as a "zombie," but he repeats the "regulation" quote but this time fails to link Dr. Paul's statements to the article in the Wall Street Journal from where the quote came. He writes:
When historians look back at 2008–10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything – yet they now dominate the political scene more thoroughly than ever.
How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says "I don't think we need regulators," about to take over a key House panel overseeing the Fed?
We can expect much, much more of this, and not just from Paul Krugman. Ben Bernanke has lots of friends in the media, and one can be sure that Bernanke will be the source of "anonymous" quotes that will denigrate Dr. Paul's character and his understanding of money and the economy. For that matter, Bernanke was the chair of the economics department at Princeton when the university hired Krugman, so one can be sure that Krugman has Bernanke's back.
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Furthermore, one can bet that much of the banking and monetary establishment is going to try to destroy Dr. Paul's character over the next two years, and given that the Washington media really does not care about facts and certainly not the truth, one can bet that every false rumor about Ron Paul will be bandied about by the mainstream media.
Of all people, Krugman understands that when an academic writer such as himself deliberately misrepresents someone by using a quote to push a point of view the other person does not have, he is engaged in fraud. This is the kind of fraud that at one time discredited someone to a point where his good reputation and sometimes his academic position were taken away from him.
Obviously, that no longer is the case. Krugman has signaled that he is quite willing to be a hatchet man for Bernanke and others and to insult and misrepresent what Ron Paul is doing and saying. That Bernanke and his Wall Street friends are willing to go along with this tells us much more about them than I really want to know.
(I would add that Henry Hazlitt, who was a much better economic thinker than Krugman ever will be, wrote columns for Newsweek for many years, yet never engaged in this kind of personal invective. Today, invective is about all Krugman and others like him understand.)
It is going to become even uglier than it is now, and the new Congress has not even been seated.
December 21, 2010