Monday, June 22, 2009

It's "The Inflation", Not "The Liquidity Trap"

Alan Reynolds absolutely demolishes Krugman's "liquidity trap" theory, using actual history instead of (carefully) selected date/date comparos.

...His column says, "A rising monetary base isn't inflationary when you're in a liquidity trap. America's monetary base doubled between 1929 and 1939; prices fell 19%. Japan's monetary base rose 85% between 1997 and 2003; deflation continued apace."

Oh, really?

...With the exception of a brief Fed easing in the spring of 1932, the U.S. monetary base was generally falling or flat from January 1929 to early 1934. From March 1934 to July 1937, by contrast, the rate of growth of the monetary base jumped above 16% on a year-to-year basis. If we had been in a "liquidity trap" that would have had no effect. Yet real gross domestic product grew by 9.5% a year from 1934 to 1937, and consumer prices by 2.6% a year. Since the facts contradict his liquidity trap thesis, Krugman pretends the rebound after 1933 was "helped along by New Deal policies."

There's plenty more at the link.

For what it's worth, even my Econ prof (Les Aspin, no (R)) had conceded by 1970 that economic policies had to utilize both Keynesian and Friedmanite principles at the same time, and probably in small doses, not large ones.

HT: The Winning McCain

5 comments:

Deekaman said...

Krugman is nothing more than a water-carrier for big gov't. Always has been.

J. Strupp said...

Quite possibly the dumbest comment I've read in months Deek.

Deekaman said...

No, I think you just topped it. Ever both to read Krugman? He's the guy who advocates gov't spending to get out of a recession. I'd say that's carry water for big gov't.

J. Strupp said...

Just classic.

Have YOU ever bothered to do a little background check on Krugman Deek? You might want to do a bit of research on him before making stupid comments like, "nothing more than a water-carrier for big gov't...."

He has another, rather decorated, career other than op-ed columnist at the NYT.

Dad29 said...

Krugman is a believer in Keynes. That doesn't necessarily make him a Big Gummint guy, but ...

It is impossible for Gummint to remain small when Big Spending goes on--if for no other reason than Big Taxes have to follow at some point in time.

And as one can see with the current Porkulation Plan, the money IS going to other Gummint entities--not really into private enterprise (aside from the roadbuilders...)