Several months ago, Paul Krugman and Ron Paul debated economic policy.
Here’s the rough flow, based on debate transcripts, with some artistic licensee, particularly regarding chronology of arguments, to create greater clarity.
Status quo bad:
– Gov’t should not run monetary policy, as it lacks adequate knowledge.
– Gov’t intervention causes inflation, which takes from savers
o Constitutes theft and is immoral
o Leads to less saving, which leads to lack of capital, which leads to bad economy
– Political harm: Fuels big gov’t. by preventing natural interest-rate signals to discourage politician irresponsibility.
Plan: Natural rate of interest as determined by the free market; solves knowledge problem.
Plan is impossible: Money includes variety of assets besides greenbacks; no bright-line between money and non-money. Cannot bring back world of 150 years ago.
Link: Compelely unmanaged economy historically leads to extreme volatility
– Great Depression as empirical proof
o Spike: Gov’t caused depression- No it didn’t! [no warrant here from Krugman]
Uniqueness: Gov’t intervention prevents or shortens depression
– Empirical proof: post-WWII policy success
Harms Mitigation: We’re nowhere near Japanese levels of debt, yet they carry their debt levels just fine.
Harm Turn: Destroying econ. makes us unable to afford debt we already have.
AT Plan is impossible:
– Nothing modern about inflationary monetary policy. Greeks and Romans did it.
o Roman inflation fueled the welfare-warfare state, causing civilizational collapse and rampaging huns. Rampaging huns is an independent voting issue
AT Depression DA:
Link turn: Fed caused Depression (Bernanke Admits)
AT uniqueness: Post-WWII boom comes after spending cuts- Keynesian intervention did not cause.
AT: Harms responses: Ability to carry debt works because world trusts our dollar, which just buys us time to create bigger bubble before bigger collapse if we don’t change our ways. If we can just count on trust in our dollar, we shouldn’t even have to work- just print dollars and let people buy stuff.
Turn Back Link Turn: Great Depression: Fed caused Depression by not printing enough (Friedman)
AT: Rampaging Huns: I don’t defend Roman Imperial monetary policy.
AT PK on Link: Still a gov’t fail
Inflation as Theft: Flow across
Analysis: Ron Paul’s attempt to apply the information problem argument to monetary policy never went anywhere. That’s a shame, because one of the key disagreements between gold nuts and the economic mainstream seems to be whether anti-central planning arguments apply to fiscal and monetary policy; would have been interesting to see Krugman forced to respond.
Krugman didn’t really tell any kind of story about how a complete free market leads to economic instability, such as we experienced in late-19C. The Depression is a battleground- in his initial spike, Krugman tries to deny that government caused the Depression, then he admits the Fed caused it, but by printing too little money. Paul says all that matters is that the Fed caused it. But his argument here is problematic- he doesn’t show why an absolute free market would have brought about a better result, and the argument complicates his impact stories and many of his other arguments, which are based on the idea that the Fed systematically prints too much money and that attempts to alleviate depression by loosening monetary policy are folly.
The vulgar left-wing argument (free markets caused the Depression) is wrong, and Krugman shouldn’t have gone with it, but I don’t think Ron Paul generates any offense off the turn. However, the problem is the exact opposite on the uniqueness argument. Here Krugman points to post-WWII success under the status quo system, but Ron Paul points out that system kicked off the post-War boom by making free-market changes and cutting spending suddenly, which, as Tyler Cowen notes in his commentary on the debates, creates problems for the Keynesian Depression narrative.
So Paul’s argument that the system’s failure led to the Depression is true only because the system didn’t deliver the results he says lead to disaster; and Krugman’s argument that the system’s success led to post-War prosperity is true only because the system didn’t act on his recommendations, and did act on some Ron Paul recommendations.
Krugman loses the disadvantage on uniqueness takeout but, again, Congressman Paul doesn’t gain anything with his link turn.
As to the Representative’s own economic harms, they he explains why inflation can be bad, and why we can’t just count on the market’s confidence in the dollar, but doesn’t make clear why we’re on the brink. Krugman makes a case for treating demand-side considerations as primary (Depression would prevent us from handling even the debt we have), while Paul argues for supply-side as primary (why don’t we just stop working altogether- the dollar will always be there!) Yet Krugman does the better job dealing with the specific situation- other countries have had higher debt as %GDP and done fine. Paul doesn’t directly answer this argument, or doesn’t make clear he is doing so.
He tries to pull across a moral anti-inflation argument, saying that government is immorally harming savers, but this relies on some excess inflation link stories that he just doesn’t tell enough, in my judgment.
I have Krugman winning slightly. (I treated Krugman as defending the status quo since he seems to come closer than Paul to doing so.) As Cowen notes, it was closer than one would expect given that Krugman is a Nobel Laureate and Ron is an amateur dabbler.
After the debate, Krugman threw a tantrum on his own blog, acting like he had lost and was being a sore loser, whining about how the format prevented him from allowing his Truth to show forth in all its brilliance. “[Y]ou approach what is, in the end, a somewhat technical subject in a format in which no data can be presented, in which there’s no opportunity to check facts (everything Paul said about growth after World War II was wrong, but who will ever call him on it?)…So why did I do it? Because I’m trying to publicize my book.”
This is highly dishonorable. If you agree to debate someone, you can’t turn around and declare yourself too good for the process, your Fact and Truth too high to be cast before swine. Once you put yourself on the line, there’s no hedging your bets.
Moreover, did the format of the debate obviously prevented a highly technical discussion of data, but did it really force Krugman into the narrative BS he engaged in (“Great Depression was a failure of capitalism!”)? Ron knocked that narrative down- why couldn’t Krugman have beaten some of Paul’s narratives as easily? They were both dealing with the same format.
One of Krugman’s most effective issues was when he alluded to data, without overwhelming us with it, about debt as %GDP being manageable. One of Ron’s most effective arguments was when he cited facts to refute Krugman’s post-WWII narrative. If he got facts wrong here, I don’t see why Krugman couldn’t have corrected him. And in a blog post where he is without the encumbrances of a TV debate, he still doesn’t prove any of the Congressman’s facts wrong!
Though there are highly technical cases for Keynesianism and its leading competitors, there’s also more narrative arguments that have a lot more to do with the success of schools of economic thought in persuading politicians and opinion leaders. Krugman himself frequently goes the narrative route in his columns, to excess, as I have shown here.