Will Krugman be the next pilot?

In yesterday's column, "The Intimidated Fed," Paul Krugman bemoans the continuing plight of the unemployed and underemployed.  Krugman is upset that Bernanke will not be flying his helicopter as much after June, bringing to a temporary end his massive monthly increases of the monetary base.  At the Fed's first-ever press conference the day before, Bernanke, Krugman says, had argued that the program of monetary inflation called QE 2 "has been effective."  Why not do more?, Krugman wants to know.

Perhaps because QE 2 has not been effective. Along with unemployment, business loans have been rising very slowly since QE 2 kicked in, and consumer loans have continued to fall.  Might there be a causal connection among those facts?  As Ron Paul has written,

The only success the Fed has had in maintaining full employment has been on Wall Street, where it props up crony banks and investment houses to protect them from going bankrupt as they should. Instead they survive to malinvest another day while their executives enjoy jackpot bonuses.

But therein lies the problem, according to Krugman - the "inflationista" Ron Paul, whose unflagging concern about inflation, corruption, debt, and government growth is intimidating the Fed and costing the country precious jobs.  The underlying premise, it appears, is that the Fed can print jobs and prosperity.  Of course, if that were true where would poverty be?

But inflation, to Krugman and Bernanke, is reflected in the government-managed CPI, and by that measure it's running low. Okay, so gas prices are soaring, but that can be explained by emerging markets and Middle East unrest.  It can also be explained by the availability of more dollars for the trading of oil on international markets, though neither Bernanke nor Krugman mentioned this.

With CPI inflation low and unemployment high, Krugman finds it "deeply disheartening" that Bernanke is showing signs of cutting back on his helicopter drops.  What's a little inflation compared to major unemployment?  Bernanke knows better than to back off, so Krugman concludes he's scared of Ron Paul. 

Perhaps Bernanke is afraid of something else, too, such as his own judgment.   In spite of the accolades he's received, Bernanke still remembers his blindness about the housing debacle.  All was well, he said, as the rafters above his head were splintering. 

The housing mania was not something a trained economist should easily miss.  It would be akin to a meteorologist missing a Cat Five hurricane.  A man of his intelligence does not forget blunders of that magnitude.  Nor do the many Fed watchers.

Krugman, though, is unmoved by Bernanke's gross negligence. Given that the Fed's primary purpose is to inflate, and given Krugman's utter fearlessness about confronting the inflationistas, he might be ready to take the pilot's seat if Bernanke has developed a fear of flying.

Can the economy withstand such a shock?

Gas Prices are Lower

At the first-ever Fed press conference yesterday (thanks Ron Paul), Ben Bernanke referred to inflation only in the context of the managed Consumer Price Index.  Never once did he utter the word "gold."  Investors noticed the omission and expressed their concern acccordingly. 

From the NY Sun, April 27, 2011:

Even as the chairman was speaking, the economist David Malpass pointed out in a telegram this afternoon, the dollar lost value, dropping to a 1,529^th of an ounce of gold. Yet not a word about gold at the press conference. Call it the dog that didn’t bark. The chairman spoke of the high cost of gas without once acknowledging that the price of gasoline is lower in value — meaning it takes less gold or silver to buy it — than it did at, say, the start of President Obama’s term. The president seemed oblivious to this irony when he spoke in his radio address over the weekend of how there is no “silver bullet” that will deal with the soaring gas prices.

What the silver price actual shows is that it’s not the gasoline that’s going up but the dollar that’s going down. So it’s just bizarre for Mr. Bernanke to be talking of a “strong and stable” dollar, which he did, Mr. Malpass pointed out, three times in the press conference. The result is what Mr. Malpass called “a disconnect between the rhetoric and the policy” because “the dollar is neither strong nor stable and the U.S. hasn’t supported it.” Said Mr. Malpass, a former official under President Reagan: “For years, Treasury and the Fed have acted as if the current value of the dollar qualifies as “strong and stable.” This severely undercuts the credibility of Treasury and the Fed on the dollar.”

The Case Against Gold

What do critics say about gold as money?  Here are a few of their claims, along with replies.

1.  There’s not enough of it.

The total supply of money is not critical; changes in the supply are.  In a growing economy with a constant money supply prices will tend to decline, as the same dollars bid against a rising level of productivity.  The U.S. experienced this in the latter half of the 19th century, one of the most prosperous periods in history.  Lower prices brings the benefits of prosperity to more people, especially those in low-income brackets.

2.  It’s expensive to produce, and after it’s mined and minted it mostly sits idle in vaults.  What's the point?

It makes it difficult and expensive for government to inflate the money supply.

3.  It limits the spending proclivities of governments.

What the government doesn’t spend, we can. Or better, we can save and invest.  The less government spends, the less it grows, and the more liberty we have.

4.  Most economists - the “experts” - disparage gold.

Most economists are tax feeders.

5.  It places severe limits on authorities in charge of monetary policy.

These are the same authorities who created and helped prolong the Great Depression and whose descendants created the most recent crisis and are busy building the next one.

6.  The gold standard was one of the primary causes of the Great Depression.

It was the absence of a genuine gold standard that ignited and prolonged the Depression.

7.  People find it more convenient to carry paper money than coins.

A genuine gold standard is compatible with money substitutes.

8.  Money is too crucial for prosperity to allow policy to be determined by individual choices rather than government

See point 5.

9.  Gold production cannot keep pace with productivity growth, and therefore we would be subject to devastating deflation.

See point 1.

Capes for the Unemployed

Government has all kinds of wonderful ways for fighting unemployment, don't you know?  With over one million Floridians currently out of work, Workforce Central Florida has launched a $73,000 tax-funded campaign called "Cape-A-Bility Challenge" that includes spending $14,200 to hand out roughly 6,000 red superhero capes to the unemployed and another $2,300 on foam cutouts of "Dr. Evil Unemployment."  Executive Director of Workforce Central Florida, Gary Earl, defended the campaign with these words:

The plight of the unemployed is why we exist, and to help them, we have to engage them, introduce them to our services and connect them with job opportunities.

And Ayn Rand was accused of exaggerating the depravity of her villains.

Hoppe on Central Banking

On Sunday March 27, 2011 The Daily Bell published an exclusive interview with Hans-Hermann Hoppe, professor emeritus of economics at UNLV.  During the interview he addressed many topics.  Here are some of his comments on central banking:

More paper money cannot make a society richer, of course — it is just more printed paper. Otherwise, why is it that there are still poor countries and poor people around? But more money makes its monopolistic producer (the central bank) and its earliest recipients (the government and big, government-connected banks and their major clients) richer at the expense of making the money's late and latest receivers poorer.

Thanks to the central banks' unlimited money-printing power, governments can run ever-higher budget deficits and pile up ever more debt to finance otherwise impossible wars, hot and cold, abroad and at home, and engage in an endless stream of otherwise unthinkable boondoggles and adventures. Thanks to the central bank, most "monetary experts" and "leading macro-economists" can, by putting them on the payroll, be turned into government propagandists "explaining," like alchemists, how stones (paper) can be turned into bread (wealth).