Jeremy Hammond’s new book, “Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis” is a fast, easy read I’m recommending to people who want the whole sordid tale. 

On that count, from my book, Ron Paul vs. Paul Krugman (http://www.amazon.com/Ron-Paul-vs-Krugman-Keynesian/dp/1470070723)

Krugman again argued in the New York Review of Books in September 2010 that the Fed had had no
choice but to lower interest rates following the collapse of the dot-com
bubble. “It’s hard to see,” he wrote, “even in retrospect, how the Fed could have justified not keeping rates low for
an extended period.” However, now his argument was that “it would be wrong to
attribute the real estate bubble wholly, or even in large part, to misguided
monetary policy.”

Yet how could
Krugman reconcile his argument here that the Fed was
not “wholly, or even in large part” responsible for creating the housing bubble
with his earlier arguments that the Fed should lower interest rates to spur
investment in housing? How could he reconcile this argument with his earlier
statement that “Millions of Americans have decided that low interest rates offer
a good opportunity to refinance their homes or buy new ones” (May 2, 2001)? Or
with his observation that “those 11 interest rate cuts in 2001 fueled a boom
both in housing purchases and in mortgage refinancing” (October 1, 2002)?
Or with his acknowledgment that it had been “the Fed’s dramatic interest rate
cuts” that had “helped keep housing strong” (December 28, 2001)? Or his
statement, “Repeated interest rate cuts encouraged families to buy new houses
and refinance their mortgages” (December 22, 2002)? Or his remark that “Mortgage rates
did indeed fall briefly to historic lows, extending the home-buying and
refinancing boom that has helped keep the economy’s head above water” (July 25,
2003)? Or, “Low interest rates … have been crucial to America’s housing boom”
(May 20, 2005)? Or, “interest rate cuts led to soaring home prices, which led
in turn not just to a construction boom but to high consumer spending, because
homeowners used mortgage refinancing to go deeper into debt”(May 25,
2005)? Or, “A snarky but accurate description of monetary policy over the past
five years is that the Federal Reserve successfully replaced the technology bubble
with a housing bubble” (August 7, 2006)? Or, “Back in 2002 and
2003, low interest rates made
buying a house look like a very good deal. As people piled into housing,
however, prices rose—and people began assuming that they would keep on rising.
So the boom fed on itself” (July 27, 2007)?

What can explain
Krugman’s self-contradictions? When he thought the
housing bubble was a good thing, the road to recovery, he was all for it,
lavishing the Fed with
praise for single-handedly rescuing the economy from the much more painful
recession that
otherwise would have occurred without it. Once the devastating consequences of
the housing bubble became
clear, however, he changed his story, denying that he had ever called for a
bubble and even denying that the Fed was
responsible for having created it.

The so-called right like Hannity and Paul Ryan really need to be told to shut up as it is the fed first and not Obama that caused the financial slump. 

And the left needs to be told to stop blaming Bush because it was the Fed to blame and Obama supports the Fed as much as Bush and Romney do. 

Somehow these creeps need to be told that there is virtually no difference b/w them, just that they wear a bit different clothing.

Too bad there are no independents or independent parties to speak truth to the two parties.  You really can’t speak to democrats while formally wearing the Republican hat.

Of course the Fed didn’t do it… It was aliens.

I don’t think we should be quite so complacent that Krugman made an ass of himself. In many ways he came off quite well, for the allotted timespan.  First of all, he had the air of an economist, ie. of it being his speciality in contrast to Ron Paul being something of a generalist, though an informed one.  In that respect had an initial advantage.  Then, while Krugman could point to specific items or times that had been ‘good’, the solution proposed by RP was not as succinct, being a combination of ‘perhaps’ going to a Gold Standard, of abolishing the Fed ‘over time’ and that one has to consider the tax cuts and the spending cuts at the same time.  The Ron Paul promise was that the soup would be good once you had all the ingredients, and that meant taking quite a lot on trust – certainly if you were coming to it for the first time.  Even in my estimation, as a supporter, I do not think the question of what the final mix of libertarian freedoms is going to be has been adequately address, nor do I see a clear path from here to there.

So, while we can both chuckle and be angry/superior about Krugman (and I did not get the impression of a man who is especially confident) his story is the easier to tell and is currently better suited to the soundbite format.  

This is what I wrote on Tom’s Facebook page immediately after seeing the video.  ”I thought Krugman did surprisingly well, particularly on use of the US dollar. But otherwise it was just the basic argument, each having a different prismatic view and their selective evidence. If you think 1945-2000 was ‘good’ then you go with Krugman. If you think it had failure baked in, then you are with us. More work needs to be done qualifying this difference of interpretation.”   

The argument that has to be made is that this outcome was always inevitable and that, of course you thought it was good while you got handed money.  You were meant to feel good.  But, just like the party that lasted all night, the hangover was always going to come.  And then more work needs to be done on a proper roadmap between where we are now and recovery.  The Keynesians have their answer to that down pat – stimulate the economy.  We need the proper refutation and something more tangible than market forces will prevail.

I wrote up a response to the Ron Paul vs. Paul Krugman Bloomberg debate: 
http://www.jeremyrhammond.com/2012/05/02/ron-paul-vs-paul-krugman-the-bloomberg-tv-debate/

Lehman, AIG and Merrill Lynch did not underwrite mortggages, yet their losses gave the recession its depth and length (combined with the failure to address lack of demand and instead focus on unrelated fiscal issues). It is convenient to have the Fed, Fannie and Freddie as scapegoats.

Their losses were caused by systemic mispricing of assets, thanks to the Fed. Adjusting these mispricings is a good thing. Trying to prop up the phony prices is a bad thing.