Paul vs Paul on the US economy

Paul Krugman debates Ron Paul on live TV. Ill-advised or not, it is interesting to see their different takes go head to head. I’m not sure either really puts their points across very well, but I was a little surprised to see the vitriol in the comments of the YouTube video against Paul Krugman. Ron Paul clearly has a strong support base.

If you listen carefully, you won’t hear Ron Paul address any of the fundamental economic issues caused by the Gold Standard, you will hear him disagree with Milton Friedman and you will hear him use more emotive please than even Paul Krugman. Krugman, on the other hand, uses a mixture of emotive pleas with overly complex ideas and probably entirely misses his audience.

Simple fact is, a little inflation and currency depreciation would go a long way to fixing the structural problems with the US economy AS WELL as the defiicent-demand cyclical problems.

Watch the video.

6 Replies to “Paul vs Paul on the US economy”

  1. Demand wont come back until the underlying debt problem is sorted out – there is no liquidity trap. The truth is that the US Gov is spending like there is no tomorrow and its only making the problem worse (same is happening in Europe, Japan, Australia and elsewhere). You cant keep this print and spend going hoping it will get people spending. It wont. Deflation and deleveraging has to happen. Until Krugman, Keynesians and Monetarists realise this (only happens when loss of faith in currency occurs), will the system reset and we can rebuild.

    1. Piet, have you looked at the actual level of US government employment? Your post is just absolutely wrong because, especially since the most stimulus expired, the US has been shedding public sector jobs like you can’t imagine. I appreciate your comments and interactions, but I worry that you have your idealogical position and haven’t actually checked the facts. I’m going to post a graph now to demonstrate this.

      You say there is no liquidity trap, but interest rates are low, unemployment is hardly moving and the “natural rate” of interest as suggested by many Taylor type formulae is negative.

  2. Where did Gov employment come from ? I am talking about debt here. The FACT is that the US Government debt has grown 6 trillion dollars since 2008. No-one disputes this, not even Krugman.

    The reason interest rates are low in the US (and in the US interest rates refer to bond rates) is that if they were higher, bonds would become unserviceable and default would ensue. Hence interest rates in the US will not be allowed to rise (read up on Operation Twist and the Fed now accounting for nearly all treasuries bought). Unemployment; well your post on structural issues in SA, apply equally to the US.

    When talking of inflation, who are you going to believe ? Lying government statistics or your bill at Checkers which is going up at over 10% or more per year. The same deception game is being played in the US with Bernanke pretending that inflation is temporary and below 2%.

    1. The debt has increased, as a result of the recession. Yes, the debt levels are higher than ideal.

      Your strategy would push the economy further into recession and likely increase debt levels and definitely increase Debt/GDP ratios. Poor economy = low tax revenues = more debt. Look at government expenditures and employment to see where government is currently spending, not on debt which is the difference between expenditure and revenues.

      You can’t argue that the cause of low interest rates is what would happen if they weren’t low. You’re confusing cause and effect. The market isn’t worried about inflation and so rates continue be low. I’m not sure I understand your comment that “interest rates refer to bond rates” – their are T-bill and T-bond rates and a range of other measures.

      You claim that eventually the US will default. Why on earth would they default on their US Dollar-denominated debt? Greece and Spain now, the Asian Tigers in the late 90s and half of South America most of the time have had currency and sovereign debt crises because their debt was not denominated in their own currency. The low cost of debt now is actually very good reason to borrow more and invest it in positive ROI projects for the economy.

      There is absolutely no comparison between structural unemployment in SA and the unemployment in the US. Where in the US is the job market tight? How did this sudden structural problem appear overnight? If anything, downwards wage rigidity (which does exist and is arguably a type of structural result of cyclical lack of demand and the liquidity trap) and is limiting the US (as well as Ireland and Greece and any number of other countries) abilities to internally devalue to return to competitiveness and full employment, is a clear sign that the last thing we want is lower inflation or deflation. The invisible hand doesn’t work when prices don’t adjust. It is abundantly clear from wage change data that wages are downwardly rigid. Again, your “solution” will create even higher unemployment and more debt.

      So as I see it since the facts don’t fit your argument, you’re going to disavow the facts? Check out the Billion Prices Project http://bpp.mit.edu/usa/ estimates of inflation. Completely independent of government, agrees with the current low CPI. US inflation is low, despite the claims of Austrians and others over many years that massive inflation and massive depreciation of the Dollar and a huge spike in interest rates were just around the corner.

      Ultimately, we all need to ask ourselves “how well does my model predict what will happen next” and how well does it fit with the current economic conditions.

  3. Do you ever directly answer my questions or do you continually talk about tangental issues ?

    Spend spend spend and then spend some more. Reduce the purchasing power of the common man. Why is it that you have to go to your boss every year and ask for a raise ? People are not spending and wont spend due to the mountains of debt everywhere. Trying to force people to spend in your fictional liquidity trap wont work. 40 years of debt build up after Nixon dropped the gold standard, has now got to be flushed from the system. Until it happens you can preach debt and government largesse till you blue in the face, its not going to change.

    Why did the Fed and other mainstream economists not see 2008 coming ? Broken model.

    Also can one ever fix debt with more debt ? Think hard, its not logical and you know it.
    QED

    1. Thanks Piet, but what exactly is your question that I’m not answering? I really am trying very hard to address your points. Maybe post a slightly longer comment but just on one point so I can try to answer your questions. You are still making many claims without any evidence or argument to back it up. Also, maybe take me through, step by step, what your proposed solution is and how it will work.

      Finally, I did directly address some of your points in my reply. For example, why the US won’t default. Can you address my replies as well in addition to raising new points? That might make the discussion a little more useful to others.

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