On Aug 18, 2009, at 7:43 AM, double bluff quoted:
> I think that Paul Krugman is one of those absurd guys that has no
> idea what in the hell he is talking about and who owes his
> undeserved prominence to being a real butt-kissing sucker-upper to
> Alan Greenspan and his Federal Reserve, and now he's doing the same
> thing to the laughable Ben Bernanke and his disastrous Federal
> Reserve, although I will admit that I don't know why anybody listens
> to this guy.
>
> I say this with such obvious disrespect because Mr. Krugman is on
> record has having advised the Bank of Japan to purposely cause
> inflation, as, "The way to make monetary policy effective is for the
> central bank to credibly promise to be irresponsible -- to make a
> persuasive case that it will permit inflation to occur, thereby
> producing the negative real interest rates the economy needs",
> although he never actually says where he is going to find guys
> stupid enough to loan money at negative interest rates, or in what
> bizarre alternate universe he lives where high inflation in consumer
> prices, particularly sustained high inflation, is anything other
> than a total disaster, which is why most of economics is concerned
> with the problem of preventing inflation while fostering growth!
>
> In fact, he thinks that a central bank trying to reflate a
> collapsing economy should announce a deliberate plan to raise the
> level of prices (such as the Consumer Price Index) from current low
> levels to some dramatically higher value (a so-called "price-level
> gap") that it would have theoretically reached if a "moderate" and
> constant amount of inflation in prices had, in fact, occurred!
> Gaaahhhh!
Dunno who the character that wrote this, but it's crap. We could have done a lot worse than have Bernanke at the head of the Fed. And Krugman's advice to try to turn a deflation into a mild inflation is entirely sound - as Irving Fisher pointed out in his classic paper on debt deflations
<http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf>,
the U.S. economy only reached bottom in 1933 as the CPI turned upwards. A deflation is a terrible thing, and any sane central banker wants to avoid one.
This excerpt reads like one of those weird left meets right things. It's entirely consistent with right-wing nuttiness to accept a deflation as a necessary purgative. It should stay on that side of the spectrum.
Doug