Krugman Accuses Republicans of Preventing Bernanke from Saving Economy

It often amazes that liberals in this country revere New York Times columnist Paul Krugman as being an expert economist.

Take for example Friday's intellectually challenged piece entitled "Bernanke's Perry Problem" in which the Nobel laureate accused prominent Republicans such as the Texas governor and Wisconsin Congressman Paul Ryan of preventing the Federal Reserve chairman from enacting monetary policy that would save the economy:

[I]nvestors around the world are anxiously awaiting Ben Bernanke's speech at the annual Fed gathering at Jackson Hole, Wyo. They want to know whether Mr. Bernanke, the chairman of the Federal Reserve, will unveil new policies that might lift the U.S. economy out of what is looking more and more like a quasi-permanent state of depressed demand and high unemployment.

But I'll be shocked if Mr. Bernanke proposes anything significant -- that is, anything likely to make any serious dent in unemployment or offer any serious boost to growth.

Why don't I expect much from Mr. Bernanke? In two words: Rick Perry.

O.K., I don't mean that Mr. Perry, the governor of Texas, is personally standing in the way of effective monetary policy. Not yet, anyway. Instead, I'm using Mr. Perry -- who has famously threatened Mr. Bernanke  with dire personal consequences if he pursues expansionary monetary policy before the 2012 election -- as a symbol of the political intimidation that is killing our last remaining hope for economic recovery.

So it appears Krugman has given up hope for another wasteful stimulus package from his not Keynesian enough for his tastes President. The future of our nation now rests on the shoulders of the Fed chairman who is mysteriously constrained by pressure from a Republican governor.

This kind of thinking might merit him another Nobel prize.

To prove his inane point, Krugman referred to a plan Bernanke had to fix the Japanese economy in 2000 wondering why oh why he doesn't try that here in the States today:

Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan's economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, ''setting a target in the 3-4% range for inflation, to be maintained for a number of years,'' which would encourage borrowing and discourage people from hoarding cash; and ''an attempt to achieve substantial depreciation of the yen,'' that is, to reduce the yen's value in terms of other currencies.

Exactly what part of this plan hasn't Bernanke implemented here since the collapse in 2008?

Purchases of long-term government debt. Did that.

An announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates. And that.

An announcement that the bank was seeking moderate inflation. The Fed's expressed fear since 2008 has been deflation, and all of its monetary strategies since have been a reflation. This is why the dollar is at multi-year lows and gold is at all-time highs.

For Krugman not to know this suggests that he's either writing this nonsense from outside of the country with absolutely no access to television, radio, newspapers, magazines, and the internet, or that he's totally incapable of comprehending anything written or broadcast by such entities.

But his last regret was the real howler: ''an attempt to achieve substantial depreciation of the yen,'' that is, to reduce the yen's value in terms of other currencies.

Once again, for Krugman to make such a statement in reference to our dollar suggests he is either totally clueless about what's been happening around him for years or he is completely willing to say anything he wants with total disregard for the facts.

Here's a chart of the dollar for the past nine years:

Notice something? Like it's been going down for years?

Pay particular attention to what's happened to the dollar since the fall of 2008. It was 90. Now it's 74. That's an 18 percent decline.

Would you call that a "substantial depreciation?"

Yet Krugman actually thinks - or is dishonestly willing to tell his readers - that Bernanke has refused to follow such policies he advocated for Japan in 2000.

Quite the contrary, this Japan strategy is exactly what Bernanke has done here since 2008, and any claim to the contrary is utter nonsense.

The dirty little secret about American monetary policy - and it's only a dirty little secret to the surprisingly large percentage of Americans with their heads in the sand, for investors around the world have known it for years! - is that our entire economic strategy is based on a weak dollar.

Former Fed chairman Alan Greenspan clearly understood that after the bear market of 2000-2003, as well as 9/11, our guardian angel was a soft greenback that would make our products more competitive worldwide.

His fear was that the tremendous reduction in wealth caused by the collapse of stocks would keep the American consumer gun shy, and that any recovery would come from a rise in exports. The only way to accomplish this was with a weak dollar.

Of course, his excessively stimulative monetary policy along with loosened banking and commodities regulations implemented at the end of Clinton's last term also sparked a housing boom which added its own peculiar, short-term catalyst for economic growth.

When that bubble burst, Greenspan's replacement used the same playbook ushering in the lowest interest rates in decades and a perilously weak dollar all designed to have the same effect.

This likely would have worked again except for the sovereign debt crisis across the Atlantic making the weak dollar far less of an economic catalyst than Bernanke hoped.

Despite these immutable facts, Krugman sees Republican demons around the corner thwarting the Fed chairman from doing exactly what he's already done:

Last year, the Fed actually did institute a policy of buying long-term debt, generally known as ''quantitative easing'' (don't ask). But it faced a political backlash out of all proportion to its modest effect on the economy, culminating in Mr. Perry's declaration that any further monetary easing before the 2012 election would be ''almost treasonous,'' and that if Mr. Bernanke went ahead and did it, ''we would treat him pretty ugly down in Texas.''

Now just imagine the reaction if the Fed were to act on the other and arguably more important parts of that Bernanke 2000 agenda, targeting a higher rate of inflation and welcoming a weaker dollar. With prominent Republicans like Representative Paul Ryan already denouncing policies that allegedly ''debase the dollar,'' a political firestorm would be guaranteed.

Not surprisingly, Krugman was just part of a litany of Obama-loving media members willing to cherry-pick Perry in order to make his words sound far more inflammatory. Here's what Perry actually said:

If this guy prints more money between now and the election, I dunno what y'all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous or treasonous in my opinion.

His point, although indelicately put, was that the Federal Reserve, with a presidential election in less than fourteen months, shouldn't be doing anything that could impact the outcome.

This is actually nothing new. Fed chairmen for decades have shied away from huge shifts in monetary policy in election years that could be seen as politically motivated.

If Obama was a Republican and Perry a Democrat, Krugman and the rest of his colleagues likely wouldn't have found anything wrong with what the Texas governor said about Bernanke.

Instead, his remarks would have been considered bold and refreshing - sort of like Hope and Change.

Noel Sheppard
Noel Sheppard
Noel Sheppard, Associate Editor of NewsBusters, passed away in March of 2014.