Krugman’s Flashing Neon Sign

The debate between Paul Krugman and my friend Steve Keen regarding how banks work (see here, here, here, and here) has caused me to revisit an old quote. Back in the 1990s I would use Krugman’s book, Peddling Prosperity (1995), in my intermediate macroeconomics courses since it provides a good overview of what were then contemporary debates in macroeconomic theory as well as Krugman’s criticisms of various popular views on macroeconomic policy issues from that era. One passage near the very end of the book has always remained in the back of my mind; in it, Krugman critiques a popular view that was and still is highly influential regarding productivity and trade policy. He writes: “So, if you hear someone say something along the lines of ‘America needs higher productivity so that it can compete in today’s global economy,’ never mind who he is or how plausible he sounds. He might as well be wearing a flashing neon sign that reads: ‘I DON’T KNOW WHAT I’M TALKING ABOUT.’” (p. 280; emphasis in original)

In his latest post in this debate (which Keen replied to here), Krugman demonstrates that he has a very good grasp of banking as it is presented in a traditional money and banking textbook. Unfortunately for him, though, there’s virtually nothing in that description of banking that is actually correct. Instead of a persuasive defense of his own views on banking, his post is in essence his own flashing neon sign where he provides undisputable evidence that “I don’t know what I’m talking about.”

Ptolemaic Economics in the Age of Einstein

Paul Krugman’s claim that those who argue banks play an essential role in macroeconomics are “Banking Mystics” has a natural riposte: Neoclassical economists like Krugman who believe that capitalism can be modelled without either money or banks are Barter Mystics (David Graeber, 2011). How on earth can someone believe that the manifest reality that transactions involve money being exchanged for goods can be ignored, and pretend instead that goods are exchanged for goods? How on earth can the institutional reality of banks be ignored by those who claim to be macroeconomists

Bernanke: The Federal Reserve and the Financial Crisis

Federal Reserve Chairman Ben Bernanke has been guest lecturing at George Washington University, giving students a four-part series of talks entitled “The Federal Reserve and the Financial Crisis”. Below are the slides that accompanied his lectures

[Premium] Quick thoughts on Fed policy and the potential for QE

Last August, the Fed went for what I call “rate easing”. If the economy weakens this year what will it do? I am not convinced it will be quantitative easing. In general, I think the Fed, while looking to support the growth side of its dual mandate, wants to look to the data before acting since monetary policy acts with a lag. This post is about those policy concerns and about what Fed policy has already done. Private portfolio preferences have shifted considerably. An article in today’s Wall Street Journal “Junk Bonds Feed a Hungry Market” shows the way, with a lot of quotes about people reaching for yield because Treasury yields have been suppressed

Samuelson Flunked Bernanke

The forecasting proficiency of central bankers is a topical issue. At least, a friend asked if I could help with a list of Federal Reserve Chairman Ben S. Bernanke’s predictions. The list stops in 2008, although he has been no more accurate since then. I sent the list to a few others. To those lucky recipients, I attached Paul Samuelson’s opinion of Ben S. Bernanke. It is the response (below) of one correspondent to Samuelson’s statement that is most telling

Transcript: Federal Reserve Chairman Ben Bernanke Interview with Diane Sawyer

Below is a video excerpt of the interview US Fed Chairman Ben Bernanke conducted with ABC News’ Diane Sawyer earlier this week. Below that is the transcript

[Premium] Daily commentary: On QE3

This one’s short today as I am running out of time. I posted earlier regarding Bill Gross’ comments about the Fed doing a mortgage-backed QE3. There’s nothing fundamentally off about this call. But we really aren’t there yet as it is wholly dependent on the US economy

Bill Gross on his expectations for QE3 and more

The following transcript and video is courtesy of Bloomberg TV where Bill Gross spoke to Margaret Brennan today, telling her that he thinks the Fed will go Qe3, but that it will shift to mortgage backed securities when Operation Twist ends in June. He doesn’t limit his commentary to the Fed and QE3. There’s a lot more here. Enjoy

Bill Gross on Risk Seeking Return and Safe Carry

Bill Gross is out with his monthly commentary. Because his points are central to the discussion of policy and markets right now, I am going to write this weekly newsletter commentary outside the paywall. The major question is about how to invest in a world that levers much more slowly in total, and can delever sharply in selective sectors and countries. Gross has some answers and I have some comments on the macro backdrop

Dollar Soft, Bernanke Misunderstood

Judging from the press coverage, we suspect many observers have misunderstood Federal Reserve Chairman Bernanke’s comments yesterday. They need to be placed in the context of what went before: namely several hawkish regional presidents spoke, seemingly raising the prospect of a hike as early as next year and a backing up in US yields. His comments justified the continued accommodative policy a necessary to make further progress in reducing unemployment, which he argues requires a faster growing economy

Video: Gas Prices Explained

I missed this one from Omid Malekan a few weeks back but it’s a good primer on gas/petrol prices for those of you who are interested

The preposterous credit world view presented in Ben Bernanke’s lecture series at George Washington University

Federal Reserve Chairman Ben Bernanke’s lecture series at George Washington University is most unfortunate. The first instinct, at least here, is to let it pass. Two of the man’s characteristics will be addressed in what follows. First, his inability to anticipate. Second, his limited understanding of the past, which is a cause of his inability to anticipate