Home > economics, political-economy > Saint Paul doubles down on stupidity

Saint Paul doubles down on stupidity

Saint Paul seems intent on indefinitely retaining his title as the Worst Economist in the World, as he writes on the Federal Reserve Bank’s quantative easing program:

In my first WEITW post, I went after the claim that quantitative easing, by weakening the dollar, could actually hurt recovery — because, you see, a weaker dollar leads to higher commodity prices. As I tried to explain, a weaker dollar is also a stronger euro (and other currencies), so what raises prices in terms of one currency lowers them in terms of others, and the whole thing makes no sense.

We are not sure what our Saint means by this statement, since almost all commodities are priced in dollars. If the dollar price of these commodities rise, it doesn’t matter how many Mexican pesos you have when you can only use dollars to pay for your imports.

But never mind, Saint Paul is not out to rehash this stupidity, he fully intends to double down on it:

What I didn’t do at the time was take on a related argument — which wasn’t made in that article, but I knew was out there — which said that expansionary monetary policy in general leads to higher commodity prices, and therefore hurts recovery.

This argument, Saint Paul explains is a classic freshman mistake of assuming higher prices imply a reduction in the purchasing power of the money in your wallet, resulting in a proportional reduction in your spending.

Not so, Krugman rejoins: higher prices only hurt spending if prices rise faster than your income, leaving you more impoverished than you were before. And this will only happen if quantitative easing is successful.

Read the above statement again, please: Higher prices only hurt spending if prices rise faster than your income, leaving you more impoverished than you were before. And this will only happen if quantitative easing is successful.

If, Krugman argues, the Federal Reserve’s program of quantitative easing is successful, you will be poorer!

We have a hard time finding a coherent definition of progressivism, but if this is it, why not just call it the American variant of fascism? The success of economic policy, Saint Paul has just explained, is to be measured by the collapse of your real income.

A Dark Age indeed.

But, what really impressed us with the perverted logic of our Saint was his assumption that QE2 can only have this effect on the economy.

Suppose QE2 doesn’t work? What if it fails to create inflation? Suppose, for example, Wall Street companies are not able to pass along higher commodity prices to the sheeple on Main Street? What will companies do in this case?

Now, their input prices are rising, but consumer demand is such that they cannot pass these increased costs to the final sucker — uh — buyer. (That would be you.)

If QE2 isn’t successful. profit margins will be squeezed, shareholders will get nervous, and managers will start looking for ways to further cut costs to shore up the bottom line. If quantitative easing doesn’t work by making you poorer, then it works by making companies less profitable; and, when companies are faced with the prospect of becoming less profitable, they begin looking for other ways to make you poorer.

Which is to say, QE2 may well lead to another drastic collapse in employment.

QE2 is supposed to work, at least in part, by making credit available for more debt accumulation by the sheeple. But if we cannot absorb any more debt, the cash just ends up driving up the prices of assets, including commodities, without increasing sheeple debt levels.

As Steve Keen has explained in his recent blog Deleveraging, Deceleration and the Double Dip, almost all of the increase in employment in this country is created by your willingness to absorb ever greater amounts of debt. If the Fed cannot convince you to take on more debt, no improvement in employment will be forthcoming.

This is the purpose of QE2, and if it is not successful, you can kiss your job goodbye. You have a choice: watch the purchasing power of your paycheck steadily erode under a mountain of debt, or sit at home all day watching Oprah.

  1. bobo
    October 27, 2010 at 2:23 pm

    You nail it again. But i think Krugman is quite conscious with what he’ve written. This guy is a dreadful asshole, most dangerous asshole now. When the right time arrives, he will the first on the line thumping the war’s drum with China.


    • October 27, 2010 at 3:02 pm

      I believe his main purpose is to serve as a leftish ideological flack for Wall Street in order to ensure that progressive minded activists do not abandon the Democrats for an independent party. In this, he is joined by such as Soros, Rachel Maddow, The Nation, etc.

      The same thing is being accomplished among the Tea Baggers and the Republicans with corporate underwriting, Sarah Palin and Fox News…

  2. bobo
    October 27, 2010 at 2:28 pm

    If i am not mistaken, i’ve read on your blog or somewhere that Keynes preferred cutting the worker’s real wage by inflation rather than nominal wage. Krugman learned a lot from his master.

    • October 27, 2010 at 2:56 pm

      Here it is: “Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.”

      HERE: http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch02.htm

  1. October 28, 2010 at 4:56 am

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