An economic masochist

Paul Krugman endorses Ben Bernanke’s reappointment to a second term as Chairman of the Federal Reserve Board of Governors:

Ben S. Bernanke deserves another term as Federal Reserve Chairman based on his success in battling the financial crisis, said Princeton University Economist Paul Krugman, a winner of the Nobel Prize.

“He’s earned the right to a second term,” Krugman, 56, said yesterday in an interview in Kuala Lumpur. “He turned the Fed into the financial intermediary of last resort. When the banking system failed to deliver capital where it was needed, he put the Fed into the markets.”

Debate over the fate of Bernanke, 55, is intensifying as he nears the end of his four-year term as chairman on Jan. 31. While Krugman and economist Nouriel Roubini have voiced support for the former Princeton economist, others including Anna Schwartz have said a lack of transparency exacerbated the financial crisis.

“I think Bernanke has done a really good job,” Krugman said. “He failed to see this coming and he was behind the curve in early phases. But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis.”

Krugman’s logic is, as usual, hopelessly hapless. One suggests that it would have been fairly easy to do more to stem this crisis, beginning with seeing it coming and not getting behind the curve in the early phases. And, of course, that’s not even beginning to get into the insane attempt to prevent home loan defaults by giving billions to the holders of mortgage-backed securities. Or cutting interest rates when raising them was required. Or driving total credit market debt to nearly 4x GDP. Or refusing to turn over the hidden records of more than 12.8 trillion in grants and loans given out by the Fed and funded by the public. Undsoweiter….

And on a related note, read this and cringe in terror:

What most readers probably don’t know is the reason Krugman became an economist in the first place. “I went into economics,” he wrote in an e-mail message, “because I read Isaac Asimov’s Foundation novels, in which social scientists save galactic civilization, and that’s what I wanted to be.”

As an Austrian who has read Foundation several times and therefore fully grasps the implications of what drives Krugman’s emotional attachment to Keynesianism, one thought leaps immediately to mind: Sweet St. Darwin of the Galapagos, prega per noi condannati!

UPDATE- Some words were simply made for eating:

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.
– Paul Krugman, August 9, 2009

Krugman’s article is not only likely to blow up in his face over time, it’s simply wrong. “The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed.” This is hugely misleading. Bank failures as a percentage of total bank deposits in 2008 and 2009 are running at a rate double that of the bank failures of 1930 and 1931. In August, with at least three very large bank failures known to be in the works but not yet counted, it’s already 3.75% in 2008-09 vs 1.99% in 1930-31