This comes from Luis Martin of TrugmanFactor, a blog located in Spain that translates and publishes Daily Capitalist articles. You can skip the intro in Spanish and get to Krugman’s lecture (0:09:19). But the real stuff starts at 0:35:25 where Professor Pedro Schwartz responds to Krugman’s comments in excellent English. Professor Schwartz is a distinguished and well known Austrian theory economist. And in Luis’s words, “completely destroys Krugman.” In fact Schwartz tweeted later that Krugman refused to shake his hand afterward. Enjoy.
Pedro took him to the woodshed!
Did I hear Professor Schwartz assertion that the EuroZone has one interest rate for all members?
If so, then the Euro can not, from a practical matter survive…There would be no benefit for local economies which badly need a different interest rate to the exclusion of the EUB…
How could a single interest structure work effectively for so many nations?
Krug is the world’s largest a**hole.
Krugman is a coward. Finally someone puts him in his place.
And the Nobel for being an astonishing dick in the field of economics goes to…
One more note: Krugman is almost unbearable to listen to. Pedro Schwartz is far better, and conveys his points very clearly. Impressive guy, and really knocks Krugman down as politely as possible.
Pedro’s best F slip….
“In the short-term we are all dead”
What a comedian.
@Winslow: By “F” slip if you mean Freudian it is you who is the comedian. Schwartz’s slip was just that: a slip.
When Winslow farts, he calls it an F slip
Jeff Harding did you post the wrong link? Krugman is too polite.
Pedro strikes me as a bitter old man clutching to his gold while Spanish unemployment soars, driving the masses into the streets. They will pry the gold from his c@@@ d@@@ fingers.
Thank god Pedro is just a professor where the damage he can do is somewhat limited.
I thought the Professor was very polite to Herr Krugman, Winslow…
Your stimulus post will be as effect as the Federal Reserve…
BTW, why do you not post some videos of Herr Krugman’s politeness…?
It will helf to restore both of your credibility…
Winslow, pot calling kettle…
Every good website needs a voice of dissent, but at least try to be objective.
What got me was Krugman’s weak response to anything. Even the audience seemed to get a piece of him. The woman regarding “inflation as theft”, and the guy from the free market paper that said, “didn’t you advise for a housing bubble” – which he did.
He’s acting like it was all in jest, but I’ve read what he said, and it was pretty clear to me he saw the housing industry as our savior from the tech bubble.
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I have to follow Winslow’s question – I can’t interpret this discussion as either “Krugman is apoplectic” or that Schwartz “destroyed” Krugman. Krugman is pretty professional and polite throughout. Schwartz is “polite” as he pulled out ad hominems, some very passive-aggressive, and went to the core Austrian stuff which, while beautiful in narrative does not hang together in theory nor does it actually comport with empirical realities. It is in fact the reality that the world has entered a balance sheet recession and most central banks are at or near the liquidity trap. We have the Depression as well as Japan to look to. The gold bug / inflationistas / bond vigilantes just continue to be wrong due to an incorrect understanding of economics.
There’s a lot not to like about Krugman but if you like Austrian economics, you will be better served by following the Schumpeter path through Minsky, since you then get to understand the real world.
Krugman and Lil’D's mistake is they look at snapshots and claim that as evidence, even causality, and they ignore the rest. wrong.
i do agree that Schwartz, while clearly correct, was passive aggressive.
what real world do you speak of, Lil’D? forgetting your silly handle, wtf are you talking about? gold bugs are wrong? that’s funny, because since the beginning of the USA’s greatest Keynsian experiment (starting around the tech bubble crash), gold is up over 5x. stocks have gone nowhere, real median income has gone nowhere and yes, bonds are up as well.
the problem with Krugman is he is a scumbag. he uses some data, discards other data, and does it all for his own agenda. he doesn’t are about the average citizen. he is a statist professor with no objectivity. his prosperity revolves around central planning, and thus he is intellectually and personally dishonest. i wouldn’t let him in my home. and also he’s raggedy and fat.
the old saying, “if you can’t do, then teach” applies here. i only wish Schwartz was more aggressive and blunt. i wouldn’t hire Krugman to shine my shoes, he’d even screw that up.
none of this matters anyway, Roberts put the nail in the coffin. we’ll compare notes, Lil’D, in a few decades.
Lil’D,
This site is Austrian, so a broad statement that Austrian economic theory (AET) doesn’t hold together gives us more information about you than about economics. I hear this quite often by people who don’t understand what it is. If you wish to learn about AET, I have a reading list page (see links, top left) that will get you started. While Schumpeter was an Austrian by birth he was not “Austrian”. He did some good work inspired by AET on entrepreneurship, but mainly followed the interventionist path, with Marxist sympathies. A complicated crank. Minsky is just a Monetarist by another name. If you wish to understand why the world works as it does, then the only valid explanation is AET. Otherwise, you will join the masses mired in the confused conventional wisdom. We have tried to show through our explanations of the economy that AET explains the real world better than any other theory. So far, so good. Thanks for reading.
Lil’D, you’re on to it, but I doubt you’ll get much thoughtful reaction here – the ideological blindness here is evident in the title.
Schwartz basic point is that govt holding rates low resulted in the financial bubble that eventually popped; his focus pre-2008. On the other hand, Krugman’s response is about what has since happened after the bubbled popped; post-2008. They essentially talked past one another with the only nexus between the two being Schwartz’s conjecture of low interest rates being the cause of pre-2008 bubble cannot now be appropriate solution for the post-2008 popping and resulting economic contractions.
By bringing up the facts of what has happened since 2008 (i.e. “the experiment”), Krugman does destroy other Austrian notions of: federal deficit spending leading to “crowding out” private sector borrowing and higher interest rates; increased monetary base leading to price inflation; and public sector spending cut (i.e., austerity) leading to economic growth. However, he does not address Schwartz’s conjecture that it was low interest rates that caused the pre-2008 bubble and eventual financial meltdown. On the other hand, Schwartz never provided an argument for his govt-manipulated-low-rates-caused pre-2008-bubble conjecture (and no, I’m not interested in being told to go read Austrian; I’m just pointing out that unlike Krugman, Schwartz did not put any meat on the bone of his basic conjecture).
It would have actually been much more interesting if Krugman had addressed Schwartz’s primary point, and have Schwartz defend his primary conjecture. But, Krugman did not. It may be that Krugman wanted to keep the conversation within the realm of the forum intended topic of where do we go from here rather than looking back pre-2008. Who knows? But what we do know is destroyed the Austerian/Austrian viewpoint with pointing out the facts of “the experiment” noted above.
Further, Krugman got Schwartz to state what he has gotten so many of these guys to come clean on – Pedro isn’t really about returning to economic growth or even about reducing public deficits; what Pedro, if honest, wants is to change the structure of state welfare systems (see at 1:16) and Krugman calls him out on his “hijacking.”
Of course, and far beyond this sites’ understanding, is that both Krugman and Schwartz live in the mythical world of fractional reserve bank lending, where banks’ lending is constrained by their reserves and interest rates signal savings just waiting for investment (or mal-investment) – it’s a world of magic ponies that often makes Krugman wrong and Austrians an anachronism.
Bob, you can continue to labor under the conventional economic wisdom without asking any hard questions if you wish. Just don’t bet the farm on it. From your answers you have no understanding of Austrian theory, but you feel free to criticize it. And, since you’re not willing to learn, as you say, then best wishes for the future.
The straw man arguments employed by PK, over and over and over, are nauseating. Ridiculous.
My impression of listening to Krug, for a few minutes, was that his approach in the debate was much akin to a bureaucrat…
If you think Professor Schwartz destroyed Krugman watch the Q&A. At 1:44:45 a young woman says to Krugman: What I get from your speach is the ECB should inject monetary solutions such as creating money or buying Spanish Bonds. This is called inflation, correct? She then asks him “Don’t you think inflation is theft?” Its priceless watching Krugman try and justify his “solution”.
Tanks Riley! I have instructed my friends not to discuss him…
Yes, it is inflation as long as one re-defines inflation.
Once upon a time, all economists defined inflation in one form or another as having something to do with price increases. Many of these economists also thought that one possible source of such inflation came from too large increases in the monetary base. They felt smart and happy.
But there were times when the monetary base got really really big and there was no increase in inflation. Some economists blamed the data and thought it was all contrived by the big evil govt. But other economist ate some magic mushrooms and decided that to get the cause-and-effect they would just re-define the effect as the cause. They felt clever once again, but unfortunately no one listens to them anymore.
Inflation isn’t price increases, it’s the devaluing of currency. The reason that large increases in money haven’t shown similar large increases in prices is that the capitalist system has sufficiently kept up by increasing the supply of goods and services. This has created the impression that “inflation” is low. In addition, periods driven by credit expansion collapse generate an increase in the demand to hold money, creating additional downward pressures on the pricing level, further distorting the notion that inflation is low. Using prices as a method to calculate inflation is wrong from the outset since this number has dozens of other factors ranging from productivity improvements to changes in consumption behaviors. Inflation is but one small component.
On the contrary, inflation is incredibly high as we should be seeing a natural decline in prices as efficiencies improve. Since products are simultaneously becoming more abundant AND more expensive, we can conclude that inflation is tremendous. The law of supply and demand dictates that when a product becomes more abundant, it becomes less expensive. Since prices are increasing, this means that the currency itself is becoming less valuable at an even faster rate than the relative value of the product itself.
The real inflation = official calculation + some productivity improvement factor + changes in demand for savings.
Good Austrian explanation, professor. Thanks. J
The monetary base in the US has expanded 28% in the last two years. Inflation has declined. These are facts. Where does that leave your theory?
Krugman is an idiot. Nothing more needs to be said.
Devastating attack on Dr. Krugman with facts, theory and evidence.
Krugman’s reply of “it’s true because I said so.” doesn’t seem to fly.
What will happen to us central planners?
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Economics is a hobby of mine so please go easy on my observations … I think the Austrian school has a lot to offer before a crisis like this occurs and perhaps Keynesianism is even too easily manipulated by opportunistic politicians. But it seems to me that in a crisis like ours the Austrians don’t really offer too much other than a long-term (multi-year) liquidation of overvalued assets. With many millions of people out of work for such an extended period of time, isn’t that really tough medicine? Aren’t Keynes, Mankiw, Hubbard and Krugman offering at least offering a way to mitigate this suffering? I wish there were a way to mandate Austrian economics during better economic times in order to avoid these bubbles, etc. but I feel the solutions offered by Austrian economics are so pessimistic once we enter into balance sheet depression like this that I feel it is much less attractive than Keynesianism. Thank you.
If that were the case, then please point out the Keynesian remedies that have worked. I think a good case can be made that these policies have actually delayed a recovery and have contributed to continued high unemployment, economic stagnation, and much suffering in the economy. The best thing that can be done is to liquidate the bad investments as soon as possible, wipe our the attached debt, suffer bankruptcies, and allow savings to rebuild the capital that was wiped out. While it may seem pessimistic, it is rather optimistic since it quickly leads to a recovery. On the other hand, Keynesian remedies have led to more pain and suffering over the longer term, and deprive our citizens, especially the younger generation of hope for the future. Please see the Reading List page, above left, for an introduction to Austrian theory. Thanks for you comment.