Paul Krugman

Am I a hypocrite?

In my last post, I wrote that Krugman was wrong to say that the Federal Reserve has no control over the money supply. In the comments section, the astute Barney Rubble pointed out that elsewhere on the blog I stated that central banks have limited control over the money supply. His comment is here:

I think it might be necessary to clarify the apparent contradiction….As in other posts you have mentioned the FED doesn’t have so much control….”In other words, if the central bank wants to boost the money supply from £1 trillion to £2 trillion, it could do so with ease. Today, the central bank does not have this control.”

So am I a hypocrite? No – at least I don’t think I am.

The Fed Does Control The Money Supply

The bubbles foaming from Paul Krugman’s soapbox seem to have gone to his head. As Krugman now claims, the central bank is incapable of directly affecting the amount of money in the economy. All it can do is adjust the level of bank reserves. Whether these adjustments lead to changes in checking deposits is then left to fate and fortune.

He is wrong, clearly.

To Stimulate or not to Stimulate

Keynesians like Paul Krugman and Simon Wren-Lewis have been working overtime in defence of their beliefs. The anti-Keynesian attack began before Christmas, when U.K. Chancellor of the Exchequer George Osborne wrote in the WSJ that Keynesians wanting more spending and more borrowing “were wrong in the recovery, and they are wrong now.” The attack continued when John Cochrane penned a WSJ opinion piece denouncing the efficacy of government stimulus. In it, he pointed to the fact that the US has grown despite austerity as proof that deficits are not only useless but harmful.