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Krugman nails it

May 30, 2012 - Harry Eagar
I highly recommend a longish (24 minutes) book plugging interview with Paul Krugman at Raw Story, a "progressive" news site I had not encountered before.

Krugman tells a few home truths about rightwing economics (including a provocative comparison of the euro with the gold standard).

As Krugman knows, and Bernanke knows and I know, but apparently no rightwingers know, the gold standard got a wringout in the '30s. It was a disaster for the gold bloc (France, Belgium, a few others).

I particularly like one point Krugman makes, that there are two kinds of economists: those who have a mystical, ideological view about how people ought to behave (he doesn't name him, but he's thinking about Adam Smith first of all); and those who base their economic ideas on examination of how people, individually and in groups, really have behaved.

Krugman and I belong to the second camp.

Krugman and I are about the same age and we both as young men got interested in economic history. He tells the interviewer that he turned from history to economics because he wanted something more precise, something that could be used to make a difference.

My direction was exactly the opposite. After studying abstract economics, I couldn't make any sense of it and turned to economic and business history. I hardly expected to "make a difference," only to understand myself how things work. After 45 years of working at it, I'm not there yet, although I do understand why some things do not work.

It should be only restating the obvious -- but it is not obvious to many -- that giving yourself over to free markets leads to bad outcomes. As RtO used to say often, free markets crash.

A market that can expand without crashing seems to me something worth working toward. If only because of the fairness issue. In the risk-reward matrix that free marketeers have made the basis of their ideology, crashes distribute penalties to people who did not accept risks and were not in a position to reap rewards on the upswings.

In other words, the risk-reward argument is phony.


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