http://www.lewrockwell.com/…

For all of the talk of Krugman receiving his recent Nobel Prize for his theories on trade, nonetheless it seems to me that the committee was awarding the prize posthumously to John Maynard Keynes. Krugman, after all, is not a “neo-Keynesian;” no, he is a true-blue, out-and-out old time religion Keynesian.

His latest column, “Let’s Get Fiscal,” is right out of Keynes’ General Theory. While not using the term “liquidity trap,” nonetheless Krugman describes such a situation, and then offers “fiscal policy” as a way out:

…there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

He then ends with the following howler:

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

Oh, yes. The Beltway crowd calls for “fiscal restraint.” Right. Krugman must have bought some pretty powerful weed with that $1.4 million he received for winning the Nobel.

I know it wasn’t for his recent writings and I suppose it’s not as bad as the whole Al Gore thing… but… really…

http://www.forbes.com/…

Despite these steps, more is needed. We must now take further decisive action to fundamentally and comprehensively address the root cause of our financial system stresses.

To restore confidence in our markets and our financial institutions so they can fuel continued growth and prosperity, we must address the underlying problem.

OH OH! So the Federal Reserve is going to be dismantled?! Remove regulations which are only show or there to help those at the top already?

And this morning, we’ve taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guarantee program for the U.S. money market and mutual fund industry.

The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

First, to provide critical additional funding to our mortgage markets, the GSEs Fannie Mae and Freddie Mac, will increase their purchases of mortgage-backed securities. These two enterprises must carry out their mission to support the mortgage market.

Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program we announced earlier this month. This will complement the capital provided by the GSEs, it will help facilitate mortgage availability and affordability.

These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for the purchase by the GSEs or by the Treasury program.

I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our financial system. When we get through this difficult period - which we will - our next task must be to improve the financial regulatory structure so that these past excesses do not recur.

This crisis demonstrates in vivid terms that our financial regulatory structure is suboptimal, duplicative and outdated. I have put forward my ideas for a modernized financial oversight structure that matches our modern economy and more closely links the regulatory structure to the reasons why we regulate.

Damn! No.

More artificial risk reduction. This will only continue the distortion price signals and cause more malinvestment. More regulation that will either further enrich Wall Street at the expense of those on Main Street or will stifle their ability to do what they need to do.

Q: Mr. Secretary, what is the alternative here? What is the dire picture you painted for members of Congress last night to try and convince them to support this effort? What is the alternative?

PAULSON: This is what we need to do. Because for some time we’ve been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets.

We’ve worked with Congress on a number of the steps, all of which were important, leading up to this. But this is the way we stabilize the system and get at the root cause.

The root cause is central control of the economy. Something every American child is taught is a bad thing. Look at what happened to those evil commies. While the message we received was hyperbolic it’s has some truth. Central control isn’t only inefficient. It’s an inherently flawed system doomed to failure. These neo-Keynesians just won’t give up on their desire to control or antiquated theories. I saw Obama talking about how the fundamental reasons for this crisis include: not spending enough on infrastructure, not spending enough on education, not spending enough on labor (wages), not taxing the rich enough, etc. Just because you spend capital on something does not mean it’s good. It does not mean that’s what should be done. It does not mean you’ll receive a positive capital growth from the deal. The cost of education has doubled in real dollars since the 1970’s with at best a static result. The fundamental problems are the distortions of the pricing signals due to regulation and primarily the Fed’s interest rate and money supply manipulation. If you make debt cheap, or give it away like it is now (interest < price inflation), individuals will fall into the moral hazard trap and over estimate. They will over consume. Over invest. The illusion of wealth furthers the problem.

I wonder what could be the best practical policy to get this information out. I’m not looking to turn everyone into economists… I just want the to recognize something I think everyone does to some degree but stops short of applying it equally across others and the market as a whole. Perhaps just putting Henry Hazlitt’s Economics in One Lesson [pdf] in public places with Rothbard’s The Case Against the Fed [pdf] sprinkled about would help? I think after the recent happenings people would be happy to read through one of these while waiting for the doctor instead of reading People.

May put the interest at the wrong rate? May? How about all the time? It’s simply not possible to set a single rate that is correct for everyone. There is no such thing. That’s besides the point that the Fed is incentivized to keep rates low which creates moral hazards and malinvestment.

I wish they would have had an hour or 24. Paul would have ripped him apart.