Sprott Money Contact Form

Thank you for contacting Sprott Money.  We will respond to you within 1 business day.



The Sprott Money Team

Sprott Money Ltd.
111 Queen St. East
Suite 501
Toronto, Ontario M5C 1S2

[t] 1.888.861.0775
[f] 416.861.9855

Administrative office only - no walk-in sales.


Please Try Again After Some Time...
Please enter valid captcha
Loading Image

Toll Free: 1-888-861-0775; Local: 416-861-0775

Swipe to the left

The Krugman Con - Peter Diekmeyer

The Krugman Con - Peter Diekmeyer
By Peter Diekmeyer 3 years ago 11439 Views 14 comments

Peter Diekmeyer is a freelance business/economics/defence/IR writer, with 15+ years of experience. Regular clients include the National Post, Canadian Defence Review, Grocery Business, and many financial sector blogs and economics sites.

Peter has also written speeches for dozens of the country's top CEOs, Ministers and NGO leaders. Other niche areas include financial/technology white papers and French to English translations.

Gold’s biggest enemy is a brilliant Nobel Prize winning economist, university professor and columnist for the New York Times. Sadly, he is also a con man.

Last week Paul Krugman wrote a column for the New York Times in which he called Republican Paul Ryan, a “con man.” The Republican chairman of the House Ways and Means Committee’s sins, Krugman, a Nobel prize winning economist and a professor at City University of New York, argues, stem from a lack of detail in his budget plans, regarding proposed spending cuts and closed tax loopholes.

Calling a politician a con man is a bit like telling a pig farmer that he stinks. It’s practically part of the job description.

The claim is particularly rich, coming from Krugman, who in recent years has emerged as the de facto leader of a group of mainstream economists, whose advocacy of near unlimited government spending, borrowing and, most recently, money printing, will go down as one of history’s greatest cons.

Understanding how, what I call the “Krugman Con,” has been unfolding is crucial for precious metals advocates, because one of its core elements was the attempted elimination of the vital role played by gold. Indeed, the gold’s recent resurgence on the world stage is an indication that the con, is nearing its closing stages

Tax and spend. Borrow and spend. Print and spend.

Krugman’s sins, which relate to his advocacy of distortions of policies suggested by John Maynard Keynes, are arguably far worse than Ryan’s. As a university professor, Krugman has an obligation to be bound by a modicum of intellectual and academic rigor, rigor which is sadly absent in the advice he gives.

In his landmark work “The General Theory of Employment, Interest and Money,” Keynes recommended that governments, through their spending, ought to play a stabilizing role in the economy. That’s particularly true, wrote Keynes, during recessions, when governments should run deficits to increase demand, but also during good times, when they should run surpluses to pay down debts and cool things off.

However over the years, “Keynesian” academics, as they have become known, led by Krugman, have advocated increased government spending all the time, for almost any justification. Governments of all stripes, - most recently the Abe administration in Japan, - eager for academic cover for policies that justified massive government spending now (to get them elected), followed by tightness later (preferably after they had left power), embraced Krugman, and his acolytes, with open arms.

This process, - which is worth following, for those who want an understanding as to the increased importance of hard assets, - evolved in three stages.

The 1960s and 1970s: Tax and spend

Original Keynesian economics as described by Keynes in “The General Theory…” had some economic merit, if for no other reason than as an untried academic theory, particularly for a western world starving for solutions after the depression of the 1930s. However when put in practice the policies led to non-stop growth in government spending – and to a need, by politicians for academics to justify those spending increases.

However by the mid-to-late 1960s and early 1970s, “tax and spend” governments led by all parties, fattened by program such as Johnson’s “Great Society” had reached the limits on what the public was willing to pay in taxes. One important milestone was reached when a healthcare program proposed by US Republican president Richard Nixon, which was remarkably similar in many respects to Obamacare, was stopped dead in its tracks.

The 1980s and 1990s: borrow and spend

Stymied by populations that were taxed to the limit, governments, like any interest group, searched in vain for ways to continue to fatten their paychecks and raise funds to distribute to their backers. The answer came almost by accident during the early 1980s when the Reagan administration, in a failed bid to reduce the size of government, led a massive series of tax cuts, without cutting spending, in fact it ended up increasing it. Governments the world over quickly figured out that they could sell or maintain almost any spending program to the public – as long as they did not raise taxes, but rather borrowed the money instead.

During the 1990s, the Clinton administration, under the guidance of his Deputy Treasury Secretary (and later Treasury Secretary) Larry Summers, and goaded on by Krugman and other Keynesians, brought a new twist to “borrow and spend” policies, by, for the lack of a better term “fudging the books.”

The Clinton administration, which began running into limits as to how much the US government could borrow, began simply not recording its liabilities, particularly with respect to public pensions, and healthcare benefits promised to future generations. On paper the Clinton administration thus ran balanced budgets for many of the years it was in office. However in reality, the trillions of dollars in “unfunded liabilities,” that it incurred, dwarfed all of the previous administration’s deficits.

The 2000s and 2010s: print and spend

Unable to raise taxes further, and tapped out by limits as to their ability to increase net borrowings, governments searched in vain for new solutions. Many give credit (or blame) to the then-Federal Reserve chairman Alan Greenspan, who temporarily solved the problem by bringing interest rates down to near zero in real terms, following the dot.com implosion in the early 1990s. This enabled governments to finance even more debt.

However there is at least a theoretical case to be made that Greenspan, a hard money and gold advocate , had no choice. As Greenspan later explained: political realities had made the growth in the sloppy economic policies advocated by Krugman and others, increasingly unstoppable – even by a Fed chairman.

Ben Bernanke, then a Federal Reserve governor, likely spoke for many on the Federal Open Market Committee, when, in a landmark speech to the National Economists Club in Washington in 2002, he raised the possibility of governments raining money from helicopters on the economy.

While “helicopter money,” was justifiably mocked, when Bernanke succeeded Greenspan as Fed chairman, he initiated the latest, and most innovative stage in the Krugman Con. To make up for the fact that people increasingly would not lend to governments, at the derisive interest rates they were paying, Bernanke suggested that governments finance their extra spending, by printing the extra money.

He didn’t say it that way of course. Like all of the major steps in the Krugman Con, Bernanke’s money printing is known by a technical sounding term that the public doesn’t understand, in this case: “debt monetization.”

Krugman knows better

It should be noted that when I refer to Krugman as a “Con Man,” I am not implying that he is doing anything illegal. Indeed his theories, notably his distortion of Keynesian economics, are followed by most of the mainstream economics profession, who, as the late Murray Rothbard, once noted, are dependent on advocacy of such policies for their jobs.

What makes Krugman a “con,” is the fact that he understands what has happened in places where policies similar those he is advocating were zealously implemented (Zimbabwe, pre-revolutionary France and Weimer Germany) and thus he knows better. It’s just that his salary, clients and speaking fees, depend on him saying the opposite.

Don’t fault him though. The money is good. Next week Krugman will be speaking at an event here in Montreal . The ticket price is $200. That’s more than I paid to watch U2.

Not bad for an economist. Or a con man.

The views of the author do not necessarily reflect those of Sprott Money.

T McNeil 3 years ago at 4:28 PM
What Krugman fails to realize, amoung a million other things, is that there are two distinct forms of Keynesian economics, one being when you nationally issue the "global reserve currency" and the second form being when you do not.
When you are the global reserve currency you basically have an open cheque book to write bogus cheques or IOUs for an awful long time; thus domestic and international total debt numbers do not hinder your activities. Just like any individual comparatively with unlimited bank credit. In the other case, you are ultimately expected to pay your debts with objects of international or domestic value. If you don't, then your currency and economy collapses as current and future exchanges and transactions are severely limited.
Krugman is clearly out-to lunch thinking that the American form of Keynesian policies can be applied in other countries, who cannot write bogus cheques and IOUs at whim without concern for ever meeting any of these obligations.
Nonetheless, America will experience a day of reckoning and face a massive economic collapse some time down the road when its “funny money” is no longer accepted and perceived as the reserve currency. For then it will no longer be able to issue unlimited worthless IOUs and will be to pay all its debts with real tangible objects.

Guess what? That will be utterly impossible to do as for even today the value of the total US debt is equivalent to the value of global oil reserves. The reality of finite physics contradicts and limits the boundless fabrications of voodoo Ivy-league economics. Meaning that not only is Krugman a snake-oil conman, but the whole American economic system is one massive Ponzi -scheme premised and driven by its status as a "so-called" reserve currency. The Wizard has no substance.
And this is common sense question we should hence all be asking the Wizard - what substantive value reserves are truly in reserve? Hmm…
Oliver 3 years ago at 5:36 AM
To be correct, it's called Weimar Germany, not Weimer....
Krugman would definitely hit you on that point....
Edward Ulysses Cate 3 years ago at 11:35 AM
Rather than a "con" man, I think of people like him as sociopaths, as defined in "Snakes In Suits." No empathy nor conscience. They are useful tools of the agents of The Great Red Dragon. This book was published in 1889, and they have the stated goal "to own the earth in fee-simple." That's why they lie, steal, and murder.
EricinAustin 3 years ago at 12:44 PM
Your characterization of Krugmans views are frankly wrong. On numerous occasions PK has made clear that the time for austerity and for government to pull back on stimulus and pay down the deficit is when the economy is booming. He has said time and again that just simply not adding to the deficit during good times works as we shrink the national debt as a % of gdp. The irony of your misguided criticism is that we had an excellent time to actually put that into practice at the beginning of the Bush administration when the last liberal administration handed surpluses to the incoming republicans and they proceeded to trash the whole thing with a huge tax cut and a 2 trillion dollar war that we absolutely didn't need. They then snuck out of town in the biggest economic crash since the 1920s. So forgive me if I find your critique of Krugman not just wrong but disingenuous . About the only group that has done anything to bring the budget into balance is the "Keynsean" democrats.
Peter Diekmeyer 3 years ago at 6:38 AM
You hit precisely on the key element in Krugman's distortion of Keyne's theorems.

Shrinking debt as a percentage of GDP may work in slowing an economy. However Keynes, in his "General theory," recommended tougher measures...(running surpluses), as these leave governments more ammunition to fight future slowdowns.

Regarding your characterization of the "surpluses" that the Clinton Administration handed over to Bush the Younger, you are correct...to a point.

However as the article points out, unfunded liabilities first exploded under the Clinton Administration...if these are included, those surpluses are wiped out and turned into trillions of dollars in deficits...(I don't have the precise numbers handy but Boston University professor Laurence Kotlikoff has researched this matter extensively ).
T McNeil ( First Financial Insights Inc.) 3 years ago at 7:04 AM
Peter you make an excellent point hitting the proverbial nail on its salient head by pointing out the fact that all government accounting is quite simply bogus. Bill Gross has articulated this many times, saying that the extent of US government debt is well over $100 trillion when the off-balance sheet items (pensions, guarantees, etc.) are included. Thus our metrics are all fabrications with no relationship whatsoever with reality, while being politically motivated and manipulated.
Krugman, and his like advocates and Nobel colleagues, and their respective followers are all plainly "village idiots" - because their assertions, claims, conjectures and hypotheticals continue to be premised on these make-believe numbers. Only people who are truly insane believe that they can manage reality with nonsensical metrics. It’s impossible. And the simple rule these ivy-league boneheads need to understand and apply is that if it cannot be objectively measured then there is no way on this planet, or on any other intergalactic turf, for that matter - that the objects, systems or processes can ever be effectively managed, in any way. Common sense, again just not so common.
The problem we now face is the complete reeducation of this ship of fools who have been guiding the human passage for far too many decades with fabricated metrics. a.k.a. - lies. And that is some problem. Indeed…
Eco1 3 years ago at 7:58 AM
The Author is a so wrong--he is obviously blinded by Greed. the fact is the GOP has piled up more debt then the dems. Which includes the Bush WARs and Bush tax cuts. The economy does better under Dems both in Real GDP growth and Job growth--This is a fact. This is Math not opinion. The "Tax and Spend" placed on the democrats is really recognition of the True Fiscally responsible party which is the Dems. The GOP is the "Tax Cuts for the Rich and Spend" party as they have continued to be not only the biggest debt creators but the biggest spenders as well. The Bush wars are an example of this irresponsibility. Normally we raise taxes on the wealthy during wars, because the wealthy get an increase in profits (stock holders) and they don't send their children to war zones like the middle class and the poor do. WW2, Korea, Vietnam, First Iraq war. But Gw Bush slashed the taxes on the wealthy and then started 2 wars which he chose not to fund. When asked by the white-house press corp why the Bush administration was returning the Country to deficit spending after Clinton had balanced the budget--VP Chaney stated for the cameras "Deficits don't matter , because it's money we owe ourselves"--Google the video on Media matters or youtube. So much for the Fiscal responsible party --E
Peter Diekmeyer 3 years ago at 6:47 AM
Interesting point. However neither Democrats or Republicans appear to be fiscally responsible. Worse, since both parties have been "cooking the books," by not recording liabilities related to pensions and future health care costs, it is hard to figure out which party is worse.

Suffice to say that it is a close race.
T McNeil ( First Financial Insights Inc.) 3 years ago at 7:20 PM
And that folks is the long and the short of it - as they both blindly fuel the race towards the cliff's end without any gauges or breaks. This will not end well.
highseas 9 months ago at 1:06 PM
Agree, all of DC is irresponsible and out of control.
DC Fleming 2 years ago at 5:30 AM
Please stop linking budget busting policies to presidential administrations. Presidents do not raise taxes, they do not spend taxpayer's money. The responsibility for that rests squarely on the congress and no other. Please improve your accuracy.
Peter Diekmeyer 2 years ago at 8:31 AM
Thanks for you comment.

Presidents approve, veto, or ignore all Congressional legislation.

They (those Presidents that are leaders) also lead the drafting and the negotiations for budget deals.

Like Harry Truman said about the Presidency: "The buck stops here."
T McNeil - First Financial Insights Inc. 2 years ago at 2:49 PM
In the last analysis - this a political process that involves influence peddling and the historic application of the alchemy of snake-oil sales and hence operates with no defined legitimate protocols, save for media showmanship

Worse: it has nothing at all to do with short, medium or long-term realities and physical constraints (e.g. complete practical depletion of fossil fuels in less than 40 years) and the process has been utterly hijacked by the usual suspects - who are backroom welfare oligarchs of a third kind.

As a result, there is not much hope of the process ever getting anything right before the imminent global financial collapse bites us in our proverbial backsides.

And that could much sooner then these clowns and their subservient, sleeping - at -the-switch pundits ( Krugman, et al ) anticipate. - If they even know where the switch is at all ???

How quickly we have forgotten the underlying message of the Titanic - yet, the band figuratively plays-on again into the icy literal depths of an unprecedented, economic dark (sic) age...
Peter Diekmeyer 2 years ago at 3:49 PM
Great post Mr. McNeil, as were your earlier posts.

Jim Rickards uses the analogy of snow building up at the top of a hill to describe the global financial system.

You never know which snowflake will set it off, but all the conditions appear in place for a major avalanche

Back to top