Paul Krugman: FED Policy Does Not Effect Food & Oil Prices, The Dollar Hasn't Gone Down...

Immortal Technique

Immortal Technique

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So after the Paul vs Krugman debate, Krugman gave a short interview.Check this quick clip out.

FED Policy Does Not Effect Food & Oil Prices, The Dollar Hasn't Gone Down, Inflation is good for workers
 
Please go here and help donate to see Krugman debate a real economist (Austrian economist Bob Murphy), the goal is to get to $100k. Your credit card will only get charged if and when it actually happens.

http://krugmandebate.com/

 
Printing money increases the aggregate price level, but not the idiosyncratic components of individual prices. This is pretty obvious logic. If someone said the Fed printing money caused apples to increase by 51% and oranges to decrease in price by 49% that would be crazy. Of course the total combined inflation of 1% or whatever it is is attributable to the increase in the money supply.

You have a bunch of people that say individual prices have gone up. Well lots of other prices has gone down. That's why we keep track of overall combined inflation.
 
How can it be argued that money printing by the Fed doesn't make prices go up when a gallon of gas has actually gone down in price compared to what it was in the 50's in terms of gold and silver? The dollar used to be backed by gold and today it takes like a hundred dollars to buy what one dollar would have bought back then. For example a comic book cost 10 cents when Superman and Batman came out in the 40's and twelve cents when Marvel comics came out in the early 60's. Today the cover price of a comic book is 3 to 4 dollars. And it all started basically when went off of the gold standard and the constant money printing and inflation strarted. From 1850 to 1950 or so the dollar actually doubled in value! How is there even any serious argument about this?
 
Krugman using the same faulty logic again... Because the dollar hasn't depreciated much against other currencies like the Euro than this means the dollar is not being devalued. The obvious counter is that EVERYBODY is inflating their currencies...so relative inflation is a poor measure when it comes to inflation.

For example the Euro's monetary base has doubled in the past 4 years...hardly a fair comparison for the dollar.

Of course Krugman won't bring up HOW inflation is measured (shadowstats.com has accurate numbers on this) nor will he properly factor in the dollar's role as a reserve currency.
 
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WOW!!! That guy is dumb. He was even having a hard time swallowing half of what he was saying.
 
ababba said:
Printing money increases the aggregate price level, but not the idiosyncratic components of individual prices. This is pretty obvious logic. If someone said the Fed printing money caused apples to increase by 51% and oranges to decrease in price by 49% that would be crazy. Of course the total combined inflation of 1% or whatever it is is attributable to the increase in the money supply.

You have a bunch of people that say individual prices have gone up. Well lots of other prices has gone down. That's why we keep track of overall combined inflation.
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True enough, an increase in the aggregate money supply places upward pressure on all prices, but never equally, never all at the same time. Nobody can say with certainty how and when currency inflation will affect supply and demand for each market. MARKETS ARE NOT FUNGIBLE. Nobody can say how, when and to what extent market substitutions and other market adjustments will factor into which markets as a result of the distortion. If apples increase in price by 51% and oranges decrease in price by 49% there is no way of disentangling all the factors to determine the effects currency inflation had on either. Isn't that convenient. And who can say whether oranges might have otherwise decreased in price by 70%, with apples remaining stable in price?

Apples and oranges are a REALLY POOR example because in fact BOTH have gone up in price. Way up. It's not a case of one food going up while others go down, as if it all somehow evened out to a mild increase overall. Some go up faster than others, but even we don't know all the variables. We just know that they're all on the rise and that NONE are really falling.

This gets into the problem with those who imply that aggregate averaging is somehow meaningful -- that inflation may really be benign, or "not as bad as we think" because, after all, the price of yachts and luxury commercial property fell by 35% while the price of food went in the opposite direction. And somehow that's supposed to make people who can't afford groceries to feel better? That's the real apples to oranges, the really nasty reality of thinking only in aggregate collectivized terms -- even when our Wonderful Wizards In Charge do account for food.

Again, it's not "THE ECONOMY", but "WHOSE ECONOMY" that is being affected. At all times. Currency inflation does not hit all goods and services with equal pressure or at the same time. So it's no wonder that a Keynesian-spawned moron like Krugman and his ilk, whose food budget is just another minor number (What, him worry?) thinks the way he does. These are people whose individual economies are not hand-to-mouth, check-to-check, week-to-week survival, so why wouldn't he be quick to point out nothing but averages and aggregates, while calling for more of the hair of the dog that NEVER bites him, and ALWAYS bites someone other than him.
 
Steven Douglas said:
This gets into the problem with those who imply that aggregate averaging is somehow meaningful -- that inflation may really be benign, or "not as bad as we think" because, after all, the price of yachts and luxury commercial property fell by 35% while the price of food went in the opposite direction. And somehow that's supposed to make people who can't afford groceries to feel better? That's the real apples to oranges, the really nasty reality of thinking only in aggregate collectivized terms -- even when our Wonderful Wizards In Charge do account for food.

Again, it's not "THE ECONOMY", but "WHOSE ECONOMY" that is being affected. At all times. Currency inflation does not hit all goods and services with equal pressure or at the same time. So it's no wonder that a Keynesian-spawned moron like Krugman and his ilk, whose food budget is just another minor number (What, him worry?) thinks the way he does. These are people whose individual economies are not hand-to-mouth, check-to-check, week-to-week survival, so why wouldn't he be quick to point out nothing but averages and aggregates, while calling for more of the hair of the dog that NEVER bites him, and ALWAYS bites someone other than him.
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Spot on.

And at risk of repeating myself, the Maestro himself, Alan Greenspan, has written about how preventing wage inflation can offset so many other inflating prices when creating the aggregate numbers.

The deflating housing bubble and stagnant wages have offset the effects of monetary inflation (in the aggregate) for the past several years. What will happen when housing hits bottom and starts to recover? Wages go down more and everything else goes up?
 
Steven Douglas said:
True enough, an increase in the aggregate money supply places upward pressure on all prices, but never equally, never all at the same time. Nobody can say with certainty how and when currency inflation will affect supply and demand for each market. MARKETS ARE NOT FUNGIBLE. Nobody can say how, when and to what extent market substitutions and other market adjustments will factor into which markets as a result of the distortion. If apples increase in price by 51% and oranges decrease in price by 49% there is no way of disentangling all the factors to determine the effects currency inflation had on either. Isn't that convenient. And who can say whether oranges might have otherwise decreased in price by 70%, with apples remaining stable in price?

Apples and oranges are a REALLY POOR example because in fact BOTH have gone up in price. Way up. It's not a case of one food going up while others go down, as if it all somehow evened out to a mild increase overall. Some go up faster than others, but even we don't know all the variables. We just know that they're all on the rise and that NONE are really falling.

This gets into the problem with those who imply that aggregate averaging is somehow meaningful -- that inflation may really be benign, or "not as bad as we think" because, after all, the price of yachts and luxury commercial property fell by 35% while the price of food went in the opposite direction. And somehow that's supposed to make people who can't afford groceries to feel better? That's the real apples to oranges, the really nasty reality of thinking only in aggregate collectivized terms -- even when our Wonderful Wizards In Charge do account for food.

Again, it's not "THE ECONOMY", but "WHOSE ECONOMY" that is being affected. At all times. Currency inflation does not hit all goods and services with equal pressure or at the same time. So it's no wonder that a Keynesian-spawned moron like Krugman and his ilk, whose food budget is just another minor number (What, him worry?) thinks the way he does. These are people whose individual economies are not hand-to-mouth, check-to-check, week-to-week survival, so why wouldn't he be quick to point out nothing but averages and aggregates, while calling for more of the hair of the dog that NEVER bites him, and ALWAYS bites someone other than him.
Click to expand...

Nothing is stopping someone from calculating the aggregate price index for a poor person. I'm sure a number of people have tried. Notice that food has gone way up but the cost of housing has plummeted in many areas and that is a component of the budget of poor people, probably a bigger component than food.
 
This is just a number which doesn't tell you why prices of food have gone way up and cost of housing plummeted. And that is the most important information.
 
Inflation does not affect everyone equally. A common theme from Keynesians like Krugman is that monetary inflation raises prices equally across the board and that there is no net winners or losers, but that is obviously not true. If we follow newly introduced money as it flows through the economy, those closest to the entry point of that money benefit far more from it than those near the bottom rungs of the economy. The reason is that the first people to get and spend that money are able to do so before prices significantly rise, while those that receive the money last (probably in the form of wages) receive it after the rise in prices has already occurred. This gives a preference to one group over another. The exact ramifications of this are not clear, but it certainly results in eroded purchasing power for certain parties in the economy as a result of monetary inflation. And yet this issue has never even remotely been addressed by Keynesians to my knowledge.
 
ababba said:
Nothing is stopping someone from calculating the aggregate price index for a poor person. I'm sure a number of people have tried. Notice that food has gone way up but the cost of housing has plummeted in many areas and that is a component of the budget of poor people, probably a bigger component than food.
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Quantifying two separate indexes (housing and food) wouldn't tell us anything about the cause-and-effect relationship between the two that should be empirically obvious to anyone with a lick of common sense. Housing was one of biggest inflationary malinvestments of all time that actually caused food to become more expensive in the long run.

Housing prices artificially inflated as a steady torrent of free money came gushing into the economy. Housing prices collapsed, and what's the response? A steady torrent of free money comes rushing into the economy, as new rotten money comes to the rescue of old rotten money. Food prices finally (and not so artificially) inflate as a much delayed response to all the fiscal idiocy.
 
For anyone that invests significant portions of their money overseas, the first thing you learn is that when the US dollar loses value, it puts tremendous pressure on the country in question to also devalue their currency for the sake of domestic employment and exports.

Kind of stupid to look at relative value changes between two floating currencies. Is Krugman that stupid or does he have some deceptive reason to make that dollar vs euro comparison to completely ignore a valid comment?
 
Aurave said:
For anyone that invests significant portions of their money overseas, the first thing you learn is that when the US dollar loses value, it puts tremendous pressure on the country in question to also devalue their currency for the sake of domestic employment and exports.

Kind of stupid to look at relative value changes between two floating currencies. Is Krugman that stupid or does he have some deceptive reason to make that dollar vs euro comparison to completely ignore a valid comment?
Click to expand...

Exactly, that was very stupid argument, but he is not stupid. Just a liar.
 
Steven Douglas said:
Quantifying two separate indexes (housing and food) wouldn't tell us anything about the cause-and-effect relationship between the two that should be empirically obvious to anyone with a lick of common sense. Housing was one of biggest inflationary malinvestments of all time that actually caused food to become more expensive in the long run.

Housing prices artificially inflated as a steady torrent of free money came gushing into the economy. Housing prices collapsed, and what's the response? A steady torrent of free money comes rushing into the economy, as new rotten money comes to the rescue of old rotten money. Food prices finally (and not so artificially) inflate as a much delayed response to all the fiscal idiocy.
Click to expand...

This is such a profound disagreement that we have. I view monetary policy as having the ability to affect many things, but the notion that monetary policy can inflate one bubble in one asset market while deflating another one, by itself seems absurd. Just like the notion that monetary policy, by itself increases oil prices and decreases other prices at the same time.

It seems much more like you have a habit of attributing every bad thing to monetary policy. Why was it the housing bubble specifically that inflated much more than other asset markets? It wasn't just interest rates, it was expectations consumers and businesses had about future housing prices. This is why houses went through the roof while stocks and corporate bonds didn't at the same time.

And on the topic of prices, the point should not be really who inflation makes better off. The point we are discussing is about whether the federal reserve controls individual prices. I fully agree they control average prices, but individual prices move around all the time and attributing every change to the Fed is just mind boggling.

If the housing bubble was inflated entirely by the Fed, why isn't there another housing bubble inflating right now with all the "cheap" money you claim exists?
 
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