PROFESSOR KRUGMAN,
CONSIDER FRAUD, GRAFT, CORRUPTION
By Wayne Jett © September 8, 2009
Paul Krugman, professor of economics at Princeton University, consumed eight precious pages in the New York Times Magazine to explain “How Did Economists Get It So Wrong?” Far from answering, he demonstrated why it is so. Not once did he mention fraud, graft or public corruption – the macro-elephants feeding amidst markets, the economy and the current crisis.
If academic economics were as Krugman described it, the ivory tower caricature would be well deserved. Even that epithetic treatment is overly kind in explaining why Krugman and other Keynesian economists serve society so poorly.
Ignoring Financial Fraud
Business school academics do as their counterparts in the financial sector do. They earn by producing what Wall Street demands. They present reality without referring to fraud, market manipulation, graft or public policy which permits it.
Professor Krugman, like many academics and the Times for which he writes, finds parties to criticize other than those controlling great capital pools on Wall Street. Most economists compliantly teach and write that conspiracies to restrain trade or to manipulate markets cannot work and do not exist. Anyone who thinks otherwise is portrayed as akin to a witch-hunter or UFO-watcher. Academics abide by this restraint so their prospects for consultations and awards are improved and their brightest graduates are hired by Wall Street firms.
Bubbles, Irrationality, Imperfection
Krugman tells of theoretical disputes about whether markets are perfectly efficient and whether mathematical formulae can accurately define market activity. These theories are correctly (and easily) rejected, but Krugman turns to equally fallacious reliance on bubbles, busts, “irrationality” and market “imperfections” to explain economic contractions.
Markets are rationally and reasonably efficient in adjusting to changed conditions, but are incapable of producing economic expansion without regard to conditions imposed upon them by government power. Neither classical nor neo-classical economics argued otherwise. From the outset, classical theory urged that government policies on trade, taxes and money are important determinants of the degree of prosperity flowing from markets.
Prosperity Requires Justice
Overriding all in classical theory is concern for integrity, transparency, accountability and the rule of law. In a word, the paramount concern for justice. This is why stable currency value serving as honest unit of account is the basic aim of classical monetary theory.
Subtract justice from market conditions and the market adapts dramatically by shrinking as participants seek safety on the sidelines. Ordinary people understand this, so Krugman has no excuse for missing it. He does so to accommodate Wall Street and to make classical theory appear flawed.
No interested observer, much less an astute academic so close to Wall Street, misses the Madoff and Stanford frauds; naked short selling of Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros. and AIG, not to mention so many others; Treasury secretary Henry Paulson’s heavy-handed involvement in these affairs; manipulation of crude oil prices nearly four times higher than market; or, the SEC’s scandalous performance in abetting all of this while shielding flagrant insider trading from prosecution. Economists who ignore these market conditions deserve to be ignored, ridiculed – even pilloried.
Fiscal Sanity and Sound Currency
Common sense counsels against leaving aside these serious attacks on market participants and proceeding to “stimulate” by borrowing money to fund otherwise unjustified projects. Doing so deepens the fiscal crisis. Why not restore law enforcement in financial markets first and see how that permits markets to recover?
As previously discussed, the Federal Reserve cannot drain $1.2 trillion already added to the monetary base without collapsing the market for commercial paper unless law is enforced requiring prompt delivery of corporate shares sold short. Government failure to prevent financial fraud has nothing to do with laissez faire free markets, but everything to do with crony mercantilism.
Mercantilism vs. Free Market Capitalism
If mercantilists had their way entirely during the past millennium, neither capitalism nor free markets would exist. Mercantilists preferred the Dark Ages, when their elitist influence over government power assured them commercial monopolies which poured money into their coffers, unfettered by competition from the middle class. Only when the middle class rose from serfdom and gained political rights to compete in business, fighting mercantilism every step of the way, did capitalism and free markets come to exist.
What occurred during 2008 in U. S. financial markets and the economy was done by aggressive, virulent mercantilism at its worst. The giant capital pools controlled by Wall Street, with the U. S. government in total captivity, had their way as they pleased with the shares of every publicly traded company. Even the U. S. Treasury itself was opened to them, and the Federal Reserve gave them untold tens of billions for free.
The Emperor Remains Unclothed
Now Paul Krugman undertakes to provide intellectual cover for these mercantilist outrages, and he tells the world the crisis was the fault of capitalism and free markets. No, Professor Krugman, it was not. This crisis was the doing of raw, vengeful, ruthless, pecuniary, elitist mercantilism – the economic master of all humanity throughout the Dark Ages.
And no, Professor Krugman, the world should not hearken back to The General Theory of John Maynard Keynes. Not one of the abstract theories he proposed was capable of proof by reference to empirical data, and not one has benefited any of humankind except mercantilists and their central planners.
Well-meaning economists may learn from the horrendous events of this crisis that Keynes’ proposal to manipulate domestic interest rates is being used for ulterior, illicit mercantilist objectives. With this lesson in hand, they will cease pursuing a hopeless quest to achieve a stable dollar by means of high interest rates. Sadly enough, if this comes to pass, Professor Krugman may be disappointed. ~
