Paul Krugman, from his New York Times perch on March 25 writing “Crazy About Money,” lets himself go nuts recycling his standard arguments against the gold standard. He throws some mud at presidential contender Ted Cruz and House Speaker Paul Ryan. Doesn’t stick. Krugman:
… Mr. Cruz has staked out positions on crucial issues that are, not to put too fine a point on it, crazy. How can elite Republicans back him?
And then there’s a subject dear to my heart: monetary policy. You might be surprised to learn that few of the subjects I write on inspire as much passion — or as much hate mail. And it’s a subject on which Mr. Cruz has staked out a distinctive position, by calling for a return to the gold standard.
This is, in case you’re wondering, very much a fringe position among economists. When members of a large bipartisan panel on economic policy, run by the University of Chicago business school, were asked whether a gold standard would be an improvement on current arrangements, not one said yes.
In fact, many economists believe that a destructive focus on gold played a major role in the spread of the Great Depression. And Mr. Cruz’s obsession with gold is one reason to believe that he would do even more economic damage in the White House than Mr. Trump would.
So how can elite Republicans — people who have denounced Mr. Trump in part because they claim that he advocates terrible economic policies — be supporting a candidate with such fringe views? The answer is that many of them are also out there on the fringe.
Well, Prof. Krugman, let’s answer your question about how elite Republicans can back Sen. Cruz over the weight of opinion of PhD economists. For starters, none of the 40 elite Booth School economists polled (few of whom are monetary economists) managed to foresee the near doom caused by the real estate bust.
Prestige gives them an impunity not justified by their work. Not truly impressive.
And forgive the sound of my palm against my forehead when Paul Krugman, a leading and perhaps even instrumental cheerleader for the real estate bubble — the proximate cause of the 2008 debacle — displays the hubris to vilify those who dare to disagree with him. As I wrote here:
Prof. Krugman might privately reflect on … on his own call, in 2002, that “Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
A touch of humility really is warranted here, Prof. Krugman.
Krugman in this column, curiously (perhaps, in his own mind, preemptively) goes on to attack House Speaker Paul Ryan. Ryan has not notably made monetary policy an agenda item for many years and certainly not since his ascension to the office of Speaker. This requires Krugman to recycle one of his old, thoroughly discredited, arguments against Ryan:
But Mr. Ryan seems to be a true believer on monetary policy — the kind of true believer whose faith cannot be shaken by contrary evidence. …
But what, exactly, is the nature of his monetary faith? The same as the nature of Mr. Cruz’s beliefs: Both men are devotees of Ayn Rand, even if Mr. Ryan now tries to downplay his well-documented Rand fandom.
At one point Mr. Ryan got quite specific about his intellectual roots, declaring that he always goes back to “Francisco d’Anconia’s speech on money” — one of the interminable monologues in Rand’s “Atlas Shrugged” — “when I think about monetary policy.” And that speech is a paean to the gold standard and a denunciation of money-printing as immoral.
Krugman is making a whole pot of chowder from a single oyster. His readers deserve a much higher quality of propaganda from him than this.
Ryan, in 2014, in the New York Times Magazine:
Q: I always understood you as being an Ayn Rand aficionado. But you distanced yourself from her writing during the campaign. What’s your real view of her?
A: No, I wasn’t distancing. I adored her novels when I was young, and in many ways they gave me an interest in economics. But as a devout, practicing Catholic, I completely reject the philosophy of objectivism.
See also NR‘s “Ryan Shrugged” further to dispel this urban legend — of whom Paul Krugman seems to be the fabulist-in-chief.
In critiquing one of Speaker Ryan’s juvenile enthusiasms, Paul Krugman is throwing stones inside his own glass house. Krugman enthusiastically claims as his premier influence (persisting to this day) Isaac Asimov’s jejune Foundation Trilogy, something about which I have written at length here and here:
Prof. Krugman’s reflections were published in the UK Guardian at the end of 2012: Paul Krugman: Asimov’s Foundation novels grounded my economics (apparently, a reprint of Prof. Krugman’s introduction to the Folio Society edition of the same). Prof. Krugman there wrote, “I grew up wanting to be Hari Seldon, using my understanding of the mathematics of human behaviour to save civilisation.”
In the second of my columns on Krugman’s own pulp fiction intellectual roots, I made the reveal that the fountainhead, so to speak, of Republican interest in the gold standard is not a puerile pulp novel but it is credibly posited the Nobel Prize acceptance speech of Prof. Robert Mundell, the premier intellectual architect of the (highly successful) Reaganomics:
Prof. Robert Mundell in delivering his own Nobel Economics Prize lecture, in 1999, A Reconsideration of the Twentieth Century, started with a discussion, echoing Hayek, of “in the explosion of our science how in some respects we fall short.” Mundell then goes on to provide an erudite history of money, especially a history of the gold standard. Prof. Mundells’ speech is, in its way, a perfect contra to Keynes’s own Auri Sacra Fames (an argument for the superiority of “representative” money to “commodity” money) and to Krugman’s frequent, albeit sloppy and unconvincing, attacks the gold standard.
The classical gold standard appears to offend, deeply, Prof. Krugman’s pretensions. In the speech as delivered Prof. Mundell observed (around minute 9’30”) that the gold standard “did not require a great theoretical genius to run gold standards… It was automatic. All that mattered is that countries would export or import gold, they’d fix their currencies to gold, and their exports or imports automatically changed the money supply, and the changes in the money supply brought about changes in expenditure which brought balance of payments into equilibrium.”
Paul Ryan’s avowed and true inspiration is the late, great, Jack Kemp. Not Ayn Rand. Jack Kemp’s lodestar for economic policy was Robert Mundell.
Krugman’s shot against Paul Ryan is cheap and intellectually dishonest. If Krugman really wished to engage with the topic of the gold standard in a meaningful way, he would be engaging with Mundell’s work rather than feinting toward the inconsequential Ayn Rand.
Is Krugman up to it?
If he is, let him bring it on.
He hasn’t yet fielded a credible argument.
Ted Cruz stands on rock solid ground in his call for money to be ideally tied to gold. Paul Ryan need look no further than Robert Mundell’s 1999 Nobel Prize acceptance speech if and when he wishes to return to the subject of high integrity money.
To answer your question, Prof. Krugman, Republican elites are receptive to counsels of high integrity monetary policy, very much including the gold standard, because there is an immensely — highly elite, even — respectable basis for such counsels.
Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles Project’s Senior Advisor, Economics.