Robert Murphy always does a fantastic job fisking New York Times Paul Krugman and his wacky Keynesian ideas. Today, he does it again!
In a late October post, Krugman attempts to discredit a commodity-backed dollar because it leaves "very limited room for maneuver." You know ... "expand" the money supply ... print more dollars ... aka counterfeiting money.
Here's Murphy's response ...
Krugman's Magic Solution to Budgetary Woes
As I mentioned in the beginning of the article, I eventually came around and saw the wisdom of Krugman's analysis, but only after I applied his principles to my own life. You see, up until now I've been in a rat race: when the family budget was tight, I thought my only options were to either earn more income, or spend less money. But thinking about Krugman's analysis of Ecuador and applying it to California, I had a flash of insight.
The real problem with my household finances wasn't that we were underearning or overspending. No, the real problem was that our superstitious bank decided to peg its unit of account rigidly to the dollar at 1:1.
So, for example, if I had earlier deposited $2,000 into my checking account, then I would go around writing checks on that. But if I wrote a check for, say, 500 units of currency, then my bank would dutifully pay out at the rate of 1:1! Thus I would only have 1,500 US dollar bills left in my stockpile of reserves, which would seriously crimp my sushi purchases.
I have since forwarded a copy of Krugman's blog post to the managers of my local bank. I informed them — in case the boobs didn't already know — that Dr. Krugman not only teaches at Princeton, but is a Nobel (Memorial) laureate, for goodness' sake. Taking his advice, I henceforth want to devalue my checking account, so that when I write a check for 500 units, the bank only transfers $250 to the person whose goods I am purchasing.
This step solves so many problems; I can't believe I didn't think of it earlier. Immediately, my household's budget crisis is solved, for I now have double the effective reserves as I previously did. Making my mortgage payment is no longer a struggle!
But this isn't just about me. With my depreciated bank currency, I can spend more freely on local merchants, thus boosting business in my community. Before removing the absurd 1:1 dollar peg, my wife and I would have had to sharply curtail our consumption. This is no longer a concern, thanks to the magic of modern monetary analysis.
Thank you, Dr. Krugman! Now if only governments and central bankers would heed your words of wisdom, the worldwide recession would be ended immediately.
I too, will be forwarding the Nobel Laureates post to my bank manager. Sweet! I'm suddenly worth twice as much!
Of course, I'd like to take it a step further, by getting my own printing machine and never having to work again.
[...] we are talking about the Classic Liberals site – He has a post up today entitled “Applied Krugman” talking about commodity backed dollars and fiat currency – In a late October post, Krugman [...]