Charting Fun with Krugman

By Robert P. Murphy

In a few recent blog posts, Paul Krugman used bar graphs and tables to (allegedly) prove the superiority of his views over those of the Austrians. Yet, as I'll show in this article, I can use Krugman's own data to demonstrate the exact opposite.

Krugman on the Fed and Banking Panics

Perhaps spurred by his Bloomberg debate with Ron Paul, Krugman posted the following regarding financial panics and the US central bank:

There's a very widespread belief on the right that banking crises only happen because either the Fed or Barney Frank cause them; go back to a gold standard, and there would be no need for financial regulation or anything like that.

This is, of course, nonsense; Walter Bagehot knew all about financial crises, which have been a constant feature of modern economies since at least the early 19th century. Just to drive the point home, I thought it might be worth posting Gary Gorton's chart of "panics" before the Fed went into operation:

Panics will happen; the question is how they are contained. (emphasis added)

Now although Krugman doesn't explicitly say "Ron Paul" or "Austrian economists," I think he has to have them in mind here. After all, before the Austrians rose in popularity, hardly anybody talked about the gold standard, let alone abolishing the central bank. It was the Austrians, and most notably Ron Paul, who put those ideas back into the limelight so that Paul Krugman feels the need to address the issue.

In that light, Krugman is simply making stuff up when he says such people think banking panics never happened before the Fed. Murray Rothbard's doctoral dissertation was The Panic of 1819, and Rothbard also wrote on the history of the Fed, so I'm pretty sure he wouldn't be shocked by Krugman's table.

But besides the cheap debating ploy — setting up his opponents as believing something obviously ridiculous — Krugman leaves open the door to his own demise in his final sentence, after the chart, when he writes, "Panics will happen; the question is how they are contained."

Fortunately, Krugman himself provides the answer in a… (Read more)

Source: Mises.org