Monday, December 14, 2009


Did Krugman Get the Inflation Go-Code at the G30 Meetings?

All year, Paul Krugman has been pooh-poohing the ability of the Federal Reserve to do anything to get us out of recession. Because we're in a "liquidity trap," monetary policy is either ineffective or politically impossible, and the only cure is massive deficit spending. Krugman has been so vocal on this point--even though it violates Krugman's own published analyses--that Scott Sumner wrote Krugman an open letter asking him to explain the contradiction.

So it was with great surprise that I read this Krugman NYT column in which he does (almost) a complete 180--he says that Obama doesn't have the support to push through the required deficits, and so it's up to Bernanke to save the day through buying $2 trillion in assets.

The turnaround was incredible; Sumner patted himself on the back for being vindicated. (Really, check out Sumner's post to see just how blatantly Krugman's recent column violates what he's been saying all year.)

So this intrigued me. I figured that Krugman sees the inflation coming just as I do, and so he wants to get on the right side of things--it would be really embarrassing if we got double-digit inflation when Krugman's last "call" was that the Fed is pushing on a string in times like these. As for the timing, I thought it very coincidental that Krugman changed his call 6 days before the first BLS report will come out showing year/year CPI inflation. Since (to my knowledge) I am the only person harping on this point, I actually entertained the notion that Krugman checks my blog as sort of a recon operation behind enemy lines.

Yet as I was reading Wall-E to my son tonight, the obvious answer hit me: Krugman's pro-inflation column was the first one he could have written (unless they allow him really tight submission deadlines) after the "G30" meetings! Here's Krugman blowing off the meetings as incredibly boring, but the WSJ blog's description is a bit more sinister:
If you want to encourage the kind of conspiracy theories that have prospered in the wake of last year’s financial crisis — those that describe a secret cabal of elites running the world — try doing the following:

1. Have a group of 30 high-powered economists, government officials and bankers meet under the auspices of an international group that shares ideas on how to run the global financial architecture.

2. Make sure the group’s name can be reduced to a “G” and a number. (In mimicking the G7 or the G20, this keeps outsiders guessing: Are these guys from the government, or the private sector? Is there a difference?)

3. Have your Board of Trustees led by an influential former Federal Reserve chairman who’s now working as a senior advisor to the president of the United States.

4. Name the former vice chairman of bailout behemoth AIG as the group’s Chairman and CEO. (Also, if you want to reach the Zionist conspiracy theorists, it helps that he and another prominent member of the Group have very close ties to Israel.)

5. Ensure that membership includes the likes of these: A former Treasury Secretary and president of Harvard who also now works as a top presidential economic advisor; an outspoken liberal economist-cum New York Times columnist; Citigroup’s senior vice chairman; and top representatives of the world’s four most important central banks.

6. Hold two days of closed-door meetings at the New York Fed, scene of many a desperate deal to rescue the financial sector in 2008, conveniently located a few blocks from Goldman Sachs.

7. Do not publicize a list of attendees and leave everyone guessing about the agenda.

These were the circumstances surrounding Friday’s start to the 62nd plenary meetings of the Group of 30, whose formal name is “The Consultative Group on International Economic and Monetary Affairs, Inc.”
So to summarize: All year Krugman has been saying that the Fed is impotent, and only fiscal policy (i.e. huge deficits) can save the day. Starting on December 4, Krugman meets with a mixture of government and private financial elites. Six days later (seven in the print edition), in his NYT column Krugman calls for Bernanke to start buying $2 trillion in financial assets as a way to stimulate the economy. Very interesting.

Of course, not to throw cold water on the great conspiracy theory, but I should mention that after Paul Samuelson's death, Krugman is back to explaining matter-of-factly that the Fed can't do anything in a liquidity trap. Either way, his bases are covered. Whatever occurs, Krugman called it.

A possible explanation that doesn't involve any conspiracies is that Krugman has lost faith in congress for passing a what is by now i think would be a 3rd or 4th stimulus. And that the fed buying assests is the only feasible option.
Matt you nailed it. He has been complaining for quite sometime that the GOP deficit hawks won't allow further stimulus, so he is supporting the only "option" that he sees.

Also, Krugman is in the interesting position of being an economist that the state prefers. He is the writer of an influential column in one of America's most influential news papers. My point is that he might be hoping to influence those who are able to make these type of decisions. So, it is much easier to convince a quasi-government body to do something than it is to convince Congress.
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