Monday, March 25, 2013

Krugman’s “Smoot-Hawley Moment”


I’m constantly amazed at the things Paul Krugman has to say. This guy is on the top of the list of global economic thinkers. He has all of the credentials, and a huge platform to spin his views of what’s good and bad, and what should be done next. PK’s OpEd in the Times today is another example. (Link)

PK does a summary of Cyprus. I believe he has all of the facts straight, and I agree with him when he says:


Global capitalism is, arguably, on track to become substantially less global.


The broader story of Cyprus is about capital controls. It’s not just the harsh new controls on the Island, it’s all over Europe. There is not a country on the globe that has not established some form of controls the past few years. America has done it in subtle ways, using ZIRP, QE, Dodd-Frank and the Department of Justice to contain the free flow of money. I think a big clampdown in China on money is right around the corner. This trend scares the crap out of me. Krugman is on the other side of the spectrum. He loves capital controls. He wants to see more of them:


The bad old days when it wasn’t that easy to move lots of money across borders are looking pretty good.

“Looking pretty good?” OMG!


Given that big shots like Krugman want to see more controls of money, its a good bet that more controls will come. I think the likes of Krugman are ignoring the realities of 2013. They are doing so very much at the peril of the global economy.


The CIA keeps track of global cross border debt. The numbers are huge, and growing fast:

- Total World External Debt was $69T in 2012. In 2011 it was $63.6T. In one year it grew by $5.4T. World GDP growth was 3% while cross border debt rose by 8.5%.

- In 2004 World External Debt was $43T, or 65% of World GDP. In 2012 total External debt was 85% of GDP.

- The External Debt numbers for the USA are worth noting. Yes, 1995 is a long time ago, and the world is a different place today. I still find these results troubling:


external debt


In his typical style, Krugman establishes what is “true” and what is “false”.


The truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.


Krugman’s conclusion is that a cornerstone of global activity is a failed experiment and that the solution is to install more capital controls. Mr. K will get what he wants. More controls are coming – that’s certain now. The entire house of cards that is Global GDP is at risk. The failed experiment that PK thinks is the rise in external debt, could easily morph into the failed experiment of the global economy.

I wonder if PK (and all the others who are pushing for more controls) are not having a “Smoot-Hawley Moment”. In 1929 tariffs and other restrictions on trade were established. A global depression followed. In 2013 the tariffs and restrictions are on money, not goods. But if the result of those controls is a reduction (or even stability) of the external debt numbers, then the global economies will fall with it.

And this is what the world’s “smartest” economist is calling for.




  1. Most of the time I find myself nodding in agreement with your various analyses, but your pre-occupation with Krugman leaves me puzzled since he and a few others have consistently had the right of it since 2008, have called almost everything that’s happened while his critics are, AKAIK, batting .0000.

    It’s just possible that Krugman and the salt-water boys have this right and the money-guys not. FWIW, In my experience, money guys know one hell of a lot more about markets than the economists, but they keep making the same mistake of conflating financial markets with the entire economy.

    Whatever. Your biases are showing here, and they might be better served staying in the closet for a while

    • Krugman has been right?

      Yes, gov’t borrows more money and have the fed buy it all up and as long as the mkt accepts it, we’re all in the daisies. That can go on as long as it goes on, but sooner or later, just like 08, it all comes crashing down. And the ignorant masses thought all was well right up till the end in 08, too.

      Tell ya what vizslai. When it does all come crashing down and Krugman, just as sure as apple butter, blames the whole collapse in the same “idealogues” who disagreed with the massive build in debt, I’ll bet lunch that you’ll agree with him on that, too. It’ll be all the conservatives fault when it implodes. Because massive gargantuan increases in debt promoted by liberals just don’t fall apart unless conservatives cause them to. LOL

    • Bong Water Economist says:

      Q4 GDP was essentially flat and you’re telling these QEers to keep up the good work?

    • Vizzy – You say you’re a regular. Then you know that I’m an equal opportunity basher. I don’t attack widows and orphans. Two criteria for a red-meat attack:

      The person must be well know and influential.

      The opinions of this person must be extreme.

      PK was the sponsor of the Platinum Coin. He said, “Bring it on”. That idea will go down as one of the dumbest thoughts in modern finance. So yes, I’ve taken some shots at PK for that stance.
      And now he want to bring in capital controls. He wants to return to the good old days of the 1970’s. That’s another dumb idea that will go down in the books.

      PK believes in BIG GOVERNMENT. He thinks that is the solution to all of the problems. Intervention in every aspect of the global economy is what he strives for. He thinks the bigger the better, I’m 180 degrees on the other side.

  2. It’s not even a teeny weeny bit possible that the self regarding ass hat, Paul Krugman, and his fellow traveling neo-Keynesians, have it remotely right. As they used to say back in the days of The Vietnam War, “If you aren’t part of the solution you are part of the problem.” Mr. Krugman isn’t just part of the problem, he’s a conumdrum inside a clusterfuck wrapped in a dilemna.

    His legacy will be absolutely woeful as befits a world class enabling suck up the the thoroughly depraved establishment.

  3. Bruce,
    You know the answer to your own question. PK and his ilk are all about protecting their own and themselves. They are not going to die poor. Raise taxes, increase controls, or do whatever it takes so that the big boys maintain their selective advantage over the 99%. It really isn’t that difficult to figure out. Hypocrisy does not favor the left or the right – it favors PK and the 1%.

  4. In the media, which tends to run rather liberal most of the time — Krugman is still relevant. His views are still read by the likes of Hugo Chavez (until recently) and Barack Obama and Francois Hollande.

    But in the real world, Krugman is one of the few people who’s view actually has less credibility than major bank CEOs. Krugman is on par with Michael Moore the propaganda film maker.

    Yes, the Faux Nobel committee gave him an economics prize. They also gave the prize to the professors who were the brains behind Long Term Capital Management hedge fund — the thing that nearly destroyed the global financial system in 1998. Funny how the liberal media likes to measure economic prowess in terms of a fake prize given out by a socialist government … and they neglect to mention that many Faux nobel economics winners have caused massive losses.

    If you want to mention his faux nobel, you should at least mention that Krugman got it for work 45 years ago (nothing recent) in labor economics. Not banking. Not global payment systems. Not macro economics. Krugman wrote about labor economics … with a lot of emphasis on unions and labor pricing power.

    The man has zero qualifications in finance, macro economics, or global payment systems. ZERO. Meanwhile, his credentials on labor economics are decades out of date. Would you trust a medical doctor who hadn’t updated his skills since 1970?

    As for your capital controls “conclusions” Bruce … this isn’t exactly news. Many bloggers and even media weenies have been talking about financial repression now for five years. Stop acting like this is some sort of revelation. I am being really polite calling it yesterday’s news.

    The “new” story (actually at least a year old) is the general acceptance that world governments have overplayed their hands with regulations that punish the little guy without doing anything to the crooks that caused the crisis. Most G7 governments have thoroughly discredited themselves.

    The future is that governments must get economies growing again to be able to pay existing debts, never mind planned spending. The future is that QUALITY jobs must be created, not just quantity. Jobs that pay a decent wage to average Jane’s and Joe’s — also known as the tax base.

    Clamping down on economic activity, as morons like Krugman and the EU are suggesting, is a recipe for economic shrinkage.

    Shame on you Bruce for suggesting Krugman is a global economic thinker. The guy is at best a relic, and a highly biased one at that.

  5. Pauly baby just filed for bankruptcy. He doesn’t have much money to move around or protect I guess. It is easy for him to say.

  6. Pauly baby is a scientific anomaly, I hope you know. He is currently being studied by MIT and the Sloan–Kettering Institute. He is the first human discovered without a backbone!

  7. Krugman got outwitted, outsmarted, outplayed, and most embarassing for him out-debated in the subject of economics by a guy for whom English is not even his first language:


    (fast forward to about 35 minutes into the video if you don’t understand Spanish introductions — the talk itself is in English). Krugman gets schooled, and is too humiliated at the end to even shake the guys hand

  8. Krugman and his ilk like capital controls because they want their beloved big government to be ensured of getting their grubby hands on as much of that money as possible. No surprise that he’d be on that side the issue. He’s no economist. Just a shameless partisan statist.

  9. Harold James “The End of Globalization, Lessons Learned from the Great Depression”. He calls it autarchy or a move to “self-sufficiency” in an economy. At the heart, it was one of the causes of the Great Depression. The US in the 20’s became the world’s leading economy. To offset current account inflows the major US banks increased global lending. That lending for various reasons came to an abrupt halt in 1928. European economies (Soviet Union, Germany then others) turned inward.

    Wouldn’t capital controls be the 21st century equivalent?

    • backwardsevolution says:

      anonymous – the Great Depression was caused, just like the 2008 crash, by excessive and cheap credit. The bubble just couldn’t inflate any more.

      Currency devaluation and capital controls came AFTER the credit binge that went bust.

      • Thanks for the comment. Read Harold James not my attempts to summarize his writing. You are correct that credit binge was a factor.

  10. Krugman, Bernanke = conspiracy theories.
    Regarding the graffics, when looking at an Elvgren, I know what I’m looking at. Some of this graffiti……
    I’m not sure……

  11. Though it is difficult to prove, subjectively I’m under the impression that the illiberal views of Krugman, Reich and other prominent commentators have grown more extreme over the past five years, or their willingness to express extreme views has increased. From 90 percent marginal tax rates, various schemes to accelerate the debasement of the currency, (from QE whatever to the goofy trillion $ coin) to trade and capital controls, one begins to wonder, if these leading lights had their way completely, exactly which parts of the basis for a liberal market oriented economic system would wish to preserve. Witness as well, the increasing public profile of unreconstructed Marxist Robert Wolff, who was recently on the progressive, but generally thought to be mainstream Bill Moyers program recently. Nor should the promotion of financial repression and illiberal ideas be considered completely partisan. For example, while Krugman et al. may disagree with Pat Buchanan on social policy, I’m confident that when it comes to trade and capital controls, they’d find themselves mostly on the same page.

  12. Most of Mr. Krugman’s concerns could be addressed if the individuals doing the creating and innovating controlled the dissemination and destiny of their works.

  13. PK knows – He and you all know what is happening in the world.
    The financial system is literally broken. What the economist of the masses wants is to gain time by writing what must be written to sustain the big lie still under cover.
    The elite needs time to reverse the evil done. This is the thought, these are the actions.
    Those who have a little common sense, no needs of expertise, must already know that any effort against the forces of irreversible bankruptcy is useless. The war is lost but yet not over.
    No offense, but anyone who agrees with this state of things, QE, LTRO, and the massive transfer of wealth to the banks, all the time, is just lying, for himself and for the rest of the planet.

    Sorry for my bad english. I still think in Portuguese.