Krugman's housing bubble: Woods blows up Krugman (and the NYT)
From Thomas Woods at LewRockwell.com...
...guess who was clamoring for those low interest rates around 2001?
Here’s Krugman in a German interview:
During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?
Why not indeed? Why not lower the price of milk to $0.01, too? What undesirable consequences could there possibly be?
Here he is in October 2001: "Economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer."
And here’s December 2001: "The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged."
That, of course, was the problem: by keeping housing "strong" instead of allowing the economy to correct itself, the Fed encouraged people to continue along an unsustainable path, thereby making the eventual and inevitable bust all the more severe when it finally arrived. Oops!
Here’s a whole bunch of Krugman gems, if you have a strong stomach.
Meanwhile, my publisher tells me that the New York Times has refused to review Meltdown, my free-market look at the economic crisis that spent ten weeks on that paper’s bestseller list earlier this year. The paper does want you to read Paul Krugman, but does not want to acquaint you with a radical alternative to the conventional wisdom that sticks a finger in the eyes of the alleged experts in whom we are expected to place our confidence. I’m sure you’re as shocked as I am....