'Libertarian Turned Keynesian' Responds
In response to How to Debate Paul Krugman: "Ask Questions Like a Child", a self-proclaimed "Libertarian Turned Keynesian", a graduate of Columbia University, writes ...
I want you to publish this rebuttal to your post.
You can use my first name if you'd like with Libertarian-turned-Keynsian in brackets.
Let's say there are 8 million healthy, unemployed people in US.
The Treasury can simply print 4 million pieces of IOU claiming that the holder of this piece of paper is entitled to a free massage or a free cleaning services or free haircut or free baby-sitting or free moving (basically any service worth $50 with negligible raw material) from another unemployed person and simply distribute it to unemployed people.
What happens? On Day 1, the 4 million who got the coupons tender their coupons and receive services (increase in daily GDP 4 million * 50 == 200 Million).
On Day 2, the opposite happens and this goes on quite a while. Now, lets say the economy improves and 2 Million get employed. Now essentially we have 1 Million extra coupons (inflation). Treasury will tax the lucky/rich people who have a job and a coupon and essentially retire them.
Or, let's say the economy deteriorates and 2 more more million get unemployed. Now there are few coupons and some may be willing to do the job for 3/4th of a coupon (deflation). Now essentially Treasury can print extra 1 million and distribute them.
1) We need flexible money supply.
2) Having gold standard is stupid. What does amount of gold supply have to do with anything?
3) We increased GDP by simply printing pieces of paper.
Let's say someone comes with a brilliant idea that one unemployed can actually perform two jobs a day. Now instantly the capacity doubled and Treasury can print double the amount of IOUs.
So Ridiculous I Hardly Know Where to Start
I did not post the first name of "Libertarian Turned Keynesian" on purpose. His name was unusual enough that he could be found.
The above response is clearly absurd. I reply only because it is precisely the kind of "something for nothing" silliness that is frequently taught in higher education.
- Any person with a modicum of common sense, at any education level beyond 7th grade, should understand what happens to demand as soon as free money stopped.
- Any person with a modicum of common sense, at any education level beyond 7th grade, should understand costs of goods and services would soar if free money was handed out in any significant amount.
- Any college graduate should understand the difference between nominal GDP and "real" inflation adjusted GDP.
- Any college graduate should understand what happened in Zimbabwe and Weimar Germany.
- Any person with any amount of common sense should understand it's what you get for your money, not how much you have, that matters.
Ignoring the typos, clearly the writer has absolutely zero sense of the difference between nominal GDP and wealth. In nominal terms (using the number of Zimbabwe dollars in circulation as "wealth"), Zimbabwe was economically the strongest country in the world.
Unfortunately, they cannot teach common sense in schools. Instead they teach Keynesian claptrap. Then economically illiterate graduates write me things similar to the above. This kind of thing happens all the time, frequently with emails ending in ".EDU".
Addendum: Spare the Monetarists?
Reader Ayal asks "You target your attacks at Keynes and Keynesians, but why do you spare the Monetarists?"
The simple answer is I don't. Bernanke is primarily a monetarist with some Keynesian tendencies as well. QE is 100% monetarism and I attack that all the time.
Countless times I have pointed out that Japan tried both monetary and fiscal stimulus and failed. One can also search my blog for Greg Mankiw, the high priest of monetarism to see what I have to say.
If I had to pick one of article in that search reference to read, it would undoubtedly be Modern Day Fairy Tale of 3 Economic Wizards (Except It's True)