Paul Krugman and the Housing Bubble

1 June 2016     |     Tom Woods     |     Leave a comment

Gene Epstein, economics and book review editor at Barron’s, submitted this letter to the editor to the New York Times in December 2015. We reproduce it here because it’s related to episode 37 of the show.

To the Editor:

In his column on the film “The Big Short” (“‘The Big Short,’ Housing Bubbles and Retold Lies,” Dec. 18), Paul Krugman declares that the housing bubble “was largely inflated via opaque financial schemes that in many cases amounted to out​r​ight fraud.”

This causal analysis is directly contradicted by an alternative view previously expressed in the New York Times: that the housing bubble was largely inflated by policies of the Federal Reserve.

“To fight this recession,” wrote a New York Times columnist on Aug. 2, 2002, “the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

In a blog on that column posted on June 17, 2009, this same columnist observed: “What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.”

The columnist who wrote those words: Paul Krugman.

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