Ep. 117 How Bob Smacked Down Krugman on the Financial Crisis

17 December 2017     |     Tom Woods     |     8

Krugman is claiming that everything he said regarding housing and the financial crisis has been vindicated. The problem, he says, was a general collapse in “demand.” Contra Krugman co-host Bob Murphy, on the other hand, has shown in his own writing that in fact the crisis was not caused by a problem with “demand” in general, but with problems in particular sectors, brought about during the inflationary boom.

Krugman Blog Post

Pessimism and Paralysis in the Aftermath of the Financial Crisis” (December 9, 2017)

Contra Columns

Can Austrian Theory Explain Construction Employment?,” by Bob Murphy
What Economic Research Says About Fiscal Austerity and Higher Tax Rates,” by Bob Murphy
Graphs to Accompany Bob’s Commentary During Contra Krugman Episode 117,” by Bob Murphy

Need More Episodes?

Tom and Bob have their own podcasts! Check out the Tom Woods Show and the Lara-Murphy Report.

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  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    I do wonder,… other than everyone become internet entrepreneurs, how is employment supposedly going to improve for average Joe 6Pack who is just looking for a decent job that can support a family today? There definitely seem to be large structural changes occurring that are reducing the overall marginal value of most folk’s labor.

    • Tasos Obscure

      As far as I can tell it’s the wealth-fertility paradox on it, we incentivize the least productive society to reproduce while taking away resources from the most productive. Pair that with the unimaginable corporatism and as you say we get a large structural problem.
      When I first came to the west I couldn’t believe that 40+ year old men do minimum wage jobs, but there it was in front of me.

    • Quentin Lewis

      It really is the result of globalization…..the opening up of borders and free trade. Now, I am not complaining, so much as explaining. We were in a “bubble” of sorts with US wages and expenses………had the world had open and free borders, there would have been less rise in incomes here….and at the same time, less of a rise in prices….which sort of means our standard of living would have been the same, except at a lower cost basis. That happened when our laborers and products were insulated from the world…..but once we open the dikes (restrictions and tariffs) that block trade…..there is a sort of self-leveling. Well, to pick on the Chinese (but it is a leveling across all) their wages (AND PRICES) will rise while ours will fall. (but some of our price fall had to be be “eaten up” by companies because I suspect wages are a bit sticky, and so they fall slower than prices….and prices fell once we started getting lower cost goods from counties like China. But since we all like “cheap sneakers, there is a tendency to favor the cheap goods makers, so jobs naturally traveled over there. I see it in my mind just like I said….a sort of dike opening and waters (on several levels….wage and good prices) suddenly flowing with wages being a bit harder to flow.

      • bogart1

        The expansion of the division of labor across the world is not the cause of stagnant wages. The cause of stagnant wages is from cheap interest rates where people are incentivized not to save but to pull purchases from the future into the current time frame.

        The savings of people are what power production requiring labor. Debt powers consumption letting people seek cheaper sources for purchases done on loans that would not have been made absent the cheap interest rates.

        • Quentin Lewis

          We will have to agree too disagree. Low interest rates do indeed pull future consumption into the present, but that should increase demand….ditto for low interest rates causing companies to invest in capital equipment, to lower cost of servicing that demand. But I am not really sure much of either really occurred….particularly the latter for the latter would indeed have lowered wages, but I don’t think it happened. I think rather than increase capital equipment, companies just bought back stock. SO, increased current demand without increased productive equipment to increase productivity should have boosted wages….no dice. As I said, we can agree to disagree…it is ALL much more complex than any of our small minds can fathom with out relatively simple economic models. Lots of brainy economists have taken a stab at predictions (Like Bob’s prediction of inflation) and have been wrong…..in fact, as far as I can tell, every economist has been wrong on one thing or another….so the models they use must be too simple and not taking all the proper inputs into consideration. (Just my way of dismissing all the bad predictions)

  • NoMoreFed

    Regarding the cat, as Bob said, Walter Block can write an article about how Tom was infringing on his neighbor’s property.

    The Bionic Mosquito can write an article on cultural norms and whether cats were already roaming the neighborhood when Tom’s neighbor moved in.

    Krugman can write an article on how we need more government spending on cat facilities in order to increase the cat’s demand for other things besides Tom’s neighbor’s porch.

  • Quentin Lewis

    Tom, which universe are you and the cat in right now?


  • bogart1

    You missed the most important mistake by PK in Keynesian Economics which is to spend like drunken sailors while times are bad and then save and repay debts when times are good. I am a full Austrian and agree with Dr. Murphy that the whole theory is crap and in particular the part about making people poorer by force to make them richer. Anyway, PK said the economy is at full employment so you can’t have better times than that? Right? Or do you do as PK suggests and keep going deeper into debt and never attempt to right the ship? If you go by his advice to spend (Take on debt) now then under what conditions do you ever not continue switch and start paying down these debts?

    Also, PK avoids the biggest Keynesian Experiment in history that is a huge disaster which is Japan. When exactly should Japan attempt to roll back its 2 to 3 x GDP in loans? Where are the good times? All I see is more debt, more zombie corporations and lots more demographic pain for them in the future.