Ep. 15 Krugman Calls for Housing Bubble, Tries to Weasel Out of It, Then Blames Capitalism

26 December 2015     |     Tom Woods     |     15

This one is a doozy. Krugman called for low interest rates in 2001 precisely to stimulate housing, even calling for a housing bubble (this was “a joke,” he later claimed) in 2002. Now he says the artificial stimulus to housing had to do with crooked Wall Street shenanigans, and had nothing to do with the Fed or government policy at all.

We ain’t having it.

Krugman Column

The Big Short, Housing Bubbles, and Retold Lies” (Dec. 18, 2015)

Contra Columns

Did the ‘Repeal’ of Glass-Steagall Have Any Role in the Financial Crisis? Not Guilty. Not Even Close,” by Peter J. Wallison
‘Repeal’ of Glass-Steagall Irrelevant to Financial Crisis
The Glass-Steagall Myth Revisited
Krugman’s Intellectual Waterloo,” by Daniel Sanchez
Housing: Too Good to Be True,” by Mark Thornton
Did the Fed, or Asian Saving, Cause the Housing Bubble?,” by Bob Murphy

Books Mentioned

Meltdown (featuring a foreword by Ron Paul), by Tom Woods
Rollback, by Tom Woods
Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again, by Peter J. Wallison

Related Episode

Ep. 561 (The Tom Woods Show) Capitalism: Not Guilty of Creating the Housing Bubble

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  • RobertRoddis

    In 2002 Krugman said that,

    “Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”


    In 2005, Krugman admitted that the Fed *had* created a housing bubble and that it wasn’t surprising because…

    “After all, the Fed’s ability to manage the economy mainly comes from its ability to create booms and busts in the housing market.”


    But by 2010 Krugman completely changed his story and tried to absolve the Fed by saying…

    “These considerations suggest that it would be wrong to attribute the real estate bubble wholly, or even in large part, to misguided monetary policy.”


    And then by 2012 Krugman started flat-out lying about what he said in the past by claiming he “never bought the story” that the Fed was the cause of the Housing Bubble. I guess it was the other Paul Krugman at the NYT who wrote that column in 2005.

    http://www.youtube.com/watch?v=KrfRS07CAHc ( video: 32:40 mark )

    And most recently Krugman has said that the housing bubble was “just one of those things that happens” every once in a while.


  • dogbert

    Why does anyone listen to or read anything said or written by this guy? I NEVER click on a story he’s written and would NEVER listen to any news item where he was speaking. If we all ignore him, like I do, perhaps he will simply dry up and blow away. One can hope . . .

  • Lucien

    Krugman should have his pants pulled down and spanked like a little baby in public.

    • Screamin_Ruffed_Grouse

      Oh gee, thanks for that image.

    • r.a.g.


  • Pat Gilbert

    The concensus that run into re the CRA. They say that the sub prime defaults were a very small percentage of the defaults.

    My answer was that the CRA created a situation where it became a practice of lowering lending standards to everyone. Because Freddy and Fanny would carry the paper.

    Then I would go over how banking got mixed with politics and the CRA was a factor in that as well, as per the book “Fragile by Design”.

    What is your take?

  • Michael Fleischer

    When banks that originated mortgages sold loans to fanny and freddy they were able to take take sale and list that MOrt backed security or MBS and list it as an asset on the banks books. The bank now according to the banking rules were now able to loan more money out as more loans because the MBS was considered “safer” and often rated AAA ( as good as a US bond [ha]) and the bank were able by law to LOWER their reserve ratios as opposed to if they held the mortgages themselves where the reserve ratios were by law higher

    So the banks “error” was not one of greed , rather it is one of confidence . Confidence in the ratings by the only three gov allowed rating agencies that were allowed to rate MBS. Moodies, fitches and S/p

    • r.a.g.

      Yes, the rating agencies. It’s amazing that progressives will talk about them as a creature of the free-market, when they are nothing but a government-sanctioned cartel with an issuer-pays model – a more disastrous scheme could not possibly have been conceived. This has nothing to do with a pure free market

      Some idiots like Ritzholt will rail against the agencies but fail to point out the heavy hand of government in this setup.

      Whichever angle you take when looking at the story of the crisis, it’s impossible not to see government intervention of some kind.

  • Michael Fleischer

    Moodys , Fitchs and standard and poors were the only rating agencies that were legally allowed to rate the MBS tranches
    The MBS could not be legally sold without a rating from these three rating agencies
    These three agencies were not independant , they functioned like arms of the SEC and their models were flawed and wrong
    There were people and organisations that were crying foul about the MBS including people like Peter Schiff
    Just like there were people who were calling out Bernie madoff as being a scam artist
    But because madoff had the aura and prestige of past gov prestige he was trusted by many people .

  • JimD

    Strong podcast. Best of the series.

  • Abe

    I’m surprised I didn’t loose my house in 2009. I went from 70K in 08 to 17K in 09. Talk about biting the bullet and getting the Obama weenie at the same time. What Clinton did to housing is what Carter did to education!

  • r.a.g.

    Well done gentlemen!!! Good job debunking Krugman once again.

    Looking ahead to the next column, “Doubling down on W”, this is entirely partisan politics as usual, but he always makes passing remarks that touch on economic subjects, which Bob can hit out of the park easily.

    Here’s my own contribution in debunking Krugman. His column is almost entirely wrong except for one bit at the end on foreign policy:

    – First point he makes is to claim that cutting taxes is fiscally irresponsible. No, Dr. Krugman, cutting takes doesn’t create budget deficits. The deficits are the result of government’s unwillingness to cut spending. You cannot just take it as a given that one side of the deficit is “untouchable”. There’s no reason for that. And once again, why were budget deficits a bad thing under Bush and now they are the best thing since sliced bread under Obama?

    – Of course he has to make once again his point about inequality, as if that was the fault of cutting taxes. No, Dr. Krugman, growing inequality is a direct result of the central bank/banking cartel’s inflationism. Besides, there’s no problem with inequality per se, we are all different. Without the central bank, inequality wouldn’t be a problem as all income groups would see their real incomes rise, i.e. the only problem would be if you are full of envy at others doing better than you.

    – “Moreover, it’s harder than ever to claim that tax cuts are the key to prosperity” … And raising them or keeping them high is good? Then how come European austerity is bad if it has been implemented mostly (almost entirely) by raising taxes? Tax cuts by themselves may not be *THE* key to prosperity, but certainly they would be partly responsible for it in a comprehensive package of free-market oriented reforms.

    – “At this point the private sector has added more than twice as many jobs under President Obama as it did over the corresponding period under W, a period that doesn’t include the Great Recession” … Well, what a wizard of sophistry you are, Dr. Krugman. As Gene Epstein said, the Great Recession is exactly the point. Bush took over at the top of the cycle in 2000, while Obama took over at the bottom of the Great Recession in 2009. Your numbers are a statistical tautology. If you want to do serious statistical work you must correct for the business cycle.

    – “The Bush administration’s determination to dismantle any restraints on banks — at one staged event, a top official used a chain saw on stacks of regulations — looks remarkably bad in retrospect. But conservatives have bought into the thoroughly debunked narrative that government somehow caused the Great Recession, and all of the Republican candidates have declared their determination to repeal Dodd-Frank, the fairly modest set of regulations imposed after the financial crisis.” … No, Dr. Krugman, a staged event of cutting stacks of regulations is not proof of deregulation, it’s just for show. Stop covering your tracks and name, one by one, the restraints on banks that were dismantled …

    … Yes, goverment caused the Great Recession 100%. If you really are seeking the truth, the correct intellectual exercise is to ask yourself, and research, whether any of those things could have happened in the absence of government and the Fed. The only thoroughly debunked narrative is your thesis of the “Big Lie”, and of course congratulations go to the contrakrugman podcast for doing the debunking …

    … And Dodd-Frank, a telephone-book sized piece of legislation, that has created massive distortions like hugely reducing liquidity in the corporate bond market (a fact you have conveniently omitted) is “a fairly modest set of regulations”? That’s just a bold-faced lie anyway you slice it.

    – “The only real move … has been on monetary policy, and it has been a move toward right-wing fantasyland. True, Ted Cruz is alone among the top contenders in calling explicitly for a return to the gold standard — you could say that he wants to Cruzify mankind upon a cross of gold. (Sorry.) … these days hostility toward the Fed’s efforts to help the economy is G.O.P. orthodoxy, even though the right’s warnings about imminent inflation have been wrong again and again.” … The biggest boom-bust cycles in history, with increasing amplitude over time, have ocurred since governments killed the Gold Standard and set up the Federal Reserve. But hold on, we now
    learn that the Gold Standard is “right-wing fantasyland”. Why? Because Dr. K says so, without any historical analysis or any facts at all … Dr. Krugman, right-wing politicians are correct in at least questioning the Fed’s role in the Financial Crisis, something you just brush aside with one swift stroke, again with no analysis at all. Having made wrong forecasts about CPI is a non-sequitur, i.e. one of the standard logical fallacies in your arguments.

    – Going along with the spirit of fairness of the contrakrugman podcast, I couldn’t agree more with your comments on the foreign policy stance of these candidates. My only problem is that as usual, you are partisan and fail to comment that Mr. Obama has simply taken over where Mr. Bush left in terms of those disastrous policies, i.e. he is still an interventionist warmonger.

  • Drew Brosky

    I can’t think of a guy who provides more value as consistently as Tom Woods. Having Rob Murphy co-host a show was a brilliant idea. I can’t get enough of either of these guys. Thanks for everything you guys do!

  • travis690

    Does Krugman realize there is a possibility that government could be where the blame should be? I mean, the repeal of Glass-Steagall was something that had to be done by government, not the private sector. The behind-the-scenes work by Barney Frank and Chris Dodd also had something to do with it, especially when Bush 43 suggested that Fannie Mae and Freddie Mac needed to be brought under more strict controls. Who can forget when Barney Frank got up in the House of Representatives and said that the financial condition of those two entities was “just fine,” and used his position on the House Banking committee, in conjunction with Dodd on the Senate Finance committee, to prevent further controls upon those two lenders?

    The thing that amazes me the most is that government never wants to stop the disasters that they create; they only want to cover them up.

  • dogbert

    Who reads his drivel, anyway? When I see his name on anything, I move along — nothing to see here.