I never thought it would be possible for someone to lose a debate before it started, but Paul Krugman proved me wrong. Krugman, a recipient of the Nobel Memorial Prize in Economics and blogger for the New York Times, has declined to participate in an important economic debate.
The subject of the debate will be Austrian versus Keynesian business cycle theory. Americans are quite familiar with the latter theory, which consists of the government interfering with economic balance followed by trying to make things better, which hardly works and makes it want to interfere again. It’s a vicious cycle, but Keynesians think it works. Since the Austrian business cycle theory (ABCT) is not as well known, I’ll give a briefing of its chief points.
When there are no artificially low interest rates, supply and demand reach equilibrium in the free price system. However, intrusion by the Federal Reserve, trying to stimulate bank credit expansion, gives businesses the false idea that more money is being saved than is usual in the economy. The conclusion drawn from this circumstance is that it’s a good time to make long-term investments when it’s actually not, mainly in capital and producers’ goods.
More business activity leads to more competition for higher wages, and more spending by workers means a higher demand for consumer goods. It’s usually by this time that investors realize savings aren’t as high as the Federal Reserve made them seem, and there’s no capital to invest in the necessary consumer goods. I Interest rates go back up, no one can afford the most rate-sensitive areas of life and everyone proceeds to get a big slap in the face from reality. This is why you tend to see the collapse of the banking, mortgage and automobile industries collapse, due to loans, around the same time.
With this knowledge, ABCT economists have correctly and continually predicted the major economic bubbles of our time.
It was in October that Bob Murphy, an Austrian School economist and senior fellow at the Pacific Research Institute, challenged Krugman to a debate. What’s so special about this, you ask? Well, a campaign to promote the debate was set up on The Point, and almost $57,000 has already been pledged by those supporting the event, 95 percent of which will go to the Fresh Food Program, a food bank in New York City — that means over $54,000 of food for the hungry.
The Mises Institute is prepared to host this one-hour debate moderated by Ezra Klein. With Klein as the moderator, it’s safe to say that this debate isn’t an attempt at pulling the favor toward Murphy. There is no opposition to the event occurring except from the man himself. It will cost Krugman no money whatsoever, and it will provide a ton of food to underserved people. Yet Krugman still won’t participate.
I guess the only question I have to ask is this: so, Paul, where’s that conscience of a liberal now?
Reach Brian at brian.p.anderson@asu.edu
