Krugman and the Housing Bubble: A Love Story


For those following the "Did Krugman advocate a housing bubble?" debate, first ably blogged here by Big Tim Cavanaugh last week, a skilled summation, and I think a pretty definite settling of the question (answer: yes!) from the Mises blog:

….did Krugman support pumping up a housing bubble or not? Given that, even in his recent blog defending himself, he explicitly stated his belief that "the only way the Fed could get traction would be if it could inflate a housing bubble," there are only two possibilities:

  1. He did not support inducing a housing bubble, and wanted the Fed to not fight the recession.
  2. He did support inducing a housing bubble.

Anyone even somewhat familiar with Krugman's attitude toward Fed activism should know that proposition #1, that Krugman supported a do-nothing policy, is preposterous. So, especially after bringing back in the quotes gathered by Mark Thornton, the case for proposition #2 is overwhelming.

And what about his strawman protests that he didn't cause the housing bubble, much less the Enron scandal or Kennedy's assassination? The man is willfully missing the point. What is damning about these quotes is not that he necessarily caused anything. What is devastating about them is that they expose the intellectual bankruptcy of his economic principles. Those who look up to him like the second coming of Adam Smith should realize that the neo-Keynesian principles that lead him to advocate aggressive interest-rate cuts and mammoth public spending now, are the very same principles that led him to advocate inducing a housing bubble then. He would himself affirm that his economic principles haven't fundamentally changed since then. So the conclusions and policy prescriptions he infers from them are just as wildly wrong now as they were then.

The Thornton collection of Krugman's bubblicious quotes.