Monday, 12 August 2013

Austrian Economist Dr. Pat Gunning on Krugman, Quantitative Easing, the 99% and Economic Recovery

 In a discussion in the American Economics Interest Group on Linkedin a member started the following discussion,
In the dispute between the debt hawks and the Keynesians, Krugman is quite correct in siding with the Keynesians as long as we sit becalmed in the economic doldrums. While the hawks complain of too much debt, pointing out that it does not seem to have accomplished much good so far, Krugman insists that the shortfall in achievement is because there was not enough quantity easing. What he doesn’t get, however, is that any additional quantity easing will prove to be just as ineffective as the earlier trillions because it all ends up in the bank accounts of the 1 percent. A headline in the business section of this morning’s New York Times tells the story: “U.S. Companies Thrive As Workers Fall Behind.” More quantitative easing will put zero dollars in the hands of the 99 percent who provide the demand in this demand-driven economic system. However, what it will do is keep the Ponzi scheme going just a little longer before it all collapses like the house of cards that it is.
And here is Austrian economist Dr. Pat Gunning's eloquent reply,
While I agree that Krugman is wrong about quantitative easing, it is not because it "will put zero dollars in the hands of the 99 percent." Even if a monetary policy was adopted that did put money in the hands of these people, their spending would only further distort the true demands for products. In addition, the disruption that is caused by increased money supply-driven prices will further delay a real recovery. 
An economy does not recover when the government puts money into peoples' hands. It recovers when people earn money by supplying goods and services that other people are willing to buy. 
The government cannot fix markets by creating money and giving it to people. Only entrepreneurs can fix markets by transferring money that consumers are willing to spend to the employees and other factor suppliers that are hired by entrepreneurs. 
Markets will not fully recover until the government stops fiddling with them.

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