Bloomberg TV hosted a live debate Monday between Nobel-prize winning economist Paul Krugman and Republican presidential candidate Ron Paul. If you’re not familiar with either of the debate participant's economic positions, this is what you need to know: Krugman is an economist who advocates top-down government intervention in the markets and Rep. Paul is in favor of free markets with little to no meddling by the government.
"[Krugman] believes in big government...and I believe in very small government. I emphasize personal liberties. I don't like a managed economy, whether it's through central economic planning or monetary policy or even Congress doing it,” Rep. Paul said.
“It's a completely different philosophy that markets are supposed to work, you know, in a natural way,” he added.
Krugman responded to Rep. Paul’s remarks.
"You can't leave the government out of monetary policy. If you think we're going to let it set itself, it doesn't happen. If you think you can avoid the government from setting monetary policy, you're living in the world that was 150 years ago,” Krugman responded.
“We have an economy in which money is not just green pieces of paper with faces of dead presidents on them. Money is a part of the financial system that includes a variety of assets -- we're not quite sure where the line between money and non-money is. It's a continuum,” he added.
The two went on to discuss inflation, monetary policy, and, of course, Rep. Paul’s favorite: the role of the Federal Reserve.
Watch the full debate (via Bloomberg TV):
“History tells us that in fact a completely unmanaged economy is subject to extreme volatility, subject to extreme downturns. I know this legend that some people like that the Great Depression was somehow caused by the government or the Federal Reserve, but that's not true," Krugman said.
"The reality is it was a market economy run amok, which happens repeatedly,” he added, “I want the market economy to be left as free as it can be, but there are limits. You do need the government to step in to stabilize.”
Krugman went on to defend his point by citing Milton Friedman, one of the most respected economic minds of the 20th century and a strong supporter of free market capitalism:
I want to say something about Milton Friedman here because if you actually read what he wrote in his writing for economists, as opposed to some of his loose popular writings, he actually said that the Federal Reserve was responsible for the Great Depression because it didn't go enough.
Friedman's complaint was that the Federal Reserve did not print enough money. I know this...The state of the economic debate in America right now Milton Friedman would count on the far left of monetary policy."
But what, exactly, did Friedman have to say on the subject (at 1:50 mark)?
"The point is, the Fed does either too much or too little and they can't do it. They don't have a good record - they've ruined 98 percent of the value of the currency since 1913," Rep Paul responded.
"That's dishonest – that steals value from people. Why should people get 1 percent for their money for savings in the banks get it for practically free? Why did the Federal Reserve bail out the rich and not give the money to the mortgage holders?" he asked.
If nothing else, these are the points you should take away from the debate (via Business Insider):
- …the two of them didn't agree on virtually anything and mostly talked past each other.
- Ron Paul said his goal wasn't to end the Fed, but to create competing currencies. Basically he wants to end the Fed's monopoly.
- Krugman says that in the modern era, there's no separating the government from monetary policy. And Krugman denied that he's somehow anti-markets or anti-capitalism. But he says, depressions are bad things, and that they're bad for capitalism if we don't intervene to fix them.
- Paul says the worst problem in the economy is the debt because we're wasting all of our money paying off the debt.
- Krugman says trying austerity to cut the debt only makes the debt worse.
“In the end, it was mainly two guys who were talking so far past each other, there wasn't much of a ‘debate,’” writes Business Insider’s Joe Weisenthal. “Think: Two boxers standing in the far corners of the ring: Nobody lands a blow.”