Bloomberg TV just hosted a short debate between Ron Paul and Paul Krugman. As expected, the debate focused on economic minutiae, especially monetary policy.
Krugman was dismissive of Paul’s views on monetary policy, arguing that government will always be in the business of running monetary policy, and that the congressman wants to take the country back 150 years to the historical gold standard.
Congressman Paul countered that Krugman and his ilk wish to set the economy back “1,000 years or 2,000 years.” That is, supposedly Krugman proposes the same inflationary policies adopted by the Roman Empire. Krugman punched back, “I am not a defender of the economic policies of the emperor Diocletian.”
Instead, Krugman suggested returning to post–World War II economic policies, where a certain level of inflation was accepted and fiscal policy was used to stimulate growth. He did leave out the important fact that, during that period, the world monetary system was a quasi-gold standard (where the U.S. held gold as currency reserves, and the rest of the world held dollars) under the Bretton Woods system. Krugman continued to return to his dream of a newly realized post-WWII economy, but Paul neglected to point out the centrality of gold to the worldwide economy at that time.
To his credit, Paul didn’t entirely let Krugman get away with his post-WWII claims. He rightly observed that the enormous growth following WWII occurred at a time when the U.S. government significantly decreased spending and millions of American men returned home and re-entered the labor market.
Moving on to other issues, Congressman Paul said that he didn’t want to end the Federal Reserve, and instead only wants to offer competing gold and silver currencies, ending the Fed’s currency monopoly.
Naturally, the two men disagreed about the U.S.’s federal-debt crisis. Krugman claimed that the U.S. is nowhere near a “red line,” and he wouldn’t be too concerned if the debt-to-GDP ratio reaches 130 percent. Paul, on the other hand, connected the Fed’s ability to monetize federal debt to Congress’s willingness to pile on more of it.