What we need to remember about the Krugman view is that in economics there are two completely different doctrines, which find little, or no common ground at all. One main economic doctrine is that the government should stay out of the economy as much as possible (laissez-faire capitalism).
In contrast to Laissez-Fair Capitalism the Interventionists or Stagnationists believe that the economy needs to be continuously managed by the government in order to achieve optimal economic performance, and to avoid slumps activist stabilization and economic intervention policies need to be applied.
However, don’t forget the words of Ludwig von Mises: “Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship.”
Furthermore as Friedrich Hayek said: “Once politics become a tug-of-war for shares in the income pie, decent government is impossible”.
John C. Williams, president and chief executive officer of the Federal Reserve Bank of New York explained that the FED was seriously considering “Yield Curve Control,” which implies the control of long-term interest rates through FED interventions or rather FED manipulations of the bond market.
Controlling the Yield Curve would entail that the FED would be prepared to stand ready to purchase any quantity of long-term Treasuries. Given that the total US government debt is over $25 trillion the FED would be rather busy in future trying to support the Treasury market. In theory, the FED would be in a position to buy up all outstanding Treasuries. [In theory, the FED could also buy up the entire stock market with the money Jerome Powell prints electronically.] But it should be clear to all my readers that if the FED embarks on this path, we will no longer have free markets and that we would have taken a leap towards the state planning economy.
Furthermore, foreign holders of US assets would likely run for the door, which could bring about a US dollar collapse. Needless to say, faced with a situation of severe US dollar weakness, the US could impose strict foreign exchange controls, which would be aimed at preventing foreign money to leave the US. However, the imposition of such draconian measure would mean that the era of the US dollar World’s Reserve Currency status would have ended for good.
I am enclosing a report by my Argentinian friend Eduardo Elsztain (email@example.com). He writes: “let us share our takeaways as a 3rd generation of Argentine businessmen. What our experience tells us is that when the national governments need to finance deficits, they will not hesitate to print as much money as possible to cover the short term needs, especially if the effect of that printing emission is generating no impact (i.e. no inflation) as is the case today in developed countries. For this reason, we have no doubts that as result of the current crisis, countries around the world will keep running record fiscal deficits while the FED and other central banks will keep buying national and corporate bonds along with printing money as never before in modern history.”
I am also enclosing a report by my friends Stephen S. Roach and Weijian Shan entitled The Fable of the Chinese Whistleblower.
They write: “Public opinion in the United States pins the blame for the COVID-19 pandemic squarely on China. After all, that’s where the virus started. And President Donald Trump and Secretary of State Mike Pompeo have fanned the flames by accusing China of covering up the outbreak and knowingly allowing the novel coronavirus to spread. But their supposed smoking gun, the tragic fate of the heroic whistleblower, Li Wenliang, fires only blanks.”
Maybe some of my readers or some of their friends have suffered badly under the unreasonable measures taken by the bureaucracy to contain the virus.
But, remember the words of Thomas Mann:
“To be grateful for all life’s blessings. . . is the best condition for a happy life. A joke, a good meal, a fine spring day, a work of art, a human personality, a voice, a glance—but this is not all. For there is another kind of gratitude. . .the feeling that makes us thankful for suffering, for the hard and heavy things of life, for the deepening of our natures which perhaps only suffering can bring.”
With kind regards
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