Irving Fisher, a famed economist, is best known for the predictions he made just days before the stock market crash of 1929. “Stock prices have reached what looks like a permanently high plateau” was one of his predictions.
Today we have many vying to be the Irving Fisher of this century. The Irving Fisher Award winner must be an economist, famous and visible to the public, and he or she must issue an erroneous prediction for the ages. Paul Krugman is no doubt the front- runner. In a speech he gave on Sunday, Krugman declared, “We have managed to avoid a second Great Depression.” He is confident that the worst of the crisis is behind us.
Before you rush out to buy stocks, be reminded of the distortions caused by the Keynesian lens that Krugman is looking through. Krugman has fully endorsed—in fact, he has even called for more of the same—the reckless monetary policy of the Fed and the piling up of deficits that will never be paid.
Would printing pictures of food and handing them out to hungry people ease their hunger? If you answered, “Of course not!” then you might ask Krugman how the Fed’s printing of yet more paper money will strengthen the economy? If printing money was the answer, Zimbabwe would be the most prosperous country in the world.
Our economic crisis arose from the Fed’s policies in the first place. Speaking of debt, on Monday, U.S. Treasury Secretary Timothy Geithner asked Congress to increase the $12.1 trillion debt saying that, “It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”
So let’s get this straight. According to Geithner, a lender’s confidence goes up if an out-of-control borrower borrows more. Fortunately for Krugman, Geithner is not an economist; Geithner is not eligible for the Irving Fisher Award. Krugman’s place in history is likely secured.
Of course, this is gallows humor. We should all fervently hope that no one will be worthy of the Irving Fisher Award. If the fearsome third wave of this bear market begins (the first wave took us to the March 09 stock market lows; the second wave is this strong countertrend rally), no one will be laughing.