Again with the Krugman

Now Krugman is trying to divert blame for the Euro disaster from his beloved Europeans to the focus of his obsession: The American Right!: “attempt to create a common European currency… was cheered on by American right-wingers… And it was questioned by American liberals, who worried — rightly, I’d say (but then I would, wouldn’t I?) — about what would happen if countries couldn’t use monetary and fiscal policy to fight recessions.”

In 1999, when the Euro was launched, Milton Friedman, the leading right wing economist in America predicted: “The euro will not survive the first major European recession”

The same year Friedman said: “Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.”

Friedman had already in 1998 speculated with eerie foresight: “there will be asymmetric shocks hitting the different countries. That will mean that the only adjustment mechanism they have to meet that with is fiscal and unemployment: pressure on wages, pressure on prices. They have no way out…Suppose things go badly and Italy is in trouble, how does Italy get out of the Euro system?”

Milton Friedman was not the only right wing American economist warning about the Euro. Martin Feldstein wrote in 1997: “adverse economic effects of a single currency on unemployment and inflation would outweigh any gains from facilitating trade and capital flows".

Now let’s contrast this to with Paul Krugman's lightweight Euro-optimism in 1999: “For all the seven long years since the signing of the Maastricht treaty started Europe on the road to that unified currency, critics have warned that the plan was an invitation to disaster… Well, here we are, right on the brink of the creation of "euroland", and it is now clear that none of the problems EMU critics have warned about will arise, at least for a while.”

Rather than warning against the overly expansionary policies and cheap debt that would eventually lead to this crises, in 1999 Krugman thought the biggest problem was that European were not being expansionary enough: “Instead of an "asymmetric" economy, in which some countries want tight money while others want a boost, the whole zone is a prime candidate for lower interest rates”.

The same year Krugman wrote another article about how the Euro would impact the U.S, titled “Don't worry about the euro”. Instead of warning about the threat the Euro posed to economic stability as Freidman did, Krugman seems to think the problem was that the eventual success of the Euro would worry irrational Americans about the dominance of the dollar: “it was inevitable that the coming of the euro --the common European currency that seems set to be introduced next year, and that may eventually challenge the dollar's dominance--would inspire irrational fear.”

The point is not to the blame Krugman for the Euro experiment, that would be childish, and overall his record is of mild Euro-spectism. Rather it is comical to see Krugman (without evidence) blaming “American right-wingers” for the Euro disaster when the leading American economist on the right warned about the euro harsher and more presciently than Krugman did.