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Paul's NY Times analysis is simply frightening and frustrating. First of all , we question the intellectual honesty of picking only one country's circumstances out of thousands, and then using this anecdotal observation to draw a scientific conclusion about the whole population of similar situations. This is too convenient - pick the circumstances that fit your argument and ignore everything else - we were born late at night - it just wasn't last night.
Secondly, how much credibility should we give to the numbers from the IMF data bank of the 1920s. They were hand calculated, used different models by country/regime, by year (perhaps by month) and were free from any sort of bias (ha, ha). You can see the problem. The evidence presented is not subject to verification of any sort - you might as well read either tea leaves or Goldman Sach's Annual Statements. Both would be closer to the truth.
The third glaring error in this analysis, is the measure that is used for national debt. Again, Krugman's analysis is intellectually misleading as he tricks us into thinking that this is an apples to apples comparison. It is not. For instance in the 1920's there was very little consumer debt and the banking systems leverage is impossible to compare given the exponentials created today by derivatives and such. A fairer apples to apples comparison would be national debt inclusive of government, banking, business and consumer debts, other analysis would fail to provide credible comparisons - and thereby, impossible to draw any sort of credible conclusion.
Despite these horrific intellectual errors the commentary is built to conclude that a spike in rates with a corresponding debasement in both the US currency and T Bills would provide an expansionary influence for the economy. Exports would expand, however the trade off would be a sharp compression in asset values across the board. Long bonds, real estate and markets could collapse by 30% or more. Net worth, and notably highly levered net worth, could be wiped out overnight - bringing on a banking crisis that would pale in comparison to 2008. The overall psychological effect on the consumer and institutions would be so negative that it should destroy any expansionary benefit imagined. (Actually the actual calculus of the pluses and minuses is not determinable.)
Enough already, Paul states that there are no examples where the debasement of bonds and currency negatively affected a nation - how far did you look when you already have a case that supports the conclusion you want the reader to believe is the reality? How many national debt-time- periods were considered? Off the top we can think of three possible examples: Iceland, Nauru and Germany (30"s); however, this assumes that we can agree on the nature and characteristics of the apples.
Our concern is not really about whether we are right or wrong on this issue; it is more about the method and quality of analysis and that better analysis makes some attempt to fairly compare and contrast the object(s) involved. We ask: How is it possible that only one case can represent the whole of cases in the population? Should the analytical evidence and observations not be at comparable, objective and verifiable? Should the comparative analysis not be based on apples to apples?
It is thus remarkable that the policy discourse on such an important issue is subject to such weak analysis that neither proves or supports the fear-mongering of the vigilanties or others. Perhaps it has something to do with the so-called science of economics, as recently stated by George Sorros:
"Scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of any statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results."
Sadly and francly (sic), the New York Time's methods, analysis and its science (so-called) of economics could learn much from George's statement. We rest our case.