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Paul Krugman 'Egregiously Wrong' on Fannie and Freddie

Posted By Conn Carroll On October 20, 2008 @ 1:07 pm In Economics | Comments Disabled

Nobel Laureate Paul Krugman did some fine work on international trade theory 20 years ago. When he writes about economic policy today, however, he often just gets his facts dead wrong. This past summer Krugman devoted an op-ed [1] to exonerating Fannie Mae and Freddie Mac from their key role in the current financial crisis. We called him out on it at the time [2]. This past Friday, National Journal [3]‘s Stuart Taylor finally got around to noting where Krugman erred:

Fannie and Freddie appear to have played a major role in causing the current crisis, in part because their quasi-governmental status violated basic principles of a healthy free enterprise system by allowing them to privatize profit while socializing risk. …

This accusation has spurred furious rebuttals by Democrats and their media friends. Some — especially a July 14 column by New York Times columnist Paul Krugman, who was awarded the Nobel Prize in economics this week — have been flat-out incorrect.

As [Peter Wallison of AEI and Charles Calomiris of Columbia Business School] demonstrate, Krugman was egregiously wrong in writing that “Fannie and Freddie had nothing to do with the explosion of high-risk lending.” He was wrong again in stating that “they didn’t do any subprime lending, because they can’t … by law.” He was further wrong in writing that the GSEs were “tightly regulated with regard to the risks they can take.”


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2008/10/20/paul-krugman-egregiously-wrong-on-fannie-and-freddie/

URLs in this post:

[1] op-ed: http://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r=1&oref=slogin

[2] We called him out on it at the time: http://www.foundry.org/2008/07/14/who-does-paul-krugman-think-hes-fooling/

[3] National Journal: http://www.nationaljournal.com/njmagazine/openingargument.php

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