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Kruganomics 101

by Frank Schnittger Tue Apr 30th, 2013 at 05:02:33 AM EST

Paul Krugman is arguably becoming not just the most influential economic commentator on the planet, but also one of the more influential political commentators. That's partly because it's hard to gainsay the economic credentials of a Nobel Prize winning economist, but also because he has a way of putting often complex ideas quite simply. Here he gives a handy summary of his economic philosophy for the benefit of those economic simpletons who claim he is an out of touch "high fallutin'" intelectual:

The Ignoramus Strategy - NYTimes.com

1. The economy isn't like an individual family that earns a certain amount and spends some other amount, with no relationship between the two. My spending is your income and your spending is my income. If we both slash spending, both of our incomes fall.

2. We are now in a situation in which many people have cut spending, either because they chose to or because their creditors forced them to, while relatively few people are willing to spend more. The result is depressed incomes and a depressed economy, with millions of willing workers unable to find jobs.

3. Things aren't always this way, but when they are, the government is not in competition with the private sector. Government purchases don't use resources that would otherwise be producing private goods, they put unemployed resources to work. Government borrowing doesn't crowd out private borrowing, it puts idle funds to work. As a result, now is a time when the government should be spending more, not less. If we ignore this insight and cut government spending instead, the economy will shrink and unemployment will rise. In fact, even private spending will shrink, because of falling incomes.

4. This view of our problems has made correct predictions over the past four years, while alternative views have gotten it all wrong. Budget deficits haven't led to soaring interest rates (and the Fed's "money-printing" hasn't led to inflation); austerity policies have greatly deepened economic slumps almost everywhere they have been tried.

5. Yes, the government must pay its bills in the long run. But spending cuts and/or tax increases should wait until the economy is no longer depressed, and the private sector is willing to spend enough to produce full employment.

front-paged by afew


Of those who criticise his position, he has this to say:
Monetarism Falls Short (Somewhat Wonkish)

On the left are the Modern Monetary Theory types, who assert exactly what the austerians like to claim, falsely, is the Keynesian position - that budget deficits never matter (except for their direct effect on aggregate demand). On the right are the market monetarists like Scott Sumner and David Beckworth, who insist that the Fed could solve the slump if it wanted to, and that fiscal policy is irrelevant.

Now, there won't and can't be any current-events test of MMT until we get out of the slump, because standard IS-LM and MMT are indistinguishable when you're in a liquidity trap. But as Mike Konczal points out, we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens.

And the results aren't looking good for the monetarists: despite the Fed's fairly dramatic changes in both policy and policy announcements, austerity seems to be taking its toll. I would add that the UK experience provides a similar lesson. Mervyn King advocated fiscal consolidation - I'd say that he shares equal responsibility with Cameron/Osborne for Britain's wrong turn -- but more or less promised (pdf) that he would and could offset any adverse effects on growth with monetary policy. He didn't and couldn't.

I'm not claiming that there is nothing the central bank can do; but as I've tried to explain before, monetary policy can, for the most part, gain traction under current circumstances only by changing expectations about future actions (and changing them a lot). Meanwhile, fiscal policy has a direct, current effect on the economy, which easily trumps attempts to move the economy by changing the Fed's messaging.

Somewhat unusually for an academically respectable economist, Krugman is also not afraid to get down and dirty in the rough and tumble of economic debate. Here he is having a go at our very own Economics Commissioner, Olli Rehn:
Of Cockroaches and Commissioners - NYTimes.com

Kevin O'Rourke points me to the FT's Brussels blog, which passes on the news that various officials at the European Commission are issuing outraged tweets against yours truly. You see, I've been mean to Olli Rehn.

And the EC response perfectly illustrates why I do what I do.

What you would never grasp from those outraged tweets is that all my criticisms have been substantive. I never asserted that Mr. Rehn's mother was a hamster and his father smelt of elderberries; I pointed out that he has been promising good results from austerity for years, without changing his rhetoric a bit despite ever-rising unemployment, and that his response to studies suggesting larger adverse effects from austerity than he and his colleagues had allowed for was to complain that such studies undermine confidence.

It's telling that what the Brussels blog calls a "particularly nasty attack" was in fact a summary of Paul DeGrauwe's work indicating that European austerity has been deeply wrong-headed, in the course of which I quoted Mr. Rehn asserting, once again, that old-time austerian faith.

Now, it's true that I use picturesque language -- but I do that for a reason. "Words ought to be a little wild", said John Maynard Keynes, "for they are the assault of thoughts on the unthinking." Exactly.

Kevin O'Rourke refers to the "cocooned elites in Brussels", which gets to the heart of the matter. The dignity of office can be a terrible thing for intellectual clarity: you can spend years standing behind a lectern or sitting around a conference table drinking bottled water, delivering the same sententious remarks again and again, and never have anyone point out how utterly wrong you have been at every stage of the game. Those of us on the outside need to do whatever we can to break through that cocoon -- and ridicule is surely one useful technique.

There's an especially telling tweet in there about how "unimpressive" I was when visiting the Commission in 2009. No doubt; I'm not an imposing guy. (I've had the experience of being overlooked by the people who were supposed to meet me at the airport, and eventually being told, "We expected you to be taller"). And for the life of me I can't remember a thing about the Commission visit. Still, you can see what these people consider important: never mind whether you have actually proved right or wrong about the impacts of economic policy, what matters is whether you come across as impressive.

And let's be clear: this stuff matters. The European economy is in disastrous shape; so, increasingly, is the European political project. You might think that eurocrats would worry mainly about that reality; instead, they're focused on defending their dignity from sharp-tongued economists.

Of course calling our Economics Commissioner a cockroach might be deemed to be unkind - to cockroaches - but what has characterized official political responses to the economic crisis has been to deny all the hard evidence of what is actually happening to real people in the real economy, and then to blame economists who point this out for being mean to them - and chasing away the confidence fairy that was supposed to come to everyone's aid. It is not surprising that the "Very Serious People" that Krugman constantly lambasts should find him "deeply unimpressive" because the only people who seem to impress them are people like  Reinhart and Rogoff who tell them what they want to hear.

Very Sensitive People

When it comes to inflicting pain on the citizens of debtor nations, austerians are all steely determination - hey, it's a tough world, and hard choices have to be made. But when they or their friends come under criticism, suddenly it's all empathy and hurt feelings.

We saw that in the case of Olli Rehn, whose friends at the European Commission were outraged, outraged when I pointed out, using slightly colorful language, that he was repeating an often-debunked claim about economic history. And today we see it in Anders Aslund's defense of Reinhart and Rogoff against what he calls a "vicious" critique by Herndon et al.

Aslund praises R-R for providing

an important corrective to the view that fiscal stimulus is always right - a position that is common across the Anglo-American economic commentariat, led by Paul Krugman in the New York Times.

This is a curious thing for him to say, because it's an outright lie; as anyone who has been reading me, Martin Wolf, Brad DeLong, Simon Wren-Lewis, etc. knows, our case has always been that fiscal stimulus is justified only when you're up against the zero lower bound on interest rates. I can't believe that Aslund doesn't know this; why, then, would he discredit himself by repeating an easily refuted falsehood?

But then, why would he describe Herndon et al as "vicious"? Their paper was a calm, reasoned analysis of how R-R came up with the famous 90 percent threshold; it came as a body blow only because of the contrast between the acclaim R-R received and the indefensible nature of their analysis.

What I think is happening is that austerians have put themselves in a box. They threw themselves - and their personal reputations - completely behind the various elements of anti-Keynesian doctrine: expansionary austerity, critical debt thresholds, and so on. And as Wolfgang Munchau says, the terrible thing was that their policy ideas were actually implemented, with disastrous results; on top of which their intellectual heroes have turned out to have feet of clay, or maybe Silly Putty.

As I see it, the sheer enormity of their error makes it impossible for them to respond to criticism in any reasonable way. They have to lash out any way they can, whether it's ad hominem attacks on the critics or bitter complaints about bad manners.

And by such pettiness the world is governed.

Krugman has been pointing out that the emperor has no clothes for quite some time now, but what is also striking is how little influence he and others like him have had on actual policy formulation as opposed to academic debate. Criticizing Obama for proposing a stimulus that was too small in 2009 when all has been retrenchment since puts you on the very fringes of mainstream political debate in the USA and popular commentators have often delighted in portraying him as one of a very small band of malcontents who don't realize  what everyone knows: that public borrowing and the national debt is the big problem that has to be fixed, and that it has to be fixed by cutting "entitlements" for the poor rather than raising taxes on the rich. Krugman is aware of his influence deficit and has tried to explain it thus:

The 1 Percent's Solution - NYTimes.com

Part of the answer surely lies in the widespread desire to see economics as a morality play, to make it a tale of excess and its consequences. We lived beyond our means, the story goes, and now we're paying the inevitable price. Economists can explain ad nauseam that this is wrong, that the reason we have mass unemployment isn't that we spent too much in the past but that we're spending too little now, and that this problem can and should be solved. No matter; many people have a visceral sense that we sinned and must seek redemption through suffering -- and neither economic argument nor the observation that the people now suffering aren't at all the same people who sinned during the bubble years makes much of a dent.

But it's not just a matter of emotion versus logic. You can't understand the influence of austerity doctrine without talking about class and inequality.

What, after all, do people want from economic policy? The answer, it turns out, is that it depends on which people you ask -- a point documented in a recent research paper by the political scientists Benjamin Page, Larry Bartels and Jason Seawright. The paper compares the policy preferences of ordinary Americans with those of the very wealthy, and the results are eye-opening.

Thus, the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security -- that is, "entitlements" -- while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

Does a continuing depression actually serve the interests of the wealthy? That's doubtful, since a booming economy is generally good for almost everyone. What is true, however, is that the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they're doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won't we just see new justifications for the same old policies?

I hope not; I'd like to believe that ideas and evidence matter, at least a bit. Otherwise, what am I doing with my life? But I guess we'll see just how much cynicism is justified.

Indeed. What are we all doing with our lives when only what the 1% want seems to matter. The longer story of the liberal economic globalization of the third millennium to date has been the degree to which all our democracies have been undermined - to be replaced by the rule of money thinly disguised as economic efficiency and free market choice. We may criticize Krugman for his relative lack of impact on actual economic policy in the US, but how have our critiques of Olli Rehn et al been doing here in Europe?

Display:
I've just realised that some of the links above refer to Krugman's NYT blog in general, and not the specific posts from which the quotes are taken. Unfortunately my 10 free clicks on NYT stories for the month have now been used up, so I won't be able to fix the links for a while. But you get the general gist of what Krugman is about just by scrolling down his blog, and all the quotes are taken from recent posts available free to all without having to click on individual posts thereby triggering the paywall count-down.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 06:47:20 AM EST
That's partly because it's hard to gainsay the economic credentials of a Nobel Prize winning economist,

Wrong place to write this - we have people here who will find it very easy (though not for Krugman, of course).

BTW, you should be able to get another 10 articles by opening another account with a different email - but most of these places don't have enough of interest to be worth the hassle of keeping track of all your accounts.

by gk (gk (gk quattro due due sette @gmail.com)) on Mon Apr 29th, 2013 at 07:15:57 AM EST
[ Parent ]
I don't have an account with the NYT. I presume they use my IP address to track usage, although I seem to remember getting around the 10 views before by using a different browser, so it may be just a cookie they're using.

As for it being hard to gainsay a Nobel Prize winner, I was of course referring to the fact that it makes it more difficult for the MSM to completely ignore or ridicule him!

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 08:03:18 AM EST
[ Parent ]
Ha'aretz certainly goes my login (I just tested this by switching logins - my default one had already used up its 10 articles), but maybe they also have a mechanism for people without accounts.
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Apr 29th, 2013 at 08:20:23 AM EST
[ Parent ]
You could use other browser for another 10.
by das monde on Mon Apr 29th, 2013 at 08:45:01 AM EST
[ Parent ]
Or turn off their javascript.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Apr 29th, 2013 at 11:58:31 AM EST
[ Parent ]
For the NYT: just turn off the javascript and use firefox.
by Xavier in Paris on Mon Apr 29th, 2013 at 05:48:30 PM EST
[ Parent ]
or search for cookies in FF prefs beginning with 'nyt', erase them, and refresh from a different tab.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Tue Apr 30th, 2013 at 01:35:25 AM EST
[ Parent ]
is clear your nytimes.com cookies that track how many time you've visited the site. no duplicate accounts needed.
by wu ming on Wed May 1st, 2013 at 01:32:17 AM EST
[ Parent ]
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 10:57:25 AM EST
[ Parent ]
And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won't we just see new justifications for the same old policies?

I hope not; I'd like to believe that ideas and evidence matter, at least a bit. Otherwise, what am I doing with my life? But I guess we'll see just how much cynicism is justified.

I don't know, Paul, you got your Bank of Sweden Prize in 2008 so you've probably done what you're on this Earth for.

It's the younger among us who have to worry about what we're doing with our lives.

The Euro will outlivebury us all --- Jean-Claude Juncker

by Migeru (migeru at eurotrib dot com) on Mon Apr 29th, 2013 at 06:55:16 AM EST
What I like about his writing (on his blog and the occasional NYT op ed piece) is that it is not only accessible to the non-economist, but it is also quite human and personal which is why his influence is so widespread that it is increasingly difficult for the MSM to ignore him. At the same time it can at times be quite colourful and combative - not the dreary "on the one hand, and on the other" of many "centrist" commentators or the unengaged tones of the dry academic.

He was at one point mentioned in the media for a prominent FED or Obama administration position, and wasn't slow to ridicule that possibility, feeling it would actually reduce his influence and effectiveness. Given the extremely narrow range of what is currently deemed politically possible in Washington at the moment, it's not hard to see why. All the sequester cuts for the poor are being implemented. But a small threat of flight delays due to air traffic controller cuts triggers an emergency law passed in a matter of days - and shamefully signed into law by Obama. I never thought I'd say this, but the Republican's seem to have more balls than the Democrats when it comes to accepting short term popularity in the service of achieving long term strategic gains.

I think Krugman has the talents to be a political leader as well as a media commentator, but he is simply too far outside the Washington "consensus" to be a viable leader at the moment. I suspect that he would really love to to get a hands on role like Sec for Treasury or Chair of the Fed if he really thought he had a chance of implementing his policy choices.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 08:17:29 AM EST
[ Parent ]
Krugman apparently went to one dinner in the White House
Andrew Leonard and Calculated Risk want to know why I didn't blog about dinner at the White House. Um, because the conversation was off the record.
then became an unperson.
But in a way, the implicit censorship on the stimulus debate is even stranger. During the initial discussion of the stimulus, the debate was framed almost entirely as a debate between Obama and those who said the stimulus was too big; the voices of those saying it was too small were largely frozen out. And they still are -- if it weren't for my position on the Times op-ed page, there would be hardly any major outlet for Keynesian concerns.

And here's the thing: in this case, there isn't any hidden evidence -- you can't argue that the CIA knows something the rest of us don't. And the voices calling for stronger stimulus are, may I say, sorta kinda respectable -- several Nobelists in the bunch, plus a large fraction of the prominent economists who predicted the housing crash before it happened.

But somehow, the pro-stimulus people are unpersons. Who makes these decisions?

He wasn't going to get any jobs with Obama after mid-2009. I don't think that has changed.

The Euro will outlivebury us all --- Jean-Claude Juncker
by Migeru (migeru at eurotrib dot com) on Mon Apr 29th, 2013 at 08:47:04 AM EST
[ Parent ]

I never thought I'd say this, but the Republican's seem to have more balls than the Democrats when it comes to accepting short term popularity in the service of achieving long term strategic gains.

Don't you mean "unpopularity" ? (and "Republicans")

I'm surprised that you say this, because I don't think explanations in terms of "balls" are very helpful. How might Krugman deal with this ? I think he'd look, not to balls, but to bills (dollar ones), economic factors.

Republicans can more easily risk unpopularity because they are so often given enough financial support to offset this, particularly now corporations have become "persons". Thus Scott Walker adopted policies which would negatively affect lots of people in Wisconsin, partly because he got massive financial assistance from the Koch brothers, enough to beat even a major union campaign:

The Koch brothers were among the largest contributors to Gov. Walker's 2010 campaign and they contributed to 16 other key Republicans in the state legislature. They are using their wealth, power and front groups like Americans for Prosperity to get politicians to gut collective bargaining and cut essential Wisconsin health care programs while forcing public employees to pay much more for health insurance and pensions.

Their purpose is not just to attack public employees in Wisconsin, nor is it just to create the political environment to for cutting the wages of other workers, including their own employees. Their purpose is much larger. On their immediate agenda are states of Indiana, Ohio and Pennsylvania where they are pushing the same type of legislation. But in the longer range they want to push back rights in every area for all poor and working people--rights that were won long ago.

...
Buried in Walker's bill is a provision that says, "Department may sell any state owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount." This is a push to sell off state assets, to give them to for-profit companies who can then charge the highest price while paying their workers the least. It is a part of the Koch and Bradley plan. Coincidently Koch is in the energy business.

Politics at the national level

On Jan. 5, 2011, new Republican legislators walked into the Capitol in Washington, D.C., and met with key people. David Koch was one of them. The Koch brothers are a political force on the national scene. They were the biggest contributors to the campaigns of members of that House Energy and Commerce Committee that regulates some of the main industries in which they are involved. Nine of the 12 new Republicans on that House Committee signed an Americans for Prosperity pledge to oppose regulation of greenhouse gases. The fact that the Koch Industries has been charged with many violations of environmental laws did not bother them at all.

http://www.pslweb.org/liberationnews/news/who-is-behind-anti-union-bills.html



Maybe it's because I'm a Londoner - that I moved to Nice.
by Ted Welch (tedwelch-at-mac-dot-com) on Sat May 4th, 2013 at 12:02:04 PM EST
[ Parent ]
Yes it was a typo, and yes one of the reasons Republicans can accept huge short term popularity is because they often have access to the sort of finance that can buy an election. But I wonder if the spinelessness of many Democrat legislators isn't for similar reasons...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 4th, 2013 at 03:49:32 PM EST
[ Parent ]
Well, it seems that typo doesn't want to go out, you keep saying that word in the positive. ;)

res humą m'és alič
by Antoni Jaume on Sat May 4th, 2013 at 04:50:50 PM EST
[ Parent ]
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 5th, 2013 at 03:21:09 AM EST
[ Parent ]

I'm sure that financial factors affect Demcrats' behaviour too and is a better kind of approach than talk about "balls" or "spines". It's not a very rational way of explaining the behaviour of a varied group of individuals to suggest that they all happen to share some sort of character defect like "spinelessness".

I think the film The Candiddate, with Robert Redford, was an intelligent study of the process through which a very idealistic, independent young politician, makes a series of compromises in order to get the power to make some changes, but loses his way in the process.  The film ends with him elected but asking "So now what do we do?" To say that he was just "spineless" would be a lazy way to explain his changed behaviour and would ignore the effects of complex systems.

 

Maybe it's because I'm a Londoner - that I moved to Nice.

by Ted Welch (tedwelch-at-mac-dot-com) on Sun May 5th, 2013 at 10:08:20 AM EST
[ Parent ]
"As in the early Republic we are ruled by a commercial oligarchy. And those without the luxury of an independent opinion learn to dance the beggars' waltz" = Lewis Lahpam

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 5th, 2013 at 12:11:30 PM EST
[ Parent ]
That's partly because it's hard to gainsay the economic credentials of a Nobel Prize winning economist....

I dunno.  Krugman's been able to gainsay the New Classicalists without much trouble.  Granted, it helps that he has the Prize to match Lucas, Sargent, et al.

But those guys nevertheless keep saying things which are stupid.  You don't need a Nobel Prize to say that a theory stating recessions are caused by low-wage workers taking years-long vacations is pants-on-head cray-cray.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 29th, 2013 at 09:45:14 AM EST
James Watson - Wikipedia, the free encyclopedia
In March 2013 Watson made offhanded remarks about Irish people, stating that "[the] historic curse of the Irish, which is not alcohol, it's not stupidity. But it's ignorance."


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 11:53:38 AM EST
[ Parent ]
Why not "Krugmanomics"?

The Euro will outlivebury us all --- Jean-Claude Juncker
by Migeru (migeru at eurotrib dot com) on Mon Apr 29th, 2013 at 10:59:21 AM EST
Or even Krugonomics? A Krugonomy is an economy which uses fiscal policy to target and achieve an unemployment rate roughly equal to the inflation rate?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 11:04:44 AM EST
[ Parent ]
So let's see. 10% unemployment is a sign that there is a lot of unemployed money around too. The central bank should therefore target an inflation rate of 10%, which would force that lazy money to get a job.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Apr 29th, 2013 at 11:31:23 AM EST
[ Parent ]
Look, if you just create the money to employ that 10% of unemployed resources, the money hoarded by the money hoarders loses its raison d'être, which is that money is scarce and can be hoarded and withholding it from the economy increases the economic power of the hoarder.

You can take care of inflation later if there is any. You should not aim for a higher inflation rate to fool the hoarders into sharing their hoard. Just make the hoard redundant!

The Euro will outlivebury us all --- Jean-Claude Juncker

by Migeru (migeru at eurotrib dot com) on Mon Apr 29th, 2013 at 11:39:05 AM EST
[ Parent ]

  1. Economics is not accounting.

  2. People don't spend when they have no money, and businesses don't invest when people don't spend money.

  3. You can't crowd out investment that doesn't exist in the first place.

  4. Real Business Cycle Theory makes people stupid.

  5. Seriously, economics is not accounting.


Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 29th, 2013 at 11:54:14 AM EST
...adding to (4):

Real Business Cycle Theory and Austrian Theory makes people stupid.


Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 29th, 2013 at 11:59:34 AM EST
[ Parent ]
Or Austerity in an economist's early childhood leads to stunted development...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Apr 29th, 2013 at 12:06:13 PM EST
[ Parent ]
1.Economics is not accounting.
What do you mean by accounting and what is the role of accounting in economics?

The Euro will outlivebury us all --- Jean-Claude Juncker
by Migeru (migeru at eurotrib dot com) on Mon Apr 29th, 2013 at 12:15:34 PM EST
[ Parent ]
I suppose that was a reference to the kind of people who will sternly lecture you that I = S and believe that they have brought a phenomenal insight to the debate that allows them to derive precise calculations by assuming that all the other factors in the equation CANNOT change.

Then they will probably say something like "tut", or "the problem with democracy is that such uneducated people also get to vote", or something.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Apr 29th, 2013 at 04:30:04 PM EST
[ Parent ]
I didn't really mean accounting in a proper sense -- although, as you saw on GMail chat, it's kind of a fun question to actually get into.  

What I mean is the crude way the average person talks about the need to balance household and business books.  People in my experience tend to have an easier time grasping why that "tighten our belts" crap is wrong when I explain it in those terms.

As you noted, in a proper sense, accounting is the language of economics.  Accounting is about how we express concepts.  Economics is about trying to figure out how those concepts drive each other.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 29th, 2013 at 05:14:39 PM EST
[ Parent ]
Well, Three Sector National Accounting certainly did a whole lot to clarify all of macroeconomics for me.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Apr 30th, 2013 at 09:28:21 AM EST
[ Parent ]
I admire Krugman for opposing austerity but his position on the inequality of income being a prime factor in our current economic depression leaves a lot to be desired. He opposes the viewpoints of Stiglitz and Prof. Wilkinson who state the inequality of income has been a destructive force for the economy and society in general.

If you had growth of 5% plus and 90% or more of it was for the top 5% of the population; the real economy and society would not change for the better.Closing offshore tax avoidance countries,real taxes raised from the corporates, living minimum wages get short shrift at best from Krugman.

Krugman has always struck me as a moderate Democrat or Republican who still believes the capitalist system as it is today is just fine except for a few changes, here and there.

The times we live in call for a radical rethink of the capitalist system and the necessity for a basic quality of life for everyone but still preserving individual initiative. We are potentially looking at violent civil uprising followed by authoritarian force from the elites if we do not have a radical reshaping of our economic system.

Krugman is an economist who doesnt appear to be capable of thinking about this potential catastrophe and individual quality of life issues

by An American in London on Tue Apr 30th, 2013 at 04:26:56 AM EST
"Krugman has always struck me as a moderate Democrat or Republican who still believes the capitalist system as it is today is just fine except for a few changes, here and there."

I think that is the place Krugman started out but his has shifted left the last few years.

by IM on Tue Apr 30th, 2013 at 06:00:20 AM EST
[ Parent ]
With the way economic debate and policy has been shifting right since Reagan, all you have to do as a former centrist is to stay in the same place for your policy to gradually become fringe left. Krugman's constant refrain is that orthodox Keynesian theory has done rather well at explaining the current crisis and in predicting observed outcomes. It is the Monetarists and Austrians/Austerians who have dominated actual policy and who have been proved to be catastrophically wrong in their predictions. Keynesianism used to be mainstream orthodoxy. It was in danger of becoming n exotic endangered species, and Krugman perhaps deserves a lot of credit for helping to keep it alive.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 30th, 2013 at 10:12:50 AM EST
[ Parent ]
Keynesianism used to be mainstream orthodoxy. It was in danger of becoming n exotic endangered species, and Krugman perhaps deserves a lot of credit for helping to keep it alive.

I will give him that, even if it was Samuelson's Keynes Lite.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Apr 30th, 2013 at 09:11:18 PM EST
[ Parent ]
Krugman is a Keynesian economist, not as sociologist, political scientist or social reformer. He finds the evidence that increased inequality is in itself economically inefficient to be less than unequivocally proven though he is open to the policy that it might be. However if you're starting point (as an economic policy advocate) is to maximise economic efficiency, it is hardly surprising that your main recommendations are not focused on (say) income equality, gender equality or social justice. It's not that those issues don't or can't have a positive impact on economic efficiency, its just that they're possibly not one of your top two or three policy options you would advocate for immediately as absolutely essential implementation in order to improve economic growth.

I have no doubt Krugman is also a "liberal" on social issues. However it would be easier for his opponents to dismiss him as just another partisan liberal if he also campaigned on a range of other liberal policy issues. He maximises his effectiveness as a critic of current economic policies by appearing to come from a mainstream, scientifically and historically proven tradition. Issues like income inequality he can afford to leave to others, or take up himself when his more fundamental criticisms of current economic policy have been addressed. Sometimes it is tactically appropriate to concentrate your attack on quite a narrow range of your opponents policy idiocies.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Apr 30th, 2013 at 10:25:26 AM EST
[ Parent ]
It would be a far different US and world economy if the ratio of management's income to their employees was in the historical ratio of single digits rather than the present triple digits.

The idea an economist can't see the problem of inequality of income having an effect on the economy and society is absurd.

Krugman is a positive for reading The New York Times and watching talking head TV but The New York Times and talking head TV are part of the failure of the capitalist system as presently configured and never part of the solution.

Having a sustained inequality of income has had and will continue to have dire consequences to the economy which operates on demand and civil society

by An American in London on Thu May 2nd, 2013 at 05:11:40 AM EST
[ Parent ]
"The idea an economist can't see the problem of inequality of income having an effect on the economy and society is absurd. "

You're either attacking other economists, or a strawman that you called Krugman.

You might as well attack him for stating that the stimulus had the right size.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu May 2nd, 2013 at 05:52:55 AM EST
[ Parent ]
It is Krugman's Republican critics who constantly seek to reduce Krugman's economic analysis to partisan liberal political advocacy. Are you one of them?

Not Everything Is Political - NYTimes.com

So where's this stuff about the scale of government coming from? Well, in practice it turns out that many conservatives are unwilling to concede that Keynesian macro has any validity to it, or that you can sometimes run the printing presses without unleashing runaway inflation, because they fear that any such admission would open the doors to much wider government intervention. But that's exactly my point! They're letting their views about how the world works be dictated by their vision of the kind of society they want; they're politicizing their economic analysis. And that's why they keep getting everything wrong.

And I guess that Crook becomes part of the "they" I'm talking about, because he too seems unable to distinguish between how things are and political value judgments.

Do I do the same thing? Well, I try not to -- which is one reason I've been leery of linking my concerns about inequality to my macro advocacy.

And for what it's worth, Noah Smith is right to suggest that almost all of what I'm writing about macroeconomics these days has its roots in my late-1990s analysis of Japan -- which surely had nothing at all to do with US politics.

The bottom line is that although I have political views -- and wear them on my sleeve! -- I'm not so postmodern as to believe that all truth is political. Some economic doctrines work, others don't. And my doctrine seems, objectively, non-politically, to have been working better than the other guys'.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 2nd, 2013 at 08:50:09 AM EST
[ Parent ]
It is Krugman's Republican critics who constantly seek to reduce Krugman's economic analysis to partisan liberal political advocacy.

Climatologists feel Krugman's pain

by mustakissa on Sat May 4th, 2013 at 09:54:07 AM EST
[ Parent ]
The idea an economist can't see the problem of inequality of income having an effect on the economy and society is absurd.

Hey now, what'd poor Straw Man ever do to you to deserve such a beating?

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 2nd, 2013 at 09:39:23 AM EST
[ Parent ]
An efficiency plan that doesn't factor in the inefficiencies of social turmoil caused by gross inequalities is no plan.
by rifek on Wed May 8th, 2013 at 10:14:08 PM EST
[ Parent ]
"He opposes the viewpoints of Stiglitz and Prof. Wilkinson who state the inequality of income has been a destructive force for the economy and society in general. "

No he doesn't -certainly does not dispute that it is destructive for society, anyway.

He merely says that he does not see that there is compelling evidence that reduction of inequality is required for any return to growth, while admitting that he would quite like to be persuaded, since he finds the increased inequality to be a very serious problem.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Tue Apr 30th, 2013 at 04:04:44 PM EST
[ Parent ]
I wouldn't really call it a position, at least not a firmly-held one by any stretch.  I think that to some degree he and Stiglitz are talking past each other.  The income inequality issue is more of a medium- to long-run issue -- not entirely, but mostly -- in terms of moderating business cycles.

Krugman's response would likely be that he can go along with that, although he'd like to see some evidence, but that it's not a necessity to get out of a slump.  And I think that's right.

I'm in agreement with Stiglitz, and I've said so on a few occasions here -- extreme income inequality of a destabilizing force to aggregate demand.  When you exhaust the working and middle classes of their disposable income, particularly when coupled with the expectation of higher future income, you're going to get borrowing and the feed-in to "Minsky moment"-type scenarios.

Think of it as a kind of Permanent Income Hypothesis-meets-Keynesian-economics-and-socialist-politics.  Which is itself somewhat amusing.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Apr 30th, 2013 at 05:58:37 PM EST
[ Parent ]
Yes, I don't think Krugman would say that a policy to hire massive numbers of unemployed to make luxury yachts, Cartier watches and make sure every upper middle-class family had a butler would be ineffective at ending the slump. It would work just as well as building bridges or battleships. Demand is what matters.

Still, there might well be other reasons why bridges are preferable to battleships and yachts.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri May 10th, 2013 at 08:47:31 AM EST
[ Parent ]
Somewhat unusually for an academically respectable economist, Krugman is also not afraid to get down and dirty in the rough and tumble of economic debate.

The doctor is so fantastic ... but the patient is still dying.  Worthless.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Tue Apr 30th, 2013 at 06:48:38 AM EST
Krugman is more like the scruffy professor of medicine discussing the case with the doctor's butler in the kitchen. He's not allowed in the parlour.


-----
sapere aude
by Number 6 on Tue Apr 30th, 2013 at 11:02:21 AM EST
[ Parent ]
I tend to view him as someone advocating tea-drinking to combat cholera: It will solve the problem, because it forces you to boil the water before drinking it. But you could dispense with the tea without loss of effect.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 30th, 2013 at 04:45:58 PM EST
[ Parent ]
The problem with your analogy is that it only works if you drink only tea.....
by gk (gk (gk quattro due due sette @gmail.com)) on Tue Apr 30th, 2013 at 04:53:25 PM EST
[ Parent ]
Not so: Coffee, beer, wine and spirits also work.

Also, dose-response relationships mean that here is something to be said for limiting pathogen load. Rather like Krugman's too-little-too-late pseudo-Keynesian policy prescriptions are infinitely better than doing nothing at all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 30th, 2013 at 04:59:06 PM EST
[ Parent ]
This is a man who openly advocated a multi-trillion dollar stimulus program, and who certainly isn't afraid of pulling radical punches. Calling it too-little-too-late is like complaining that the US only nuked Hiroshima and Nagasaki, but not Beijing, Hanoi and Baghdad.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 10th, 2013 at 08:50:09 AM EST
[ Parent ]
If you had an unstoppable superweapon that only hurt financial parasites, would you stop using it just because you could, theoretically, get by with half measures?

And yes, Krugman is advocating half-measures: He advocates stopping as soon as the headline unemployment drops to a politically acceptable level - the "NAIRU." As opposed to not stopping until the full-time equivalent unemployment drops to the economically sensible level of "statistically indistinguishable from zero."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 10th, 2013 at 11:31:04 AM EST
[ Parent ]
To me the problem with your analogy is that it is not useful to combat cholera, but to avoid it. Once you've got cholera, drinking tea is rather ineffective.

res humą m'és alič
by Antoni Jaume on Tue Apr 30th, 2013 at 07:16:44 PM EST
[ Parent ]
NAKED KEYNESIANISM: The usual rules of economics
Krugman continues to defend his activist policies on the basis of the 'liquidity trap.' Beyond the usual confusion criticized several times here, he says that: "some of the usual rules of economics are in abeyance as long as the trap lasts. Budget deficits, for example, don't drive up interest rates; printing money isn't inflationary; slashing government spending has really destructive effects on incomes and employment." So according to him usually you have crowding out (higher interest rates with higher deficits), inflation is demand driven and caused by money printing (exogenous money), and cutting spending has no effect on employment (expansionary contractions).
by generic on Sat May 4th, 2013 at 06:40:38 AM EST
I think this quote is somewhat unfair to Krugman. Just because he says some of the "usual rules" of macroeconomic analysis don't apply in a liquidity trap, doesn't mean he is saying they ALWAYS apply in ALL other circumstances. Is the author's position that "the usual rules" NEVER apply? because that is the implication of his criticism.

Usual doesn't mean always just as it doesn't mean never.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 4th, 2013 at 08:45:32 AM EST
[ Parent ]
Given that his nest sentence reads: "None of this holds in normal times either, and he should know better." that is exactly what he means.
What I like about the linked article is that it highlights the main differences between Krugman's brand of Keynsianism and Post-Keynsians.
by generic on Sat May 4th, 2013 at 09:32:58 AM EST
[ Parent ]
An Unqualified Apology | Niall Ferguson | Blog

During a recent question-and-answer session at a conference in California, I made comments about John Maynard Keynes that were as stupid as they were insensitive.

I had been asked to comment on Keynes's famous observation "In the long run we are all dead." The point I had made in my presentation was that in the long run our children, grandchildren and great-grandchildren are alive, and will have to deal with the consequences of our economic actions.

But I should not have suggested - in an off-the-cuff response that was not part of my presentation - that Keynes was indifferent to the long run because he had no children, nor that he had no children because he was gay. This was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes's wife Lydia miscarried.

My disagreements with Keynes's economic philosophy have never had anything to do with his sexual orientation. It is simply false to suggest, as I did, that his approach to economic policy was inspired by any aspect of his personal life. As those who know me and my work are well aware, I detest all prejudice, sexual or otherwise.

My colleagues, students, and friends - straight and gay - have every right to be disappointed in me, as I am in myself. To them, and to everyone who heard my remarks at the conference or has read them since, I deeply and unreservedly apologize.

Niall Ferguson.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 4th, 2013 at 03:52:58 PM EST
I detest all prejudice, sexual or otherwise.

Hahahaha... this from the author of the retro-imperialist How Britain Made the Modern World. For some more recent 'unprejudiced' historical analysis, see Niall Ferguson's ignorant defence of British rule in India.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat May 4th, 2013 at 04:14:23 PM EST
[ Parent ]
What a fucking scumbag.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun May 5th, 2013 at 12:35:19 PM EST
[ Parent ]
...adding: Another point.  He didn't "forget" anything.  That's not really the kind of thing one forgets when making such a remark.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun May 5th, 2013 at 12:37:22 PM EST
[ Parent ]
On the left are the Modern Monetary Theory types, who assert exactly what the austerians like to claim, falsely, is the Keynesian position - that budget deficits never matter (except for their direct effect on aggregate demand).

Paul, Paul, Paul.  That isn't an accurate characterization of MMT, and you know it.  Or at least you should, and if you don't, you should be ashamed.

by rifek on Wed May 8th, 2013 at 10:16:50 PM EST
No, it is: The only mechanism of action for budget deficits is through aggregate demand, so the statement "budget deficits never matter (except for their direct effect on aggregate demand)" is akin to saying "gravity does not matter (except for its direct effect of pulling massive bodies together)."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 9th, 2013 at 01:50:37 AM EST
[ Parent ]
Not quite.  By referring to "direct effect", he's excluding many of the pieces that make MMT coherent.
by rifek on Fri May 10th, 2013 at 09:24:58 AM EST
[ Parent ]
In fact, Krugman is now declaring victory over MMT at every occasion:
Even the euro area crisis made and makes a lot of sense in terms of standard optimum currency area theory.

The point is that radical new theories haven't been needed at all; off-the-shelf economics, tools we already had, provided plenty of guidance.

In that case, however, why are we doing so badly? And I mean really badly; in Europe, recovery is now behind where it was at the same point of the Great Depression. Here's European industrial production from the League of Nations starting in 1929 and Eurostat starting in 2007...

The highlighted bit is about whether IS/LM suffices or you need something different.

In the long run, we're all misquoted — not Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 10th, 2013 at 09:32:34 AM EST
[ Parent ]
Then again, so are the MMTers: By Jove, He's Got It: Krugman (Finally) Adopts MMT (And so does Summers) L. Randall Wray (May 6th, 2013)
By Jove, Krugman's got it. Here's what he wrote today:
Remember, Britain has its own currency, which means that it can't run out of cash. Furthermore, the short-term interest rate is set by the Bank of England. And the long-term rate, to a first approximation, is a weighted average of expected future short-term rates. Unless markets believe that Britain is going to default -- which it isn't, and they won't -- this is more or less an arbitrage condition that ties down the long run rate no matter what happens to confidence. Or to be a bit more precise, it's hard to see what would drive up long rates except a belief that the BoE will raise short rates; and why would it do that unless it sees economic recovery in prospect? http://krugman.blogs.nytimes.com/2013/05/05/george-osbornes-fear-of-ghosts/?smid=tw-NytimesKrugman&a mp;seid=auto
All he has to do is to carry that analysis beyond the current downturn. This can go on forever, of course. Keep short term interest rates low, or keep Treasury out of long maturities.

This is quite a contrast to what Krugman argued two years ago, in a critique of MMT:

And now suppose that for whatever reason, we're suddenly faced with a strike of bond buyers -- nobody is willing to buy U.S. debt except at exorbitant rates.... So then what? The Fed could directly finance the government by buying debt, or it could launder the process by having banks buy debt and then sell that debt via open-market operations; either way, the government would in effect be financing itself through creation of base money. I could go on, but you get the point: once we're no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation... And no amount of talk about actual financial flows, about who buys what from whom, can make that point disappear: if you're going to finance deficits by creating monetary base, someone has to be persuaded to hold the additional base... But the idea that deficits can never matter, that our possession of an independent national currency makes the whole issue go away, is something I just don't understand. (See here: http://krugman.blogs.nytimes.com/2011/03/25/deficits-and-the-printing-press-somewhat-wonkish/; and here http://krugman.blogs.nytimes.com/2011/03/26/a-further-note-on-deficits-and-the-printing-press/.)
See also Scott Fullwiler's nearly line-by-line take-down of Krugman's earlier pieces here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799068. But the important point is that he's now got it. Let's hope he doesn't lose it!


In the long run, we're all misquoted — not Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 10th, 2013 at 09:37:08 AM EST
[ Parent ]
Wray's quote of Krugman talking about the UK having a sovereign currency is similar to what I keep telling Icelanders who kvetch about the ISK: If you think your money's bad now, try using stuff that's controlled by Brussels and Berlin instead of Reykjavik.  Of course they just voted The Gang of Thieves back into power, so they're likely to fritter away this asset, but that's a separate issue from possession of a sovereign currency being an asset.
by rifek on Sat May 11th, 2013 at 09:40:20 AM EST
[ Parent ]


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