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Krugman-Admits-He-Was-Wrong! (Pt. 1?)

by ARGeezer Fri Oct 25th, 2019 at 05:56:09 PM EST

Paul Krugman -- finally -- admits he was wrong!  Lars Syll RWER Blog

Paul Krugman has never suffered fools gladly. The Nobel Prize-winning economist rose to international fame--and a coveted space on the New York Times op-ed page--by lacerating his intellectual opponents in the most withering way. In a series of books and articles beginning in the 1990s, Krugman branded just about everybody who questioned the rapid pace of globalization a fool who didn't understand economics very well. "Silly" was a word Krugman used a lot to describe pundits who raised fears of economic competition from other nations, especially China. Don't worry about it, he said: Free trade will have only minor impact on your prosperity.

Now Krugman has come out and admitted, offhandedly, that his own understanding of economics has been seriously deficient as well. In a recent essay titled "What Economists (Including Me) Got Wrong About Globalization," adapted from a forthcoming book on inequality, Krugman writes that he and other mainstream economists "missed a crucial part of the story" in failing to realize that globalization would lead to "hyperglobalization" and huge economic and social upheaval, particularly of the industrial middle class in America. And many of these working-class communities have been hit hard by Chinese competition, which economists made a "major mistake" in underestimating, Krugman says.

Michael Hirsh  -  The Economist

It was quite a "whoops" moment, considering all the ruined American communities and displaced millions of workers we've seen in the interim. And a newly humbled Krugman must consider an even more disturbing idea: Did he and other mainstream economists help put a protectionist populist, Donald Trump, in the White House with a lot of bad advice about free markets?

Too important not to frontpage - Frank Schnittger

But what about the Samuelson Synthesis and endogenous money?

Yours truly, (Lars Syll), has for years been complaining about Krugman on this issue, so of course, it's great that he finally admits he was wrong!

Another issue on which yours truly is having a beef with Krugman is his view that his hobbyhorse IS-LM interpretation of Keynes is fruitful and relevant for understanding monetary economies. Is it time for Krugman to come out on this also and admit he has been wrong?

My own view is that IS-LM is not fruitful and relevant and that it does not adequately reflect the width and depth of Keynes's insights on the workings of monetary economies:

The workings of a monetary economy is especially important as Krugman's warmed over Neo-Classical explanation of money 'as a veil over the economy' and his denial of endogenous money, insisting on 'loanable funds' - as in his embarrassing fairly recent dust up with Steve Keen - has  helped prop up the bankrupt Neo Classical view of monetary economics as opposed to the growing support for the 'Modern Monetary Theory' view of money as being created endogenously by banks.

The difference is crucial to a progressive solution to government fiscal policy - at least in countries which have their own sovereign currencies. MMT and Post Keynesian Economics provides policy space for spending by currency issuing governments that is not available to countries on the gold standard or to countries in currency unions, such as the EuroZone in the EU. MMT provides an answer to the omnipresent objection to any progressive fiscal policy: "How are you going to pay for it?!"

The USA has an aging and fragile electrical distribution system that is predicted to fail under the stress of expected global warming. With US Mainstream Economic views such as The Samuelson Synthesis the question is: "How are you going to pay for it?" With MMT and Post Keynesian Economics the answer is that it will mostly pay for itself. If financed partly by deficit spending, the increased deficit to the federal budget becomes income to the private sector, causing increased economic activity, the increased tax revenue from which will partly offset the deficit while the improved system is being built. Once finished, the increased reliability and reduced cost of electricity from the project will provide long term greater productivity. In the USA the same argument will support Medicare for All and other aspects of a Green New Deal.

I went to a day long discussion of "How to Pay for the Green New Deal" at Harvard Law School a few months ago which was pretty much all about MMT, heavily referencing Keynes' work on how to pay for WWII.  What rubbed me the wrong way was that there was no estimate of what it would cost and what we now pay for our present energy system.

So I looked for myself.  My estimate is that the USA pays about $661 billion per year on petroleum products, natural gas, and coal and those Communists at the International Monetary Fund says that the USA subsidizes this fossil foolishness with about $649 billion per year.  That's $1.2 trillion per year.

Have yet to see an economist who has figured out what happens when our energy system is renewable and the cost of fuel goes away.  What are we going to do with that $1.2 trillion per year we won't have to spend?

Solar IS Civil Defense

by gmoke on Fri Oct 25th, 2019 at 09:32:22 PM EST
It is possible that a Green New Deal would be deflationary, as has been suggested for Medicare for All. The cost of fossil fuels is heavily subsidized, so the loss of those subsidies could be seen as reduced government spending. That could be countered by shifting the subsidies to renewable energy - once the political obstacles to investment in renewable energy have been overcome. In any case we are still below what the government can safely spend and inflation is not a real threat, even if its phantom will always seem to spook the very rich. And that is before we consider how better to use the current 'tax expenditure' of >$1 Trillion/year on Trump's tax cut for the rich.

 Trillion/year on tax cuts for the rich.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 25th, 2019 at 10:31:10 PM EST
[ Parent ]
The loss of fuel costs for energy generation would simply be an add to national productivity.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 25th, 2019 at 10:32:22 PM EST
[ Parent ]
I'm not an economist, but I know what I like.

And I don't buy this line of reasoning. First, if you globalize your jobs so that rural peasants in China can move into factories to work 12 hour days, like pre-union westerner workers did, then obviously some of the factory jobs are going to move to China. Second, if you eviscerate your labor unions, and forget the idea of international worker coordination, then obviously the factory owners in China are going to do the same thing the western factory owners did in the department of workers' rights. Third, if you consciously skew your tax and wage system to take from your own working class and give to the wealthy, then obviously the working class is going to be poorer. Etc.

It seems to me that globalization would naturally have disrupted western commerce by rebalancing the economic flow between nations, with damage to some components and improvement to others, but we haven't done ourselves any big favors as far as making things the best they could be within such disruption, either.

by asdf on Sat Oct 26th, 2019 at 02:54:12 AM EST
In 1980 the USA held all of the cards with respect to China. China needed access to US markets in order for its economy to grow rapidly enough to provide domestic stability. The USA could have made any demands it wished in return for that privilege. China required an annual waver as it did not comply with the terms of the Jackson-Vanik Amendment. But each year this waver was passed due to business lobbying. In 1999 China was granted Permanent Normal Trade Relations during the Clinton Administration. The interests of some segments of the US business community were privileged over all other US interests. The neo-liberal political corruption the US political system allowed did us in.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 26th, 2019 at 03:47:42 AM EST
[ Parent ]
I did not figure out the nature and extent of the political problem in the USA until 2008-'09, so I am as guilty as any of the electorate in this regard. With very few exceptions the USA has not had any real statesmen in public office since at least 1968. Mostly what we have had are power brokers. That has been a national disaster.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 26th, 2019 at 04:09:56 AM EST
[ Parent ]
What you just wrote was basically the crux of Ross Perot's presidential campaign in 1992.
by rifek on Sat Oct 26th, 2019 at 08:36:55 PM EST
[ Parent ]
Congratulations. The Caliornia Cohort of Petty Landlords calls this US policy "position" expert, "roast beef," signified by the (graphic) "icon" of a joint of meat (hind pork or cattle; meme, expression picker; emoji) served to WH dinner guests [INSERT FOREIGN HEAD OR STATE]

o. look.
"What this means, I believe, is that a country with its own currency would not be subject to the kind of self-fulfilling panic that is now arguably hitting Italy."
"I'm not going to answer this; truly, I don't know. But it's important."
"To some extent we may be looking at reverse causation, with troubled economies forced into harsh austerity while those doing well can keep expanding spending.

Slide No.10. r u fucking kidding?

Diversity is the key to economic and political evolution.

by Cat on Sat Oct 26th, 2019 at 11:48:12 PM EST
[ Parent ]

Diversity is the key to economic and political evolution.
by Cat on Sat Oct 26th, 2019 at 11:50:41 PM EST
[ Parent ]
It is axiomatic that hard times makes for conservative politics. The antidote to hard times is government deficit spending. MMT shows why this deficit spending is desirable and necessary. In fact, in conjunction with Post Keynesian Economics, it shows why the relative austerity we have been experiencing since 2009 is both undesirable and unnecessary. Had we employed appropriate fiscal policy in 2009 we could have returned the economy to the baseline from which it fell. Instead, due to silly inflation panic, we grew slowly from a reduced baseline. The difference over a decade is trillions of dollars of potential GDP lost forever, along with the prosperity that would have brought.

I have never known what to make of the California Cohort, perhaps that is a Mandarin phrase, perhaps it is a play on 'petite bourgeoisie'. If the language reference is to economics, yes, it is a language, and no, I am not an economist, but the language of economics is easier to learn than Mandarin. I have spent the last ten years studying economics, economic history, the history of economics, etc. As Keynes' student Joan Robinson told the assembled American Association of Economists one year in an annual address, the purpose of an education in economics is to prevent being deceived by economists.

Deception is exactly what most US Economists have provided to the US population, and that deception has been used to enforce austerity and to facilitate the looting of the nation by the elite. Which is why I think it is time for that deception to end. With a larger role for government spending, properly done, prosperity can return to the average citizen, and with that prosperity, the kind of confidence we need to tackle the challenges that lie ahead. That prosperity will also reduce the pressure that has led the USA to the brink of a fascist takeover. IMO, an outcome devoutly to be desired. You may differ or scoff as you will.

As to Italy or other members of the Euro-Zone, they do not have the same latitude with fiscal policy as does the USA, or even the UK. This is because those countries are currency users, not currency issuers, and the European Central Bank sets monetary policy for the Euro-zone predominantly in the interest of the strongest economy, Germany. Worse, they enforce rules about the maximum deficit a country can run that can be very harsh indeed on some of the smaller economies. So MMT is not an option for Euro-Zone countries.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 12:51:40 AM EST
[ Parent ]
California Cohort of Petty Landlord, unpublished, latitudinal study of investment decisions (n=18, avg. age. 54 trailing, FRB regions: 4, data: quant* + qual. hurdles, collection: internet, period: 6 years

Blow me.

* f(x)/ Q declared securities trades or P&E purch.

Diversity is the key to economic and political evolution.

by Cat on Sun Oct 27th, 2019 at 01:18:11 AM EST
[ Parent ]

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 03:27:35 AM EST
[ Parent ]
"eoconomists" DO NOT make financial decisions, in a domestic "industrial  policy" --jobs saved or created-- by US gov agencies. FREE TRADE doctrine supposedly precludes gov "intervention" in perfect competition.

ergo, Krugman. fucktard beefsteak.

Diversity is the key to economic and political evolution.

by Cat on Sun Oct 27th, 2019 at 01:38:57 AM EST
[ Parent ]
"eoconomists" DO NOT make financial decisions, in a domestic "industrial  policy"

Agreed, but they set the terms of discussion under which those decisions are made and promulgate them to all undergraduates who take Economics 101. Sadly.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 03:57:11 AM EST
[ Parent ]
Gentiloni: Economy

Are you mental?

Diversity is the key to economic and political evolution.

by Cat on Sun Oct 27th, 2019 at 01:42:13 AM EST
[ Parent ]
I do see that Commisioner Gentiloni has called for looser fiscal restraints in the Euro-Zone. That is at least a statement of intention in the right direction. But he has a hard road ahead making any real progress.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 03:33:09 AM EST
[ Parent ]
KRUGMAN HAS NO FUCKING IDEA (?) WHY  THE EP WOULD CONFIRM Gentiloni: Economy PORTFOLIO --or-- WHY EVERY FUCKING  ASIA GOV REMOVED every FM after '97. That was a goddam god-given miracle.

Diversity is the key to economic and political evolution.
by Cat on Sun Oct 27th, 2019 at 01:58:35 AM EST
[ Parent ]
(O)Economic is ht a "law" of nature nor is this asscoiative principle of "humanitarian aid" comunicative, GIVE profit motive. So just STFU and screw ROW.

Krugman can't help you.

Diversity is the key to economic and political evolution.

by Cat on Sun Oct 27th, 2019 at 02:15:18 AM EST
[ Parent ]
who gives a damn what Krugman publishes in NY Yella Cake, when they are counting nickels and dimes in disposable income to make overhead--mortgage or rent?


you freak, who cares?!

Diversity is the key to economic and political evolution.

by Cat on Sun Oct 27th, 2019 at 02:29:10 AM EST
[ Parent ]
You find me ONE comment that YOU (UID verified) have ever posted  at this URL which is a remotely derogatory remark about KRUGMAN an the thre Brads + Baker --OR-- any comment by you affirming grievances of "middle-class" peersons climbing property ladders in the USA,


I don't bluff, yo.

Diversity is the key to economic and political evolution.

by Cat on Sun Oct 27th, 2019 at 03:10:30 AM EST
[ Parent ]
I have to turn your question back at you: "Are you mental?" Sure sounds like it.

Perhaps you failed to notice that I was critical of Krugman, implicitly and explicitly, as was the article from which I quoted.

I do recall responding to you one time recently by commiserating with what I suspected was your disdain at people using acquisition of rental property as a way to personal wealth. While it does and has worked for many, it has negative social  costs.

And I have absolutely no desire to have my ass kissed by yourself or anyone. Not my thing.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 03:25:12 AM EST
[ Parent ]
Cat, your uninformative, vituperative, abusive comments drown this thread. Another example of thread-jacking.

The other day, I asked why someone was troll-rating your comments. Wasn't that cool of me?

Now I think that troll-rating is they way to clean up this mess.

(IANAModerator, just a User like you).

Things are going to slide, slide in all directions
Won't be nothing, nothing you can measure anymore
L. Cohen

by john_evans (john(dot)evans(dot)et(at)gmail(dot)com) on Sun Oct 27th, 2019 at 08:47:16 AM EST
[ Parent ]
Perot had some interesting points. I just didn't agree with or trust much of the rest of his program. And, at the time, I did not appreciate the significance or even the existence of the Neo-Liberal, corporate friendly turn that Bill Clinton represented. I was upset about the repeal of Glass-Steagall, the shouting down of Brooksley Born and the favoritism shown to finance. But I thought Clinton was still better than the alternatives on offer. I was working ~ 60 hrs/wk on engineering tasks at the time.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 03:53:14 AM EST
[ Parent ]
I didn't trust Perot either and backed Clinton in both '92 and '96 as the least of available evils, but I knew from the start he was a corporatist.  I knew he had whored out to agribusiness and developers while governor and turned about every body of water in Arkansas into a sewer in the name of "economic progress" and "free markets".
by rifek on Mon Oct 28th, 2019 at 10:55:51 PM EST
[ Parent ]
Just a little context to justify Frank's praise that accompanied the frontpaging of this diary.

I think it is important both for the fact that the origin of the article was The Economist, so long a bastion of a neo-liberal world view, but also for the fact that Krugman himself has for so long been an adherent of the 'Samuelson Synthesis' American version of Keynesian economics. That version, which incorporates Hicks-Hanson's IS-LM toy economic model and Phillip's curve relating unemployment and inflation, but leaves behind Keynes historical contingency and radical uncertainty, is what Joan Robinson called 'bastard Keynes' and it formed one pole of the Cambridge Controversy - a dispute over the legacy of Keynes.

Krugman's climb down from his previous certitude about the benefits of trade is important. After all it was for his work on trade patterns that he received his Riksbank prize in honor of Alfred Nobel. But also important is Lars Syll's critique of the vacuousness of IS-LM.

Left unmentioned is the role of the Phillips Curve. The validity of the Phillips Curve was historically contingent upon strong capital controls by nation states. When countries reduced capital controls the assumptions underlying the Phillips Curve were undermined. Milton Friedmanm during the '70s stagflation, seized upon the failure of the Phillips Curve, which he (knowingly?) conflated with the work of Keynes to proclaim "Keynesianism is dead!" In fact, it was just the Americanized Samuelson version of Keynes that had died.

Krugman himself touted Keynes as the remedy for the problems we faced after the GFC of '08-09. But Keynes has never regained the cachet he had in 1971 when Richard Nixon said: "I am now a Keynesian in economics". We need an all weather economics, not just Keynes in bad times and the latest derivative of Neo-Classical Economics in good times.

However annoying the neo-liberal views of The Economist can be, it is still an influential magazine and Krugman is an influential economist. It is good to see them both adjusting their views to accommodate the harsh realities of the world economy.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 07:58:16 PM EST
On a recent visit to his house, I was surprised to see that one of my very conservative friends subscribes to The Economist.
by asdf on Sun Oct 27th, 2019 at 10:01:15 PM EST
[ Parent ]
I subscribed to it from the '80s through 2008. It had excellent coverage of developments all over the world in those days, and editorials were kept separate from news content. It was founded by John Stuart Mill, its first editor, and was Classical English Liberal in its orientation. That is very close to modern conservative views in the USA before the Tea Party, etc.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 10:13:27 PM EST
[ Parent ]
About the Economist and its American readership, this old piece (1991) is still quite to the point:

The Economics of the Colonial Cringe: Pseudonomics and the Sneer on the Face of The Economist.

A certain modesty would seem appropriate in The Economist's leaders these days, considering that after 10 years in which the Thatcher government essentially did what the magazine said, Britain has the weakest economy in Europe. (Remind me, again, why we're looking to the British for economic advice.) But the implied message of the leaders often seems to be, "I took a First at Oxford. I'm right."

The cover of anonymity for the magazine's writers is an important part of its omniscient stance, among other reasons because it conceals the extreme youth of much of the staff. "The magazine is written by young people pretending to be old people," says Michael Lewis, the author of "Liar's Poker," who now lives in England. "If American readers got a look at the pimply complexions of their economic gurus, they would cancel their subscriptions in droves."

by Bernard (bernard) on Mon Oct 28th, 2019 at 09:40:41 PM EST
[ Parent ]
Speaking of the Phillips curve, I was reminded of something I recently read:

Leash the Dogma

Without torturing every permutation of this relationship, suffice it to say that the foregoing clouds of noise and weak relationships show up in every other statement of the inflation-unemployment tradeoff, regardless of whether one uses levels, changes, trailing data, subsequent data, CPI inflation, core inflation, or mixtures of all of these.

What's perplexing about this entire inflation-unemployment argument is that the original "Phillips Curve" proposed by A.W. Phillips in 1958 was a relationship between unemployment and wage inflation, based on century of data where Britain was on the gold standard and general price inflation was virtually non-existent. So the Phillips curve is actually a relationship between unemployment and real wage inflation.

The resulting relationship can be stated very simply: wages rise, relative to other prices, when unemployment is low and labor is scarce; wages fall, relative to other prices, when unemployment is high and labor is abundant. The chart below nicely illustrates this relationship in U.S. data. It relates current unemployment to subsequent real wage inflation.

If this is true, utilising it to say something about general inflation is to push it, but it can work as long as general inflation is mostly dictated by wages and not say the price of oil or imported deflation from a nearby currency area, or any other factor.

by fjallstrom on Mon Oct 28th, 2019 at 11:02:02 AM EST
[ Parent ]
Well, the 'failure' of the Phillips Curve to which Friedman attributed the 'failure' of Keynesian macro analysis occurred shortly AFTER the US went off the gold standard and in the face of import driven inflation in the price of oil in the '70s. So historically contingent conditions seem to hold the day vs immutable laws supposed to hold everywhere and always. Another stake through the vampire propagandist Milton Friedman.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 28th, 2019 at 11:39:08 AM EST
[ Parent ]
The questions about the Phillips Curve only highlight a bigger problem in economics. To the extent the profession addresses how to manage an economy, the consensus in the USA and Europe seems to be to restrict intervention to monetary policy. Japan and China have adopted much more fiscally interventionist policies and have had impressive results.

Economics is inherently about money and wealth, though the profession itself discretely avoids discussions of those subjects whenever possible. That task is reserved for anthropologists of wealth and power and for sociologists, whose insights, often penetrating, can and are successfully ignored by professional economists for the most part. This has the effect of leaving the profession insular and isolated from all but the very wealthy to whose prejudices leading economists pay strict attention.

It is unfortunate that there are so few prominent people who can, as Queen Elizabeth did in 2009, ask the profession how they could have gotten things so wrong. Surely there must be a better solution than having more inquiring monarchs.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 28th, 2019 at 10:00:19 PM EST
[ Parent ]
Well Duh!  That last paragraph merely says that when an item is scarce it's price rises and when it is abundant the price falls.
by StillInTheWilderness on Wed Oct 30th, 2019 at 02:35:51 PM EST
[ Parent ]

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