Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 7/30/14

July 31, 2014

There were three posts yesterday.  The first was “Stealth Single Payer:”

The Kaiser Family Foundation has a new survey (pdf) on Obamacare in California, and it’s full of remarkably good news. For those who haven’t been following this, CA — with its now-dominant Democratic Party — is where Obamacare was implemented the way it was supposed to be implemented: the website worked pretty well from the beginning, Medicaid expansion was implemented, and the state worked hard on outreach. It was also a place that really needed reform: the uninsured were a high percentage of the population, and an individual market without community rating meant that the mere hint of a preexisting condition was enough to prevent coverage.

So it now appears that most of California’s uninsured — 58 percent of the total, or well over 60 percent of those eligible (because undocumented immigrants aren’t covered) have gained insurance in the first year. Considering the complexity of the scheme, that’s really impressive, and it strongly suggests that next year, once those who missed out have had a chance to learn via word of mouth, California will have gotten much of the way toward universal coverage for legal residents.

But there’s something else the Kaiser report drives home: most of those gaining coverage are doing so not via the exchanges (although those are important too) but via Medicaid. And that’s important as an answer to critics of Obamacare from the left.

There have always been critics complaining that what we really should have is single-payer, and angry that subsidies were being funneled through the insurance companies. And in principle they’re right; the trouble was that cutting the insurers out of the loop would have made the plan politically impossible, both because of the industry’s power and because of the unwillingness of people with good coverage to take a leap into a completely new system. So we got this awkward public-private hybrid, which I supported because it was what we could get and despite its impurity it dramatically improves many people’s lives.

But it turns out that many of the newly insured are in fact being covered under a single-payer system — Medicaid. And as I’ve pointed out before,

Medicaid is actually the piece of the US system that looks most like European health systems, which cost far less than ours while delivering comparable results.

All in all, liberals really should be celebrating. California shows how Obamacare can and should work, and it’s looking pretty good.

The second post yesterday was “Useless Expertise:”

Justin Wolfers calls our attention to the latest IGM survey of economic experts, which revisits the question of the efficacy of fiscal stimulus. IGM has been trying to pose regular questions to a more or less balanced panel of well-regarded economists, so as to establish where a consensus of opinion more or less exists. And when it comes to stimulus, the consensus is fairly overwhelming: by 36 to 1, those responding believe that the ARRA reduced unemployment, and by 25 to 2 they believe that it was beneficial.

This is, if you think about it, very depressing.

Wolfers is encouraged by the degree of consensus — economics as a discipline is not as quarrelsome as its reputation. But I think about policy and political discourse, and note that policy has been dominated by pro-austerity views while stimulus has become a dirty word in politics.

What this says is that in practical terms the professional consensus doesn’t matter. Alberto Alesina may be literally the odd man out, the only member of the panel who doesn’t believe that the fiscal multiplier is positive — but back when key decisions were being made, it was “Alesina’s hour” in Europe and among Republicans.

You might want to say that the professional consensus was rejected because it didn’t work. But actually it did. Mainstream macroeconomics made some predictions — deficits wouldn’t drive up interest rates in a depressed economy, “fiat money” wouldn’t be inflationary, austerity would lead to economic contraction — that drew widespread scorn; Stephen Moore at the WSJ (which was predicting soaring rates and inflation) dismissed “fancy theories” that “defy common sense.” The fancy theorists were, of course, right — but nobody who rejected the consensus has changed his mind. Oh, and Moore became the chief economist at Heritage.

So, two thoughts. One is a point I think I’ve made before. You fairly often hear people describe the very poor track record of policy since 2008 as an indictment of economists, who clearly didn’t have the right answers. But actually mainstream macro has a pretty decent track record since 2008 — the problem was that what it said about policy was disregarded by the policymakers, who went with what they wanted to believe.

The other is that you have to wonder what good we’re all doing. If policymakers ignore professional consensus, and if views about how the world works are completely insensitive to evidence and results, does knowledge matter. If a tree falls in the academic forest, but nobody in Brussels or Washington hears it, did it make a sound?

Yesterday’s last post was “Ending Prohibition 2.0:”

I haven’t written on it, but the Times editorial board has been doing a major public service by pushing for marijuana liberalization. Read the intro to the series, with links to the articles.

Oh, and for the record, I never have smoked pot (I tried once, but went into a coughing fit) — but I do drink alcohol, and I see no reason to accord special privilege to my recreational drug of choice.

Krugman’s blog, 7/28/14

July 29, 2014

There were three posts yesterday.  The first was “Inflation, Unemployment, Ignorance (Slightly Wonkish):”

Jared Bernstein notes that we don’t seem to have a very good story about inflation and unemployment these days, and worries that this will lead to bad policy — in particular, to premature monetary tightening. I agree, and have a bit more to add.

The basic point here is that ever since the 1970s we’ve been teaching a story in which an economy with excessive unemployment is one in which inflation should keep falling. Since inflation today is roughly where it was a dozen years ago, this story suggests that we’ve been on average at full employment over that period. But we know that this period was marked by weak expansions and a terrible slump, so that can’t be true. Something is wrong.

I’ve argued that the data are more consistent with a paleo-Keynesian Phillips curve in which unemployment determines the level, not the rate of change, of inflation — which could make sense given anchored expectations and downward wage rigidity. But that’s an educated guess at best, and somewhat post hoc.

The thing is, however, that this is not a new problem. There was nothing like a Phillips curve, let alone an accelerationist Phillips curve, during the Great Depression. Here’s wages:

Wages fell as the economy was slumping, but bounced back thereafter even though unemployment was high. Applying modern arguments to these data one could easily have concluded that the economy was near capacity in, say, 1939 — and in fact many economists argued at the time that most unemployment was structural, due to the mismatch between skills and the requirements of the modern economy, and could not be cured with more demand.

But then came massive fiscal stimulus in the form of rearmament and war — and it turned out that there was plenty of slack in the economy, and American workers were just fine.

The lesson for now, surely, is that we should not begin tightening based on hypothetical measures of slack, because this might lead to a terrible decision — keeping the economy depressed for no good reason. Instead, we should wait until there’s really clear evidence of overheating in the form of sharply rising prices. The risks of moving too soon versus too late are not symmetric.

Yesterday’s second post was “Inflation OCD:”

Brad DeLong does yeoman work in tracking down a veritable host of right-wing proclamations over the past five years that high inflation is just around the corner, or maybe has already landed but the feds are hiding it in Area 51. But I think he falls short in analyzing the phenomenon, trying to attribute it to bad models or just finding it incomprehensible.

Clearly, there’s something deeper at work here. After all, clinging to beliefs that have been wrong, wrong, wrong for so long — beliefs that would have cost you money if you acted on them — and remember, Eric Cantor, the lost white knight of the reformicons, did in fact do just that — shows that there is some underlying reason those beliefs are a necessary part of the right-wing identity.

What has to be going on is that the general hatred of government activism, the constant complaint that bureaucrats are taking away your hard-earned wealth and giving it to moochers and looters, carries with it an overwhelming need to see fiat money as theft. Even alleged moderate Republicans do it. It’s a form of obsessive-compulsive political disorder, and not susceptible to rational argument.

And this in turn means that the market monetarists have a hopeless task. James Pethokoukis writes about the weird obsession of his political teammates with inflation; he needs to ask why that obsession persists, in fact has gotten stronger, after five years of utter empirical failure.

As I’ve said before, there are two topics on which, in my experience, conservatives become completely unhinged, red-in-the-face angry and screaming. One is health care, where the possibility of a successful government-backed program is unacceptable despite the fact that everyone, even America for its seniors, does it, and the other is monetary policy. It’s time to stop pretending that these are rational discussions, and start looking for the roots of the compulsion.

The last post yesterday was “Circles of Influence:”

Thomas Palley is upset with what I said about wages in a depressed economy, not because we disagree on the substance — we don’t — but because he thinks I gave him and those in his camp short shrift. I plead innocent, but there is a larger issue on which he does have a case.

What I chided him for in my post was not for coming in late — I never said he did — but for claiming that mainstream economists were too hidebound to see the obvious. If you read what I was reacting to, it was his claim that mainstreamers like me were looking in all the wrong places for an explanation of continuing slow inflation despite high unemployment; jn fact, as I pointed out, people like me have been trying to explain the phenomenon using pretty much the same argument he claims is a radical departure.

So this wasn’t about intellectual priority — it was about refuting a claim of ideological blindness.

Now, Palley says that he was there first; and while I guess I thought Tobin laid out the basics 40 years ago, I’m willing to accept that Palley was somewhat ahead of the curve. And it’s also very much true that even those like me who are sympathetic to the general approach think of it as an arc from Tobin to Akerlof-Dickens-Perry to Daly and Hobijn, missing the heterodox economists who have thought about the same issues.

Fair enough. And modern academic economics is very much an interlocking set of old-boy networks; to some extent this has become even more true since the decline of the journals, with most discourse taking place via working papers long before formal publication. I used to refer to the international trade circuit as the floating crap game — the same 30 or 40 people meeting in conferences all over the world, reading and citing each others’ work; it’s the same in each sub-field. And to some extent it’s inevitable: there’s so much stuff out there, and you have to filter somehow, so you mainly read stuff by people you know and people they tell you are worth reading.

But it’s also true that this is a tendency one ought to lean against. One of my principles for research has always been “Listen to the Gentiles“. If we’re finding good stuff in Minsky, this is a sign that mainstream economists haven’t paid enough attention outside the crap game. And of course the discovery that freshwater economists were completely unaware of the Keynesian revival was a reminder that this can happen even to people with fancy credentials.

On the other hand, if you want the mainstream guys to listen to you, you probably shouldn’t accuse them of being denser and more rigid than they really are.

So how about some more open-mindedness all around?

Krugman’s blog, 7/26/14

July 27, 2014

There was one post yesterday, “Moore of the Same:”

A few months ago the buzz was that the Heritage Foundation was getting serious after a series of blatant errors and ludicrously biased “research”. The supposed evidence for this turn was the hiring of Stephen Moore from the Wall Street Journal to become chief economist. I was, shall we say, unimpressed.

Ahem. Conservative Media’s Favorite Economist Caught Distorting Facts About Taxes And Job Creation:

On July 7, Moore published an op-ed in The Kansas City Star attacking economic policies favored by Nobel Prize-winning economist Paul Krugman. The op-ed claimed that “places such as New York, Massachusetts, Illinois and California … are getting clobbered by tax-cutting states.” Moore went on to attack liberals for “cherry-picking a few events” in their arguments against major tax cuts, when in fact it was Moore who cited bad data to support his claims.

On July 24, The Kansas City Star published a correction to Moore’s op-ed, specifically stating that the author had “misstated job growth rates for four states and the time period covered.”

What gets me here is the sheer laziness; it looks as if Moore pulled numbers from an old piece of his, and never bothered to update. How hard is it to check state job numbers?

Actually, if you’re going to do something about state job growth, the very least you should do is bear in mind that the recession and recovery have had differential effects across states, so that you might want to look at job growth over the whole period of recession and recovery. If you do, the figure shows what you see for Moore’s four states:

Texas is, not surprisingly, the best performer. New York comes in second, followed by California, with Florida in last place. Not much of a clear ideological message there.

Nor should you expect there to be. Real empirical work on state growth shows multiple factors — mildness of climate, cheap housing, high wages, and yes, some impact from tax rates. The idea that you would find an overwhelming one-factor correlation with taxes alone is something only a, well, Heritage foundation analyst could believe.

Last point: there are quite a few politically conservative but technically competent economists out there, and Heritage clearly has the resources to hire them if it chooses. But it doesn’t — I suspect because it’s afraid that they might stray off the reservation. Competence has a well-known liberal bias.

Krugman’s blog, 7/25/14

July 26, 2014

There were three posts yesterday.  The first was “Ezra Klein Asks the Wrong Question:”

He asks, Why should anyone trust Paul Ryan’s poverty plan? That’s easy: nobody should. This has been another edition of simple answers to simple questions.

In case you want the longer answer, however, there are multiple reasons to distrust Ryan. It’s not just that this plan is completely inconsistent with his budget proposals, and that he has given no indication of how he would resolve this inconsistency. It’s not just that the methods he proposes, especially block-granting, have in the past simply been back-door ways to slash aid to the poor — which is what his budgets involve, after all. And it’s not just that everything he has said about the causes of and cures for poverty is all wrong.

No, it’s also the fact that Ryan’s previous proposals — all of them — were con jobs. It’s four years since he was challenged to explain the magic asterisk in his original budget proposal — how he could slash tax rates for the wealthy and corporations without reducing revenue. He has never explained it; all he’s done is put in more magic asterisks on discretionary spending and more.

So the question isn’t why or even whether you should trust him — you shouldn’t, period.

No, the real question is why so many people in the news media still want to find reasons to praise this con man. Of course, the answer has been clear for years: people are still trying

to slot Ryan into a role someone is supposed to be playing in their political play, that of the thoughtful, serious conservative wonk

He has never given any sign of actually fitting that role — but there’s nobody else out there, and so he keeps being given the benefit of the doubt no matter how many times he gets caught in the same old con.

Yesterday’s second post was “The End of the Cringe:”

Doug Sosnik has an interesting piece in Politico on how “the left” is taking over the Democratic Party. Of course, what he calls “left” would be centrist, maybe even right of center, in most other Western democracies; and I think it’s still true that today’s progressive icons — say, Elizabeth Warren — are to the right of where old-line liberals like Teddy Kennedy were.

But Sosnik is right that there has been a pretty big change in the way things feel. Here’s how I’d put it: Democrats have lost their post-Reagan cringe.

For a long time, it wasn’t just Republicans who believed that history was on their side; a lot of Democrats seemed to feel the same. There was an old cartoon from the 80s showing Democrats laying out their new platform — tax cuts for the rich, benefit cuts for the poor, and strong defense. When asked how this differed from the Republicans, the answer was “Compassion: we care about the victims of our policies.”

But things have changed, for the reasons Sosnik describes and more. Democrats have, after all, won the popular presidential vote in five of the past six elections. Despite all the craziness and challenges, they have made big progress on their generations-long quest for universal health insurance. They have a network of think tanks that is a lot less lavishly funded than the right-wing apparatus, but intellectually runs rings around its opponents.

And as Sosnik says more or less clearly, the craziness of the right in some ways empowers the moderate left. Time was when “centrist” Democrats would in effect urge appeasement: don’t talk about inequality or say nasty things about privatization, or the right will get mad. But now it’s clear that no matter what you do, short of destroying the entire legacy of the New Deal, the mere fact of being a Democrat will bring accusations that you’re an atheist Islamic communist. So why not stand up for some liberal principles?

A Republican wave election this year — not just a narrow win in the Senate with a very favorable map, but a drastic shift of the map — could bring back the cringe, I guess. But that’s looking less likely with each passing week, and in 2016 the map will favor Democrats.

How it all turns out is anyone’s guess — maybe we eventually see a California scenario on a national basis, with the growing diversity of the electorate and the evident madness of the right delivering an overwhelming Democratic majority; maybe we see some exogenous event tip the balance back to the GOP despite what looks like a trend the other way. But what I don’t think we’ll see, even if there’s a Clinton in the White House, is another Clinton era in which liberalism is afraid to take a stand.

He ended the work week with “Friday Night Music: Hotel California:”

For obvious reasons. Also, still pretty great:


Krugman’s blog, 7/23/14

July 24, 2014

There was one post yesterday, “How’s California Doing?”:

The states, said Louis Brandeis, are the laboratories of democracy — although that may not work as well as it used to now that the “I’m not a scientist” wing has taken complete control of the GOP. Still, state experiences can tell the rest of us something. There’s been a lot of talk lately about how the great Kansas tax-cut experiment is doing, namely very badly. But what about the anti-Kansas — California? It’s a state with a Democratic supermajority. Its policies aren’t left-wing in the way Kansas’s are right-wing, but it’s enough of a liberal agenda to have the right frothing at the mouth. So how is it going?

I wrote about the California comeback more than a year ago, to much vitriolic scorn from the usual suspects. But how’s it going now?

Well, David Cay Johnston tells us that job growth remains fast despite predictions of doom from tax hikes. I found myself wondering, however, whether this was just bounceback from an especially severe slump — after all, California was a major housing bubble state, suffered for it, and you would expect a period of relatively fast growth thereafter even if overall performance was lagging the nation.

If you look at the numbers, however, what you see is that while fast job growth has indeed largely reflected recovery from an especially deep slump, at this point California’s performance (blue) since the Great Recession began has fully matched that of the nation (red); that is, there is no sign of growth being hurt by liberal policies or whatever:

Meanwhile, the budget is in good shape, with room for some much-needed spending increases.

Oh, and California — which enthusiastically went about implementing health reform — appears to have cut the number of uninsured by half in the first year of Obamacare.

Is it a miracle? No — or at any rate not unless you consider any deviation from supply-side predictions miraculous. But it’s looking like a pretty solid record.

Krugman’s blog, 7/22/14

July 23, 2014

There was one post yesterday, “Debt Disaster Dead-Enders:”

I got some correspondence from people telling me to read Rob Portman’s op-ed in the WSJ, intended to refute the growing evidence that the budget deficit has been grossly overrated as an issue. And it is an interesting piece — it’s a very good illustration both of the desperate desire to see a debt crisis, and what happens when someone (Portman, or more likely the staffer who wrote it) tries to be a Very Serious Person without actually understanding the numbers or having followed any of the analysis.

One thing you need to know is that none of Portman’s numbers refer to the CBO‘s baseline scenario; instead they refer to a much more pessimistic alternate scenario. That’s something he should have shared with readers.

And what you should know about that alternate scenario is that well over half of the projected spending rise he complains about has nothing to do with entitlements; it’s about rising interest payments, because the alternate scenario both assumes that spending will be higher and revenue lower than in the baseline, and that nothing will be done to remedy this situation, so that debt grows without limit. Oh, and those interest payments greatly overstate the real burden of debt in a growing economy with inflation.

But the main thing that struck me was the policy recommendations, written as if he knows nothing about the ongoing discussion of these issues over the past decade and more.

Portman wants us to raise the Medicare and Social Security ages. But raising the Medicare age doesn’t save money, and the Social Security age is already on an upward track to 67 — while life expectancy at age 65 has risen very little for the bottom half of workers.

He also wants means-testing. But Social Security is already de facto means-tested, with a very nonlinear relationship of benefits to wages; meanwhile, means-testing Medicare would actually cost money, because it would force people into more expensive private insurance. Oh, and if you’re worried about the incentive effects of higher taxes, means-testing is actually a big source of disincentives — the highest effective marginal tax rates in America are on lower-income workers who lose benefits as their earnings increase.

For sure we need serious efforts to control health-care costs — which we seem to be getting in Medicare, but face relentless Republican demagoguery.

Finally, whenever someone warns about the supposedly unsupportable costs of entitlements decades into the future, you should ask why, exactly, it’s urgent that we solve that conjectural future problem now — and why it has any bearing at all on current fiscal issues. Don’t say that it’s obvious; it isn’t, and in fact deficit scolds bob and weave when confronted with that question.

But the deficit scolds do love their looming disaster, and they love making tough proposals that someone always involve sacrifices by the little people.

Krugman’s blog, 7/21/14

July 22, 2014

There were two posts yesterday.  The first was “Asymmetrical Doctrines (Vaguely Wonkish):”

Are Keynesians and market monetarists symmetric, both in their doctrines and in their political position? Nick Rowe says yes; Simon Wren-Lewis says no. Simon is right here, but in fact for more reasons than he gives.

This all started with me saying that the market monetarists have no resonance in the modern conservative movement. Nick says that this is equally true of “fiscalists”, who haven’t managed to get traction with governments, even leftish ones, either. What’s the difference?

As Simon says, one big difference is that people like me are eclectic, urging that multiple policy tools be brought to bear — and willing to accept second-best policies if that’s what is available. We’re all for quantitative easing, even if there are some doubts about its effectiveness, in a world where fiscal austerity is happening whether you like it or not. This is very different from the MM insistence that fiscal policy has no role, and that austerity has no effect because central banks (they claim) could offset it, whether or not they really do.

But there’s also a big difference in the intellectual roles of MM on the right and Keynes on the left.

Talk with Barack Obama, and you’ll find that he has a basically Keynesian view of the world. It may have wobbled a bit in the past, at times when he seemed to buy into the Confidence Fairy, but it’s still his basic outlook — and his aides are very much IS-LM macro types. True, they haven’t gone all out to push for fiscal expansion in the face of opposition (but remember the payroll tax cut), but that’s mainly a political judgement on their part. It’s not a fundamental difference in worldview from friendly economists.

Contrast this with Republican leaders, who get their macroeconomics from Hayek and Ayn Rand, and are clearly liquidationist; it’s not that they don’t take advice from MM, they’re actively hostile to its very concepts.

That’s what I mean when I say that MM is homeless, in a way that my tribe isn’t.

Yesterday’s second post was “Yes, We Have No Banana:”

Noah Smith has a funny piece on the hermetic system that is Austrian economics, with its multilayered defenses against any kind of criticism. What gets me in particular, because I’ve noticed it a lot lately, is this:

3. “Inflation” doesn’t mean “a rise in the general level of consumer prices,” it means “an increase in the monetary base”, so QE is inflation by definition.

So when Austrians were predicting runaway inflation, they didn’t actually mean consumer prices?

OK, you know that if the CPI had soared, they would have claimed vindication. But the main point is that nobody else cares about the monetary base, or at any rate they care about it only to the extent that it was presumed to say something about future rises in the CPI. Insisting that the term “inflation” means something else in your private language is just pathetic.

But maybe it would have helped, five or six years ago, to have pinned Austrian down on what they thought would happen to something else; following Alfred Kahn, they could have called a general rise in the CPI a banana. Were they predicting a banana? Of course they were. And they were wrong.

Krugman’s blog, 7/20/14

July 21, 2014

There was one post yesterday, “The Horror, The Horror:”

I happened to click on this John Mauldin post, in which he informs us that GDP is a Keynesian plot, and that without it Hayek would of course have won the macroeconomic debate. Oh, kay — but that’s not the horror. It’s this:

We have now made the Newt Gingrich and Niall Ferguson Strategic Investment Conference videos available. … This week, we are happy to provide even more material from this incredibly informative event. Newt Gingrich and Niall Ferguson were the two highest rated presenters at a conference packed with some of the finest economic and investment minds in the world.

Oh, boy.

Krugman’s blog, 7/19/14

July 20, 2014

There was one post yesterday, “Always Inflation Somewhere:”

Whenever you point out that the hyperinflation the usual suspects have been predicting for the past 6 years hasn’t materialized, you get a rash of comments declaring that yes it has, the government is just lying about the statistics. One answer — aside from come on, how do you think that works? — is that independent measures, like the Billion Price Index, aren’t very different from the official index. Still, people will point to the price of something that has gone up as evidence that we have lots of inflation.

Not that I think such people can be budged, but it is important to realize that relative prices are always shifting around, and that some prices inevitably go up more than the average. As the figure shows, if you go back to the beginning of the Great Recession, food prices have risen more than the overall CPI (although hyperinflation it isn’t), but car prices have risen more slowly (and high-tech stuff has, of course, gotten much cheaper).

And what about Shadowstats, which claims that inflation is much higher than the government lets on? A subscription costs $175 — the same as 8 years ago.

Krugman’s blog, 7/18/14

July 19, 2014

There were two posts yesterday.  The first was “James Tobin and Aggregate Supply (Implicitly Wonkish):”

Thomas Palley argues that mainstream macroeconomists have been looking in all the wrong places for an explanation of the stickiness of inflation in the face of high unemployment; what they should do is consider the old Tobin approach that combines multiple sectors (so that some workers have rising wages even in an economy that’s depressed on average) with downward nominal wage rigidity.

OK, I guess I’m a bit puzzled. I very much agree with Palley that Tobin’s approach does a lot to help explain what we’re seeing; but I don’t know why he thinks this is such a radical notion. I’ve been telling more or less the same story for a while, explicitly name-checking Tobin; and the formal modeling of Daly and Hobijn (pdf), which I’ve cited several times, declared in its first paragraph that it’s building on Tobin’s insights.

There are slight echoes here of an earlier exchange in which Palley made other declarations about insights that New Keynesians have supposedly abandoned, which was odd because those very insights feature in a number of models. But no matter: I do believe that Palley is on the right track here, because it’s pretty much the same track a number of us have been following for the past few years.

As usual, he ended the work week with music.  Here’s “Friday Night Music: Lake Street Dive, What I’m Doing Here:”

When I heard this I assumed it was an old standard — but no, Rachael Price wrote it, and the performance … well, just listen.



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