Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 9/29/14

September 30, 2014

There were two posts yesterday.  The first was “Nobody Could Have Predicted, Bill Gross Edition:”

Gillian Tett feels sorry for BIll Gross, who was caught unaware by the sudden shift in bond market behavior. Who could have predicted that interest rates would stay low despite large budget deficits?

Um, how about Pimco’s own chief economist, Paul McCulley?

The truth is that the quiescence of interest and inflation rates was predicted by everyone who understood the obvious — that we had entered a liquidity trap — and thought through the implications. I explained it more than five years ago. When central banks have pushed policy rates as low as they can, and the economy is still depressed, what that tells you is that the economy is awash in excess desired savings that have nowhere to go. And as I wrote:

So what does government borrowing do? It gives some of those excess savings a place to go — and in the process expands overall demand, and hence GDP. It does NOT crowd out private spending, at least not until the excess supply of savings has been sopped up, which is the same thing as saying not until the economy has escaped from the liquidity trap.

So no crowding out, no reason interest rates should rise.

And Paul McCulley understood all this really well (pdf):

[I]n the topsy-turvy world of liquidity traps, these textbook orthodoxies do not apply, and acting irresponsibly relative to orthodoxy by increasing borrowing will do more good than harm.

Crowding out, overheating and rising interest rates are also not likely to be a problem as there is no competition for funds from the private sector. For evidence, look no further than the impact of government borrowing on long-term interest rates in the U.S. during the Great Depression, or more recently, Japan.

Really, this wasn’t and isn’t hard.

Or maybe it is. Strikingly, Tett’s version of what went wrong with Gross’s predictions makes no mention of deleveraging and the zero lower bound; it’s all a power play by central banks, which have been “intimidating” bond investors with unconventional monetary policy. This is utterly wrong, and in fact Gross’s own mistakes show that it’s wrong: one of his big failures was betting that rates would spike when the Fed ended QE2, which they predictably didn’t.

As an aside, whenever I hear people explaining away the failure of interest rates to spike as the result of those evil central bankers artificially keeping them down, I want to ask how they think that’s possible. Surely the same people, if you had asked them a few years ago about what would happen if the Fed tried to suppress interest rates by massively expanding its balance sheet, would have predicted runaway inflation. That didn’t happen, which should make you wonder what exactly they mean by saying that rates are artificially low.

Oh, and Tett ends the piece by citing the Bank for International Settlements as a voice of wisdom. That’s pretty amazing, too; the sadomonetarists of Basel have a remarkable track record of being wrong about everything since 2008, but always finding some reason to call for higher rates.

The thing is, Tett is a smart observer who talks to a lot of people in finance; seeing her present a discredited theory as obviously true, without so much as mentioning the kind of analysis that has been worked all along, says bad things about the extent to which anyone who matters has learned anything.

Yesterday’s second post was “Mr. Krugman and the Classics (Trivial and Self-Indulgent):”

Joe Gagnon, traveling in Asia Minor, sends me a picture from a museum:

I know I’m an old-time Keynesian, but maybe even older-time than I knew …

Krugman’ blog, 9/27/14

September 28, 2014

There were two posts yesterday.  The first was “Bad Economic Ideas:”

I review Jeff Madrick’s new book.

Yesterday’s second post was “Gross Gone:”

I don’t know anything about what’s been going on internally at Pimco; I just read the same stories as everyone else. I have, however, written a lot about Pimco’s macroeconomic analysis (which drove its bond-investment decisions).

The interesting thing is the Pimco was initially a bond bull, based on the correct understanding that deficits don’t crowd out lending when the economy is in a liquidity trap; but it then went off the rails, with Bill Gross insisting that rates would spike when the Fed ended QE2. I tried to explain why this was wrong, and got a lot of flak from people insisting that the great Gross knew more than any ivory-tower academic. But I knew what I was talking about!

Krugman’s blog, 9/26/14

September 27, 2014

There were two posts yesterday.  The first was “The New Classical Clique:”

Simon Wren-Lewis thinks some more about macroeconomics gone astray; Robert J. Waldmann weighs in. For those new to this conversation, the question is why starting in the 1970s much of academic macroeconomics was taken over by a school of thought that began by denying any useful role for policies to raise demand in a slump, and eventually coalesced around denial that the demand side of the economy has any role in causing slumps.

I was a grad student and then an assistant professor as this was happening, albeit doing international economics – and international macro went in a different direction, for reasons I’ll get to in a bit. So I have some sense of what was really going on. And while both Wren-Lewis and Waldmann hit on most of the main points, neither I think gets at the important role of personal self-interest. New classical macro was and still is many things – an ideological bludgeon against liberals, a showcase for fancy math, a haven for people who want some kind of intellectual purity in a messy world. But it’s also a self-promoting clique.

I don’t think this clique could have formed and grown powerful in the first place without the intellectual and ideological foundations. Economics as a discipline being what it is, attacks on Keynesian economics as being inconsistent with rational behavior were bound to get some traction, and the stagflation of the 1970s certainly helped that attack, even if it was less relevant than claimed. Animus against government activism also played a key role, both in motivating the new classical economists themselves and in guaranteeing them external support.

Once the thing had gotten going, however, I think you understand its dynamics much better if you stop assuming that the motives of the movement’s leaders were pure.

Consider the extremism of Lucas and Sargent (pdf) in the early days, declaring Keynesian economics a complete failure – or Lucas talking about how Keynesian papers were greeted with “giggles and whispers”. As Wren-Lewis notes, the actual empirical failures of Keynesian economics weren’t nearly bad enough to justify that kind of total rejection – and as Waldmann says, the new classicals themselves turned their backs on empirical evidence when it began rejecting their own models. So why the utter rejection of anything Keynesian?

Well, while the explicit message of such manifestos is intellectual – this is the only valid way to do macroeconomics – there’s also an implicit message: from now on, only my students and disciples will get jobs at good schools and publish in major journals. And that, to an important extent, is exactly what happened; Ken Rogoff wrote about the “scars of not being able to publish sticky-price papers during the years of new neoclassical repression.” As time went on and members of the clique made up an ever-growing share of senior faculty and journal editors, the clique’s dominance became self-perpetuating – and impervious to intellectual failure.

OK, I know the members of the clique will be outraged – distorting incentives only apply to other people, only bureaucrats hijack institutions to serve their personal aggrandizement, etc.. As they say in Minnesota, ya sure, you betcha.

But what about me and my friends? Why, we’re pure and selfless seekers of truth. How dare anyone suggest otherwise?

OK, I think there is a sense in which I’m part of a counterclique. In fact, if you look at just about every economist in my cohort playing an influential role in formulating or discussing macroeconomic policy — Rogoff, Bernanke, Draghi, Blanchard, Summers — you’ll find that they studied macroeconomics at MIT or Harvard, and were formally or informally advised by Rudi Dornbusch and his good friend Stan Fischer.

As I said, international macro went in a different direction. I’ve written in the past that this had a lot to do with the overwhelming international evidence against a new classical view, although that view persisted on the domestic side despite compelling evidence after 1980. It also had to do with events. For domestic macro types, the big event of the 70s was stagflation; in international macro it was the collapse of Bretton Woods, and the shocking volatility in both nominal and real exchange rates that followed.

In that context, the very tight correlation between nominal and real rates meant that international macroeconomists kept sticky prices in their models. The famous Dornbusch “overshooting” analysis paired sticky goods prices with volatile, forward-looking asset prices, and seemed to have very interesting things to say – so international macro had a program other than the demolition of all things Keynes.

Also, my sense – it would be interesting to have some evidence – is that international macro has all along had stronger ties to real-world policymakers, especially at central banks, maybe because there are a lot of currencies and US-based economists therefore have a lot more opportunities to weigh in on actual policy decisions. Certainly Rudi pioneered a new role that combined highly regarded research with lots of country consulting. Since central banks never went all in for new classical – they tend to have this “but it doesn’t work in the real world” hangup – this too pulled international along a different path.

And yes, DornbuschFischerites tend to value research and people consonant with their worldview. I like to think that it’s nothing like the scourge-and-purge style of the new classical types, in part because my side of this thing likes to think of itself as open-minded, sometimes giving the impression of desperately seeking common ground (hi Olivier). But the friends-and-disciples effect certainly has some relevance, and there are a lot of DornbuschFischerites in influential places. Have I congratulated my old student Catherine Mann on her appointment as chief economist of the OECD?

These stories are not, of course, unique to economics; episodes like this have played out in many academic disciplines. Unfortunately, the rise of the new classical clique had consequences far beyond the academy, because it ended up playing an important role in the failure of policy to effectively confront the Lesser Depression.

And the work week ended with music, as usual, with “Friday Night Music: Quilt:”

I don’t know what I’d do without Bob Boilen — I think half or more the music I listen to over the course of a week comes from bands I discovered through his Tiny Desk Concerts. And here’s another — a young band that makes me want to drop acid and wear tie-died clothing, which is a great feeling when you’re 61.

 

Krugman’s blog, 9/25/14

September 26, 2014

There were three posts yesterday.  The first was “Unseemly Notes:”

Something I didn’t know: David Brooks’s column that, among other things, lamented the failure of the wealthy to follow a “code of seemliness” was actually part of a broader complaint to that effect among conservative intellectuals. For example, Charles Murray’s “Coming Apart” is mainly about what has gone wrong with working-class values, but he devotes a fair bit of space to the “unseemly” ostentation of the elite; strange to say, he focuses on Hollywood producers rather than private equity managers, but still.

Was it ever different? Actually, yes. I’ve written before about the remarkable Fortune portrait of top executives in 1955, who really did live much more modest and sober lives than their modern counterparts (even if there was probably more sex and alcohol consumption than Fortune let on).

What’s interesting, however, is that Fortune claimed that this modesty was something new, a break with the previous generation — and it attributed the change not to a shift in values but to a change in circumstances: “The large yacht [has] foundered in the seas of progressive taxation.”

But that was then. The surge in executive compensation after the 1970s is well known; I’m not sure how many people know just how dramatic the cut in top taxes has been. The IRS has been collecting data on the incomes and taxes of the 400 top taxpayers (pdf) since 1992; as of the late naughties they were paying average income tax rates of less than 20 percent (and surely very little in other taxes). We can produce roughly comparable data (pdf) for the 1950s; in 1955 there were 427 filers with incomes over $750,000, and they paid 51.2 percent of their income in taxes. So taxes dropped from more than half to less than a fifth. That’s a lot.

And the implication, of course, is that it’s kind of silly to lament the loss of elite sobriety and seemliness without noticing that the big difference these days is that the rich have so much money.

While we’re on this topic, I’d like to thank Bruce Bartlett for directing me to a really interesting recent Fed paper on spending patterns (pdf), which shows that other things equal people are more likely to buy fancy cars if they live in highly unequal Census tracts. That is, inequality seems to drive conspicuous consumption, just as Veblen told us.

But back to the main point: anyone nostalgic for the manners and apparent morals of the good old WASP elite should be aware that a lot of that elite’s restraint came from the fact that it wasn’t at all rich by today’s standards.

The second post yesterday was “Asymmetric Monetary Risks:”

How much slack is there in the U.S. labor market? Good question. The measured unemployment rate is fairly low, but labor force participation also seems low, and I have doubts about studies purporting to say that it’s overwhelmingly long-term demographics. Wage gains are still slow. My guess is that there’s considerably more slack than the unemployment number might lead you to suspect, but the truth is that I don’t know.

But here’s the thing: you don’t know either. Neither does Janet Yellen, or Charles Plosser, or anyone else; anyone who thinks he or she knows for sure is suffering from the Dunning-Kruger effect.

So let’s hear it for Charles Evans, who gets it exactly right: we need to focus on the asymmetry of risks.

If it turns out that there’s less slack than our best guess, inflation may overshoot before the Fed can react. That would be unpleasant. But it’s manageable: if there’s one thing the Fed knows, it’s how to tighten.

But if it turns out that there’s more slack than we guess, and the Fed tightens too soon, the result can be tragedy: we can end up back in the liquidity trap, facing years of below-target inflation (maybe even deflation) and economic stagnation. As Evans says, we’ve seen this movie — in fact, several remakes: Japan in the early 2000s, the ECB in 2010, the Riksbank in Sweden.

The prudent course is to wait for clear evidence of overheating. Damn the inflationistas and financial-stability-istas who want to torpedo recovery; full speed ahead.

Yesterday’s last post was “The Terrible Two:”

Jared Bernstein asks why the Fed (and just about all of its counterparts abroad) targets 2 percent inflation. I did some digging on this very issue in my paper for last spring’s ECB conference, and found that 2 was a convenient round number that seemed to provide a reasonable resolution to the conflict between the price stability crowd and economists worried about the two zeroes.

The price stability thing is obvious: there have always been a number of economists who view the purchasing power of money as a sort of sacred trust, the preservation of the unit of account as critical, etc.. They wanted an inflation target of zero, so that a dollar would be a dollar forever.

On the other side, realists pointed out that there were two troubling forms of downward stickiness: interest rates can’t go negative, and neither workers nor employers are happy with nominal wage cuts. These considerations argued for a positive inflation target, to provide room to cut real rates below zero in a downturn and to adjust relative wages without any actual cuts.

So why a 2 percent target? It was low enough that the price stability types could be persuaded, or were willing to concede as a possibility, that true inflation — taking account of quality changes — was really zero. Meanwhile, as of the mid 1990s modeling efforts suggested that 2 percent was enough to make sustained periods at the zero lower bound unlikely and to lubricate the labor market sufficiently that downward wage stickiness would have minor effects. So 2 percent it was, and this rough guess acquired force as a focal point, a respectable place that wouldn’t get you in trouble.

The problem is that we now know that both the zero lower bound and wage stickiness are much bigger issues than anyone realized in the 1990s — financial/balance sheet crises can produce situations in which the ZLB is binding for years on end, and in Europe, at least, we find ourselves needing large changes in relative wages.

Unfortunately, it’s now very hard to change the target; anything above 2 isn’t considered respectable.

Krugman’s blog, 9/24/14

September 25, 2014

There were two posts yesterday.  The first was “Charlatans and Cranks Forever:”

Back when Paul Ryan released his first big-splash budget — the one that had the commentariat cooing over its “seriousness” — it included a link to an absurd Heritage Foundation analysis claiming, among other things, that the plan would drive the unemployment rate down to 2.8 percent. (Heritage then tried, unsuccessfully, to send its nonsense down the memory hole and pretend it never happened.) Ryan defenders tried to claim that the plan didn’t actually rely on that Heritage stuff; but as some of us tried to explain, the plan actually didn’t add up, relying on a multi-trillion-dollar magic asterisk on tax receipts. And we predicted that sooner or later Ryan would embrace magical theories about how tax cuts increase revenue.

And here we are.

One disturbing effect if Republicans take the Senate, by the way, may be that the Congressional Budget Office becomes a purely partisan operation — effectively a department of Heritage.

The second post yesterday was “Having It and Flaunting It:”

David Brooks is getting some ribbing for suggesting that the wealthy should “follow a code of seemliness”, not living the lavish lifestyles they can afford. I don’t want to join in the jeering; instead, I want to talk a bit about the economics of flaunting your wealth (which was actually a topic I was working on before David’s last column).

The first thing to say is that expecting the rich not to flaunt their wealth is, of course, unrealistic. If your sense is that the rich were more restrained in the 50s and 60s, well, that’s because they weren’t nearly as rich either absolutely or relatively. The last time our society was as unequal as it is today, giant mansions and yachts were every bit as ostentatious as they are now — there’s a reason Mark Twain called it the Gilded Age.

Beyond that, for many of the rich flaunting is what it’s all about. Living in a 30,000 square foot house isn’t much nicer than living in a 5,000 square foot house; there are, I believe, people who can really appreciate a $350 bottle of wine, but most of the people buying such things wouldn’t notice if you substituted a $20 bottle, or maybe even a Trader Joe’s special. Even really fine clothing derives a lot of its utility to the wearer by the fact that other people can’t afford it. So it’s largely about display — which Thorstein Veblen could, of course, have told you.

So why go after this display, as opposed to taxing away some of the income? You could say that taxes reduce the incentive to get rich; but so would sumptuary laws, which would undermine the point of getting rich, and so, in fact, would a “code of seemliness”, which would again reduce the fun of flaunting it, which is a lot of what people want lots of money for.

Wait, there’s more. If you feel that it’s bad for society to have people flaunting their relative wealth, you have in effect accepted the view that great wealth imposes negative externalities on the rest of the population — which is an argument for progressive taxation that goes beyond the maximization of revenue.

And one more thing: think about what this says about economic growth. We have an economy that has become considerably richer since 1980, but with a large share of the gains going to people with very high incomes — people for whom the marginal utility of a dollar’s worth of spending is not only low, but comes largely from status competition, which is a zero-sum game. So a lot of our economic growth has simply been wasted, doing nothing but accelerating the pace of the upper-income rat race.

And now it’s time for me to make my seemly way to the office, on foot and mass transportation, where I will gloat in my moral superiority and sneer at people who haven’t won as many academic honors. Oh, wait.

Krugman’s blog, 9/22/14

September 23, 2014

There were two posts yesterday.  The first was “Life in Belle Epoque America:”

The Atlantic has an article about a website that sets up “mutually beneficial relationships” between wealthy older men and college students. Yes, it’s prurient, and I’m probably a dirty old man for even linking to it — although what really caught my eye was just how closely reality echoes Woody Allen’s (speaking of dirty old men) story “The Whore of Mensa“.

But there is some economics here too. Thomas Piketty tells us that we’re living in a new Belle Epoque — and he’s right, in some ways contemporary society feels more like that era than the cruder, more hypocritical American Gilded Age — and one thing extreme inequality brings is, yes, a courtesan class.

I’m not moralizing; there are far worse things going on in our society. But maybe it’s a reality check for those who imagine that all our plutocrats are Hank Rearden having a torrid but uplifting affair with Dagny Taggart.

Ick.  Yesterday’s second post was “The Temporary-Equilibrium Method (Very Wonkish):”

David Glasner has some thoughts about macroeconomic methodology, reacting to my own previous piece, that I mostly agree with, but not entirely. So, a bit more.

Glasner is right to say that the Hicksian IS-LM analysis comes most directly not out of Keynes but out of Hicks’s own Value and Capital, which introduced the concept of “temporary equilibrium”. This involves using quasi-static methods to analyze a dynamic economy, not because you don’t realize that it’s dynamic, but simply as a tool. In particular, V&C discussed at some length a temporary equilibrium in a three-sector economy, with goods, bonds, and money; that’s essentially full-employment IS-LM, which becomes the 1937 version with some price stickiness. I wrote about that a long time ago.

So is IS-LM really Keynesian? I think yes — there is a lot of temporary equilibrium in The General Theory, even if there’s other stuff too. As I wrote in the last post, one key thing that distinguished TGT from earlier business cycle theorizing was precisely that it stopped trying to tell a dynamic story — no more periods, forced saving, boom and bust, instead a focus on how economies can stay depressed. Anyway, does it matter? The real question is whether the method of temporary equilibrium is useful.

What are the alternatives? One — which took over much of macro — is to do intertemporal equilibrium all the way, with consumers making lifetime consumption plans, prices set with the future rationally expected, and so on. That’s DSGE — and I think Glasner and I agree that this hasn’t worked out too well. In fact, economists who never learned temporary-equiibrium-style modeling have had a strong tendency to reinvent pre-Keynesian fallacies (cough-Say’s Law-cough), because they don’t know how to think out of the forever-equilibrium straitjacket.

What about disequilibrium dynamics all the way? Basically, I have never seen anyone pull this off. Like the forever-equilibrium types, constant-disequilibrium theorists have a remarkable tendency to make elementary conceptual mistakes.

In short, Hicks was a very smart guy — his method often seems to hit a sweet spot between rigorous irrelevance and would-be realism that ends up being just confused.

Still, Glasner says that temporary equilibrium must involve disappointed expectations, and fails to take account of the dynamics that must result as expectations are revised. I guess I’d say two things. First, I’m not sure that this is always true. Hicks did indeed assume static expectations — the future will be like the present; but in Keynes’s vision of an economy stuck in sustained depression, such static expectations will be more or less right. It’s true that you need some wage stickiness to explain what you see (which is not the same thing as saying that sticky wages are the cause of unemployment), but that isn’t necessarily about false expectations.

Second, those of us who use temporary equilibrium often do think in terms of dynamics as expectations adjust. In fact, you could say that the textbook story of how the short-run aggregate supply curve adjusts over time, eventually restoring full employment, is just that kind of thing. It’s not a great story, but it is the kind of dynamics Glasner wants — and it’s Econ 101 stuff.

In the end, I wouldn’t say that temporary equilibrium is either right or wrong; what it is, is useful. Which for some reason has me thinking of Edward Gibbon:

The various modes of worship, which prevailed in the Roman world, were all considered by the people, as equally true; by the philosopher, as equally false; and by the magistrate, as equally useful.

Which has nothing to do with my point, but I like it anyway.

Krugman’s blog, 9/20/14

September 21, 2014

There were two posts yesterday.  The first was “Return of the Bums on Welfare:”

Thinking some more about John Boehner’s resurrection of the notion that we’re suffering weak job growth because people are living the good life on government benefits, and don’t want to work. It has long seemed to me that the issue of unemployment benefits is where the debate over economic policy in a depression reaches its purest essence. If you’re on the right, you believe — you more or less have to believe — that unemployment benefits hurt job creation, because you’re “paying people not to work.” To admit that depression conditions are different, that the economy is suffering from an overall lack of demand and that putting money into the pockets of people likely to spend it would increase employment, would mean admitting that the free market sometimes fails badly. And of course disdain for the unemployed helps a lot if you want to oppose any kind of aid for the unfortunate.

But there’s something remarkable about seeing these claims made now — because even if you believed that expanded unemployment benefits were somehow a cause rather than an effect of the economic crisis, those expanded benefits are long gone. Here’s unemployment benefits as a percentage of GDP:

They’re back down to their level at the height of the “Bush boom”.

And here, from Josh Bivens, is the recipiency rate — the percentage of the unemployed receiving any benefits at all:

It’s at a record low, and as Bivens says, the pullback in benefits is one main reason economic expansion isn’t reducing poverty.

So basically the right is railing against the bums on welfare not only when there aren’t any bums, but when there isn’t any welfare.

Yesterday’s second post was “Heimatsicherheitsamt (Trivial):”

Josh Marshall returns to an old topic — the strangely un-American terminology the Bush administration imposed after 9/11. As he says, Homeland Security really doesn’t sound like the America I thought we believed in.

One thing worth noting, however, is that wasn’t the first time this sort of thing happened under a Bush presidency. Remember the New World Order?

Krugman’s blog, 9/19/14

September 20, 2014

There were three posts yesterday.  The first was “John Boehner’s Theory of the Leisure Class:”

And, I’m back — I’ve been in a grueling battle against deadlines, which is not quite over, so blogging may remain scarce for a while longer. But I’m sticking my toe in for the moment — and whaddya know, oops, he did it again. John Boehner says that unemployed Americans are pretty clearly malingerers, bums on welfare who have decided that they don’t feel like working:

“This idea that has been born, maybe out of the economy over the last couple years, that you know, I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around. This is a very sick idea for our country,” he said.
“If you wanted something you worked for it,” Boehner said, adding, “Trust me, I did it all.”

I could point to the overwhelming economic evidence that nothing like this is happening — after all, if what we were seeing was a mass withdrawal of labor supply, we should be seeing wages for those still willing to work taking off. What we actually see is this:

 

I could also point to zero interest rates and low inflation as evidence that we’re living in a demand-constrained economy. I could ask how, exactly, Boehner believes that increased willingness to work would conjure more jobs into existence.

But what really gets me here is the fact that people like Boehner are so obviously disconnected from the lived experience of ordinary workers. I mean, I live a pretty rarefied existence, with job security and a nice income and a generally upscale social set — but even so I know a fair number of people who have spent months or years in desperate search of jobs that still aren’t there. How cut off (or oblivious) can someone be who thinks that it’s just because they don’t want to work?

When I see stuff like this, I always think of the opening of The Treasure of the Sierra Madre:

Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn’t know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows the world.

Yesterday’s second post was “Phoney Baloney (Personal and Trivial):”

Just to say: What is it with the huge lines waiting for the new iPhone? Yes, smartphones are quite useful and sometimes even fun; I’m not a heavy app user, but I’m still on the thing many times a day. But even if the iPhone 6 has nifty new features, how can you get so excited over something that is, when all is said and done, an incremental change?

OK, I guess there’s a social aspect — after all, I’ve never been able to get enthusiasm over cars, either. Although if there were flying cars on sale … but what we actually got was 140 characters.

Also, you kids get off my lawn.

And as usual the work week ended with music.  Here’s “Friday Night Music: Cheryl Wheeler, Summer Fly:”

Now that I’m revisiting … I couldn’t find a live performance with good sound, so here’s the record performance. I think this was my favorite song of hers; resonates with a lot:

 

Krugman’s blog, 9/15/14

September 16, 2014

There were three posts yesterday.  The first was “Cosmic Cato Koch Convergence:”

It’s one of those mornings when several small items I was thinking about blogging about have, oddly, merged into a single story.

I’ve been getting some mail in response to today’s column from people saying (by and large politely) that they predicted the crisis — by which, it turns out, they mean that they correctly diagnosed a housing bubble. Well, so did I — but I nonetheless don’t consider myself to have predicted the crisis, because I had no idea that the consequences of a burst bubble would be as cataclysmic as they were.

That said, even pointing out the bubble got you heckled; I still treasure the sneering piece by John Hinderaker insisting that the only reason I thought there was a bubble was because I hated Bush. Well, who knew — Hinderaker is still out there, as I learn from Bonddad (via the still invaluable Mark Thoma).

But why is he still out there? In part because being wrong is actually a virtue in the eyes of some people, as long as it’s the right kind of wrong. And those people have money and power: I’d actually forgotten about this, but the Koch brothers tried to install Hinderaker on the board of Cato, which they viewed as insufficiently hackish.

Still, think tanks are one thing; this doesn’t happen in the world of scholarship. Oh, wait. Via Daniel Kuehn, we know now that the Kochs sought to control economics hiring at Florida State University. And you have to wonder how much this sort of thing goes on — usually, one suspects, more subtly and implicitly, without as clear a paper trail.

In the 1940s moneyed interests made an initially successful effort to block the teaching of Keynesian economics, although Samuelson somehow slipped through. If you don’t think that similar things can happen now, you’re naive — and the rich are richer and more powerful now than they were then.

Yesterday’s second post was “Replaying the 30s in Slow Motion:”

When the 2008 crisis struck, anyone who knew even a bit of history had nightmares about a replay of the 1930s — not just the depth of the depression, but the downward political spiral into dictatorship and war. But this time was different: the banking crisis was contained, the plunge in output and employment leveled out, and modern Europe’s democratic political culture proved more resilient than that of the interwar years. All clear!

Or maybe not.

In terms of the economics, an effective crisis response was followed by a wrong-headed turn to austerity and, in Europe, a combination of bad monetary policy with a currency system that in some ways is turning out to be worse than the gold standard. The result is that while the first few years of this crisis were far better than the 1930s, at this point Europe’s economic performance is actually worse than it was in 1935.

And the political scene is eroding. One European nation has already reached the point where its leader openly declares his intention to end liberal democracy; thanks to austerity, extremist parties are gaining ground in elections, with Sweden (which squandered its early success) the latest shocker; and of course separatist movements are scaring everyone.

We’re still nowhere like the 30s politically. But you do start to wonder whether self-congratulation over the political handling of Depression 2.0 will eventually look as foolish as the economic optimism of a few years ago.

The last post yesterday was “More Than My Head Talks:”

OK, I didn’t actually think I was giving a big talk this week, but one thing led to another and we will have a public lecture at Hunter College this Wednesday. I wonder what it will be about?

Krugman’s blog, 9/14/14

September 15, 2014

There was one post yesterday, “Wild Words, Brain Worms, and Civility:”

Noah Smith writes that one should not be rude about people you disagree with, because they might turn out to be right. Indeed; what possible purpose can be served by, say, referring to Austrian economics as a brain worm? Oh, wait.

Actually, I think that Noah was doing the right thing when he brought in the brain worms, and is off on the wrong track on the civility thing. So let me make the case for brain worms.

First, picturesque language, used right, serves an important purpose. “Words ought to be a little wild,” wrote John Maynard Keynes, “for they are the assaults of thoughts on the unthinking.” You could say, “I’m dubious about the case for expansionary austerity, which rests on questionable empirical evidence and zzzzzzzz…”; or you could accuse austerians of believing in the Confidence Fairy. Which do you think is more effective at challenging a really bad economic doctrine?

Beyond that, civility is a gesture of respect — and sure enough, the loudest demands for civility come from those who have done nothing to earn that respect. Noah felt (and was) justified in ridiculing the Austrians because they don’t argue in good faith; faced with a devastating failure of their prediction about inflation, they didn’t concede that they were wrong and try to explain why. Instead, they denied reality or tried to redefine the meaning of inflation.

And if you look at the uncivil remarks by people like, well, me, you’ll find that they are similarly aimed at people arguing in bad faith. I talk now and then about zombie and cockroach ideas. Zombies are ideas that should have been killed by evidence, but keep shambling along — e.g. the claim that all of Europe’s troubled debtors were fiscally irresponsible before the crisis; cockroaches are ideas that you thought we’d gotten rid of, but keep on coming back, like the claim that Keynes would never have called for fiscal stimulus in the face of current debt levels (Britain in the 1930s had much higher debt to GDP than it does now). Well, what I’m doing is going after bad-faith economics — economics that keeps trotting out claims that have already been discredited.

Nor are zombies and cockroaches the only kinds of bad faith; the worst, as far as I’m concerned, involves refusing to take responsibility for your actual statements. “The failure of high inflation to materialize doesn’t mean that I was wrong, because I only said that there was a risk of inflation”. “When I said that Obamacare spending adds a trillion dollars to the deficit, I wasn’t misleading readers, because I didn’t actually deny that the ACA as a whole reduces the deficit.” And of course, people who engage in that kind of bad faith screech loudly about civility when they’re caught at it.

When there’s an honest, good-faith economic debate — say, the ongoing controversy about the effects of quantitative easing — by all means let’s be civil. But in my experience demands for civility almost always come from people who have forfeited the right to the respect they demand.


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