Krugman’s blog, 6/12/13

There were three posts yesterday.  The first was “Hamster-Wheel Economics:”

Sad reading from British economic analysts these days — sad, that is, for anyone who likes to believe that evidence actually matters for policy.

First, the normally even-tempered Simon Wren-Lewis is angry, with cause: he sees the Dutch central bank calling for more austerity despite the depressed state of the Dutch economy, no prospect of recovery any time soon, no hint of debt trouble — and no explanation except boilerplate about how deficits are bad. As he says, it was one thing to buy into the austerity thing three years ago, when there wasn’t a vast accumulation of evidence about the effects of austerity in a depressed economy; but to roll out the same old line given everything that has happened since is pretty disgraceful.

But then, think about the fact that Martin Wolf is out today with a column explaining that there is no current risk of inflation. He’s right, of course, and presumably what he hears from policymakers and others tells him that such a column is necessary. But my God: we had this debate in full four years ago. The usual suspects issued dire inflation warnings; the Keynesian/liquidity trap types like me insisted that this was all wrong given current circumstances. The events unfolded like this:

And yet the people warning about inflation four years ago, and three years ago, and two years ago, are still at it, still making the same arguments. And they still have influence!

I guess there’s nothing for it but to keep on pounding. But it’s discouraging.

The second post of the day was “Unproductive Finance:”

More than half a century ago, in his classic paper on the economics of speculation, Paul Samuelson noted the perverse rewards to knowing stuff just slightly before everyone else. He asked readers to imagine someone who, somehow, consistently received crucial information one second before everyone else. As he pointed out, the social value of that extra second would be minimal; but the private rewards could be huge.

Today, Kevin Drum points us to a real-world example quite close to Samuelson’s thought experiment. It turns out that Thomson-Reuters pays the University of Michigan a million dollars a year to provide selected clients with the results of the latest survey of consumer confidence 5 minutes before the rest of the world sees them –and to provide super-special clients with this information 2 seconds before the rest.

This is a trivial example; still, what we see here, as Drum notes, are real resources being devoted to the socially useless task of getting an economic number slightly before the hoi polloi. And you have to wonder how much of what the financial sector does is like that. Certainly these days many vast fortunes come, not from building something, but from consistently guessing what other investors are going to do a few days, or sometimes a second or two, ahead of the pack.

It sure doesn’t look like a productive activity.

The last post yesterday was “Insurance Tyranny:”

Many of us wish that Obamacare were a simpler system, one that directly provided health insurance. Political reality, unfortunately, ensured that many people will receive coverage from private insurers, selling policies — often with subsidies — on the “exchanges”. And naturally enough, the Obama administration is teaming up with the insurers and other parts of the health industry to help inform Americans of the benefits to which they will be legally entitled, starting Jan. 1.

And in the eyes of Republicans, Bloomberg reports, this makes Obama a “bully” — dragooning those private companies into helping sell a public program that will increase their profits. Why, it’s tyranny, I tell you!

Yes, it’s ridiculous. But they can’t help themselves. I suspect that the idea of helping lower-income Americans in any way would drive the GOP bonkers; but the idea that this help might come from Obama (implementing a program originally designed by Republicans, but never mind), and that Obama’s plan might actually work, drives them crazy.

Paul, the last word in that post should have been “crazier.”  Lord knows, they’re all crazy as loons now…


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