Krugman’s blog, 7/14/14

There were four posts yesterday.  The first was “Obamacare Must Fail:”

So Chris Christie says that Obamacare is “a failure on a number of levels”. Which levels, exactly?

I mean, first-year enrollment is above projections. The number of Americans without insurance has dropped sharply. Costs appear to be lower than expected, and more broadly cost control on health seems to be doing remarkably well:


To some extent I suspect that Christie is living in the bubble; I keep remembering how Rand Paul was shocked and disbelieving at the proposition that government employment had fallen under Obama, even though all it takes to know that is a quick look at public data.

But it’s not just misinformation; the reality doesn’t matter for Christie, or Republicans in general. Just as tax cuts can never fail, programs that help the unlucky can never succeed.

The second post yesterday was “Aggregate Demand, Aggregate Supply, and What We Know (Wonkish):”

Brad DeLong finds Chris House taking me to task for failing to “own up” to the puzzling failure of deflation to emerge despite years of depression, and is baffled — because I have in fact repeatedly acknowledged the puzzle, and talked about it a lot.

Partly this is House once again desperately seeking false equivalence; he starts from the proposition that everyone must be equally at fault, and that I must therefore be as unwilling to acknowledge wrong predictions as the equilibrium macro types — no need to check what I actually wrote. (I’m still waiting for examples of things I’ve said that are as crazy as Prescott’s insistence that there is no evidence that monetary policy matters.)

But let’s leave that stuff aside; there’s a point I think needs making about how a Keynesian (or if you like, a Hicksian — let’s not get into the question of What Keynes Really Meant) thinks he knows.

As I see it, we have a general proposition — most recessions are the result of inadequate demand. And we have a pretty good model of aggregate demand, and of how monetary and fiscal policy affect that demand. That model is IS-LM, with endogenous money as appropriate. You can, for some purposes, usefully think of the IS curve as derived from intertemporal optimization, but that’s a metaphor rather than a principle.

We do not have an equally good model of aggregate supply. What we have, instead, is an observation: prices and wages clearly are sticky in the short run, and maybe for longer than that. There’s overwhelming evidence for that proposition, but in trying to justify it we engage in various kinds of hand-waving about menu costs and bounded rationality.

The thing is, for many purposes this slightly vague notion of aggregate supply is enough; we can, for example, be fairly sure that expansionary policies in a depressed economy won’t be inflationary, and we can use the pretty good demand side model to tell us that monetary expansion won’t work but fiscal policy will when we’re at the zero lower bound.

Still, we try. New Keynesians do stuff like one-period-ahead price setting or Calvo pricing, in which prices are revised randomly. Practicing Keynesians have tended to rely on “accelerationist” Phillips curves in which unemployment determined the rate of change rather than the level of inflation.

So what has happened since 2008 is that both of these approaches have been found wanting: inflation has dropped, but stayed positive despite high unemployment. What the data actually look like is an old-fashioned non-expectations Phillips curve. And there are a couple of popular stories about why: downward wage rigidity even in the long run, anchored expectations.

The point, however, is that the price-setting side of the models has never been an integral part of Keynesian doctrine, and the surprising resilience of inflation hasn’t undermined the core insights.

And it remains true that Keynesians have been hugely right on the effects of monetary and fiscal policy, while equilibrium macro types have been wrong about everything.

Yesterday’s third post was “Rick Santelli and Affinity Fraud:”

So, there was a fun moment on CNBC: Rick Santelli went on a rant about inflation and the Fed, and CNBC analyst Steve Liesman went medieval on him:

It’s impossible for you to have been more wrong, Rick. Your call for inflation, the destruction of the dollar, the failure of the US economy to rebound. Rick, it’s impossible for you to have been more wrong. Every single bit of advice you gave would have lost people money, Rick. Lost people money, Rick. Every single bit of advice. There is no piece of advice that you’ve given that’s worked, Rick. There is no piece of advice that you’ve given that’s worked, Rick. Not a single one. Not a single one, Rick. The higher interest rates never came, the inability of the U.S. to sell bonds never happened, the dollar never crashed, Rick. There isn’t a single one that’s worked for you.

You really need to watch this moment:

But here’s the thing: before Liesman started, Santelli yelled that he had been right all along — and some of the traders started applauding.

Think about that: Liesman is of course right about Santelli’s record, and as I’ve pointed out many times this goes for all the inflationistas. So any trader who believed him would have lost money hand over fist. So why the applause?

Basically, I think, it’s because Santelli is their kind of guy; he hates the poors, he hates people who want to help the poors, he was trashing Janet Yellen for suggesting that she actually cares about the plight of the unemployed. And the traders feel the same way. So they like Santelli even though he’s been wrong about everything.

The last post yesterday was “Health Care Hatred:”

The good news about Obamacare so far shouldn’t be considered disputable. Enrollments really are above target; multiple independent surveys show a sharp drop in the uninsured population; health care cost growth really has slowed dramatically, whatever the reason; the newly insured are generally satisfied with their coverage. If you want to insist that big problems lie ahead, fine (but please explain), but the facts so far are pretty good.

But what I’m getting — and what you get whenever you suggest that things are going OK — is an outpouring, not so much of disagreement, as of fury. People get red-in-the-face angry, practically to the point of incoherence, over the suggestion that it’s not a disaster.

What’s that about? Partly it may be Obama derangement syndrome. I was struck by mail I received after my last column accusing me of shilling for Obama and refusing to admit what a disaster he’s been — when the column didn’t so much as mention the guy. Obamacare was a label stuck on the Affordable Care Act by its opponents, to tie the president to the disaster to come; now they’re livid that it, and he, are turning out OK.

Partly it may be general hatred for any kind of program that helps the less fortunate, especially if they happen to be, you know, not white. Such programs must be disasters — don’t bother me with evidence.

And partly, I suspect, there’s now an element of shame. If this thing is actually working, everyone who yelled about how it would be a disaster ends up looking fairly stupid.

But, you know, sometimes looks don’t deceive.

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