Krugman’s blog, 7/17/15

There were three posts yesterday.  The first was “Eternal Greece:”

Matt O’Brien directs us to a Heritage Foundation economist presenting what is portrayed as a startling idea: America could become Greece! And it’s true — there probably haven’t been more than a few thousand articles issuing the same warning in the five (5) years since Alan Greenspan published “US Debt and the Greek Analogy“, with this immortal complaint:

Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.

But Matt misses the truly wonderful part about the latest from Heritage, which is why we should be worried about turning into Greece:

Diverse academic research shows that economic growth slows significantly at high levels of public debt. Carmen M. Reinhart, Vincent R. Reinhart and Kenneth S. Rogoff, as well as Manmohan S. Kumar, Jaejoon Woo, Stephen Cecchetti, Madhusudan Mohanty and Fabrizio Zampolli, report that advanced economies with high levels of debt (85-90 percent of GDP and higher) grow more slowly annually than their lower-debt counterparts.

You might think that debt worriers would try to put the whole 90-percent debacle behind them — not just the Excel error and the extreme sensitivity of the results to odd data choices, but the strong suggestion that whatever debt-growth correlation is left mainly reflects causation from growth to debt and not the other way around. But I heard the same thing at Freedomfest: either these people never heard about the R-R crash-and-burn, or they hope their readers haven’t.

More broadly, I’ve noted in other contexts that the right never gives up an argument. You see this on Obamacare: the usual suspects are still claiming that the ACA didn’t really reduce the number of uninsured, that there has been a massive rate shock, that it’s creating a giant hole in the budget, etc., even in the face of sharply dropping uninsurance, moderate rate hikes, and below-prediction costs. They add new arguments, but the old ones never go away no matter how ludicrously wrong they’ve proved.

Yesterday’s second post was “Bernanke Isn’t Serious:”

By which I mean that he isn’t Serious. His latest on Greece and the euro suggests that the deeper problems lie not in Greek fecklessness but in the refusal of the core — basically Germany — to allow either monetary or fiscal policies that would offset the downdraft from austerity in the periphery. He even questions the sacred status of “structural reform”:

The slow recovery from the crisis of the euro zone as a whole is the result, among other factors, of (1) political resistance that delayed by many years the implementation of sufficiently aggressive monetary policies by the European Central Bank; (2) excessively tight fiscal policies, especially in countries like Germany that have some amount of “fiscal space” and thus no immediate need to tighten their belts; and (3) delays in taking the necessary steps, analogous to the banking “stress tests” in the United States in the spring of 2009, to restore confidence in the banking system. I would not, by the way, put “structural rigidities” very high on this list. Structural reforms are important for long-run growth, but cost-saving measures are less relevant when many workers are already idle; moreover, structural problems have existed in Europe for a long time and so can’t explain recent declines in performance.

Does all this sound sort of … familiar? Kind of like what other bearded Anglo-Saxon economists have been saying? As I’ve tried to point out for a long time, in this policy debate the supposedly radical types are the ones doing standard, more or less textbook economics, while the respectable voices have subscribed to fantasies ungrounded in either history or theory.

You might think that having one of history’s most celebrated central bankers weigh in on the anti-austerity side of the issue would change perceptions about what’s serious as opposed to Serious. But don’t bet on it.

The last post yesterday was “Trumpism:”

Not surprisingly, Rick Perlstein, our foremost expert on the rise of movement conservatism, has the best take so far on the Trump phenomenon. As he says, nobody should be surprised to find that there are a lot of Republicans who are mad as hell and won’t take it any more:

This is important: conservatism is like bigotry whack-a-mole. The quantity of hatred, best I can tell from 17 years of close study of 60 years of right-wing history, remains the same. Removing the flag of the Confederacy, raising the flag of immigrant hating: the former doesn’t spell some new Jerusalem of tolerance; the latter doesn’t mean that conservatism’s racism has finally been revealed for all to see.

And crucially, it’s a key part of conservative mythology that the silent majority shares this hatred, that it’s only the liberal elite with its political correctness keeping Americans from saying what they know to be true. (It’s like the constant trope from the likes of Bill O’Relly that anyone who disagrees with him is a “far-left” type, no matter how mainstream their ideas.)

So why shouldn’t they rally around The Donald? The elite considers him ridiculous, but the base has been told again and again that the elite is corrupt and anti-American. The base has also been told again and again that it represents the true views of everyone except Those People. So why shouldn’t they go with someone who is their kind of guy, in style as well as substance?


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