Krugman’s blog, 7/27 and 7/28/15

There were two posts on Monday and two yesterday.  Monday’s first post was “The Donald and the Delusional:”

Nate Cohn cautions us not to make too much of the polls supposedly showing the Trump surge continuing, as many — but not all – were taken before the McCain affair. Fair point. But there’s enough genuine post-McCain polling to show that Trump hasn’t imploded, the way virtually every pundit predicted he would.

I’m actually mad at myself here: I had meant to put up a post questioning that conventional wisdom, but never got around to it, and now you only have my word that what I’m about to say isn’t just hindsight, but a prediction. Oh well. Anyway, on to the point.

What I would argue is key to this situation — and, in particular, key to understanding how the conventional wisdom on Trump/McCain went so wrong — is the reality that a lot of people are, in effect, members of a delusional cult that is impervious to logic and evidence, and has lost touch with reality.

I am, of course, talking about pundits who prize themselves for their centrism.

Pundit centrism in modern America is a strange thing. It’s not about policy, as you can see from the many occasions when members of the cult have demanded that Barack Obama change his ways and advocate things that … he was already advocating. What defines the cult is, instead, the insistence that the parties are symmetric, that they are equally extreme, and that the responsible, virtuous position is always somewhere in between.

The trouble is that this isn’t remotely true. Democrats constitute a normal political party, with some spread between its left and right wings, but in general espousing moderate positions. The GOP, on the other hand, is a deeply radical faction; even its supposed moderates are moderate only in tone, not in policy positions, and its base is motivated by anger against Others.

What this means, in turn, is that to sustain their self-image centrists must misrepresent reality.

On one side, they can’t admit the moderation of the Democrats, which is why you had the spectacle of demands that Obama change course and support his own policies.

On the other side, they have had to invent an imaginary GOP that bears little resemblance to the real thing. This means being continually surprised by the radicalism of the base. It also means a determination to see various Republicans as Serious, Honest Conservatives — SHCs? — whom the centrists know, just know, have to exist.

We saw this a lot in the cult of Paul Ryan, who was and is very obviously a con man, whose numbers have never added up, but who was nonetheless treated with vast respect — and still sometimes is.

But the ur-SHC is John McCain, the Straight-Talking Maverick. Never mind that he is clearly eager to wage as many wars as possible, that he has long since abandoned his once-realistic positions on climate change and immigration, that he tried to put Sarah Palin a heartbeat from the presidency. McCain the myth is who they see, and keep putting on TV. And they imagined that everyone else must see him the same way, that Trump’s sneering at his war record would cause everyone to turn away in disgust.

But the Republican base isn’t eager to hear from SHCs; it has never put McCain on a pedestal; and people who like Donald Trump are not exactly likely to be scared off by his lack of decorum.

For what it’s worth, I still don’t expect The Donald to win the nomination; the big money will presumably coalesce around someone — though given Jeb’s foot-in-mouth performance it’s hard to see who — and will probably squeeze him out in the end. But the story so far has been a remarkable illustration of how little many professional political pundits seem to understand.

Monday’s second post was “Contingency Plans:”

People are apparently shocked, shocked to learn that Greece did indeed have plans to introduce a parallel currency if necessary. I mean, really: it would have been shocking if there weren’t contingency plans. Preparing for something you know might happen doesn’t show that you want it to happen.

Someday, maybe, we’ll know what kind of contingency plans the United States has had over the years. Plans to invade Canada? Probably. Plans to declare martial law in the event of a white supremacist uprising? Maybe.

The issue now becomes whether Tsipras was right to decide not to invoke this plan in the face of what amounted to extortion from the creditors. I think he called it wrong, but God knows it was an awesome responsibility — and we may never know who was right.

The first post yesterday was “Trumped Again:”

In my inbox:

Christie, Walker, Cruz may be most hurt by Trump

West Long Branch, NJ – Donald Trump holds a sizable edge in the Monmouth University Poll of likely New Hampshire Republican presidential primary voters, with a 2-to-1 edge over his nearest rival Jeb Bush. When second choices are taken into account, Trump takes votes from nearly all of his opponents, but appears to hurt Chris Christie, Scott Walker, and Ted Cruz the most.
One-quarter of likely GOP primary voters in New Hampshire currently support Donald Trump (24%), with Jeb Bush placing second at 12%. Rounding out the top ten are newly announced candidate John Kasich (7%), Scott Walker (7%), Marco Rubio (6%), Ben Carson (5%), Rand Paul (5%), Chris Christie (4%), Carly Fiorina (3%) and Ted Cruz (3%). Mike Huckabee, Bobby Jindal, and George Pataki each get 2%, while Rick Perry, Rick Santorum, Lindsey Graham, and Jim Gilmore earn 1% or less.. Another 14% of likely primary voters are undecided.
“The controversy over comments about John McCain’s war service do not appear to have slowed the Trump steamroller,” said Patrick Murray, director of the independent Monmouth University Polling Institute in West Long Branch, NJ. The Monmouth poll is the first to be conducted in New Hampshire entirely after Trump’s July 18 comments.

What I’m wondering: How, exactly, does the Trump implosion everyone is predicting happen at this point? The punditocracy wrote him off over the McCain comments, and was totally wrong. If base voters haven’t decided that he’s a buffoon yet, what new information will convince them?

Also note that mainstream Republican candidates are responding to the Trump surge by amping up their own inflammatory rhetoric, which makes their difference from The Donald ever less apparent.

I don’t know about other people, but I am starting to hedge my bets a bit. Maybe he really can get the nomination.

Yesterday’s second post was “Second-Best Macroeconomics:”

There’s a paradox about economic policy since the Great Recession, one that is often acknowledged implicitly but rarely stated directly. On one side, the economic problems facing both the United States and Europe have been quite straightforward and comprehensible. On the other side, the debate over actual policy has been tortured and confused, with a general sense even among aficionados that the tools being deployed are inadequate and come with troubling side effects.

Specifically, the whole western world has spent years suffering from a severe shortfall of aggregate demand; in Europe a severe misalignment of national costs and prices has been overlaid on this aggregate problem. These aren’t hard problems to diagnose, and simple macroeconomic models — which have worked very well, although nobody believes it — tell us how to solve them. Conventional monetary policy is unavailable thanks to the zero lower bound, but fiscal policy is still on tap, as is the possibility of raising the inflation target. As for misaligned costs, that’s where exchange rate adjustments come in. So no worries: just hit the big macroeconomic That Was Easy button, and soon the troubles will be over.

Except that all the natural answers to our problems have been ruled out politically. Austerians not only block the use of fiscal policy, they drive it in the wrong direction; a rise in the inflation target is impossible given both central-banker prejudices and the power of the goldbug right. Exchange rate adjustment is blocked by the disappearance of European national currencies, plus extreme fear over technical difficulties in reintroducing them.

As a result, we’re stuck with highly problematic second-best policies like quantitative easing and internal devaluation.

In case you don’t know, “second best” is an economic term of art. It comes from a classic 1956 paper by Lipsey and Lancaster, which showed that policies which might seem to distort markets may nonetheless help the economy if markets are already distorted by other factors. For example, suppose that a developing country’s poorly functioning capital markets are failing to channel savings into manufacturing, even though it’s a highly profitable sector. Then tariffs that protect manufacturing from foreign competition, raise profits, and therefore make more investment possible can improve economic welfare.

The problems with second best as a policy rationale are familiar. For one thing, it’s always better to address existing distortions directly, if you can — second best policies generally have undesirable side effects (e.g., protecting manufacturing from foreign competition discourages consumption of industrial goods, may reduce effective domestic competition, and so on). There’s also a political economy concern, which is that in a complicated world you can come up with a second best rationale for practically anything. Somewhere the Chicago economist Harry Johnson wrote (this is from memory) that in practice “second best policies are always devised by third-best economists working for fourth-best politicians” — harsh, but you can see his point.

But here we are, with anything resembling first-best macroeconomic policy ruled out by political prejudice, and the distortions we’re trying to correct are huge — one global depression can ruin your whole day. So we have quantitative easing, which is of uncertain effectiveness, probably distorts financial markets at least a bit, and gets trashed all the time by people stressing its real or presumed faults; someone like me is then put in the position of having to defend a policy I would never have chosen if there seemed to be a viable alternative.

In a deep sense, I think the same thing is involved in trying to come up with less terrible policies in the euro area. The deal that Greece and its creditors should have reached — large-scale debt relief, primary surpluses kept small and not ramped up over time — is a far cry from what Greece should and probably would have done if it still had the drachma: big devaluation now. The only way to defend the kind of thing that was actually on the table was as the least-worst option given that the right response was ruled out.

Which makes me ask myself the question: Do people like me spend too much time being limited by what is presumed to be politically practical? Should we devote more time to trying to widen the range of options, to pointing out that we really would be much better off if we threw off the fetters of conventional deficit fears, the 2 percent inflation target, and the extremely ill-advised euro project?


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