Krugman’s blog, 10/24/15

There were two posts on Saturday (none yesterday).  The first was “Delusions of Failure:”

Sometimes you almost have to feel sorry for Mitt Romney. He has one great achievement in life: the Massachusetts health reform

, which acted as a template for the Affordable Care Act. If he were a member of a sane political party, he’d be boasting about that record. But he wanted to be president, which meant having to accommodate himself to his party; and in Iowa, 81 percent of Republicans say that Ben Carson’s statement that Obamacare is the worst thing since slavery makes him more attractive as a candidate. So he has to trash the best thing he’s done.

Sometimes, it turns out, he can’t maintain the facade. The other day he took credit for setting the stage for Obamacare. Then he tried desperately to walk it back, claiming that Obamacare has failed — which is literally and figuratively the party line.

Which raises the question, if this is a failure, what would policy success look like?

Obamacare has led to a rapid drop in the number of uninsured, especially in states that have fully implemented its provisions. It hasn’t covered everyone, but it wasn’t expected to: it doesn’t cover undocumented immigrants, and the relative complexity of the program always meant that some eligible people would fall through the cracks. The original CBO estimates were that eventually 92 percent of non-elderly residents would have coverage, and in Medicaid expansion states we’re getting there.

Meanwhile, the whole thing has come in well below projected costs; insurance premiums will rise for 2016, but after two years of remarkably small rises that still leaves things cheaper than expected. And overall health care spending has come in far below expectations.

None of the other terrible things that were supposed to happen — job loss, destruction of full-time employment, a surge in the budget deficit — have happened either.

But to be a good Republican you have to insist that it has been a disaster. And Mitt Romney is therefore in the position of trashing his own life’s work. Sad. But he has nobody but himself to blame.

Yesterday’s second post was “Original Sin and Global Stagnation:”

For countries, getting trendy on Wall Street, and worse yet becoming part of a catchy acronym, is like finding yourself on the cover of BusinessWeek or Fortune: it’s a sure sign of big trouble ahead. So we should have known that the BRICs were heading for a nasty fall; and sure enough, emerging markets have gone from heroes to dogs in practically no time.

But what are the implications for the world economy? Emerging markets are out, but advanced countries are in again, so isn’t it a wash? Unfortunately not, because there is an important asymmetry here.

What is true is that all commodity exporters are being hit:

But they are responding differently. Look, for example, at monetary policy in Brazil versus Canada:

Canada has kept interest rates low; it might even do some fiscal stimulus if the economy continues to weaken. But Brazilian policy is reinforcing the slump, with interest rates going up and fiscal tightening in prospect.

This is not because the Brazilians are stupid. It’s partly because they came in with a relatively high inflation rate, so that they aren’t as relaxed about currency depreciation as the Canadians can afford to be. But it’s also because emerging markets still suffer to some extent from original sin — underdeveloped capital markets and a tendency to borrow in foreign currency. This sin isn’t nearly as strong as it was 15 years ago, when Barry Eichengreen and Ricardo Haussman coined the term, but corporate dollar-denominated borrowing after 2008 brought it partially back.

The result is that as markets lose faith in emerging economies, these economies are pushed into contractionary policies; meanwhile, the advanced economies receiving the capital inflows aren’t responding with expansionary policies. So the overall effect of the new emerging markets disillusion is a global turn toward contraction. I still think it’s not enough to produce a global recession, but am less sure than I was a few months ago.

Oh, and a US interest rate hike, which would not just hit the US economy but also, via a stronger dollar, hit the emerging markets via balance sheets, would do a lot to make things even worse.

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