Krugman’s blog, 11/4/15

There were two posts yesterday.  The first was “Heartland of Darkness:”

This new paper by Angus Deaton and Anne Case on mortality among middle-aged whites has been getting a lot of attention, and rightly so. As a number of people have pointed out, the closest parallel to America’s rising death rates — driven by poisonings, suicide, and chronic liver diseases — is the collapse in Russian life expectancy after the fall of Communism. (No, we’re not doing as badly as that, but still.) What the data look like is a society gripped by despair, with a surge of unhealthy behaviors and an epidemic of drugs, very much including alcohol.

This picture goes along with declining labor force participation and other indicators of social unraveling. Something terrible is happening to white American society. And it’s a uniquely American phenomenon; you don’t see anything like it in Europe, which means that it’s not about a demoralizing welfare state or any of the other myths so popular in our political discourse.

There’s a lot to be said, or at any rate suggested, about the politics of this disaster. But I’ll come back to that some other time. For now, the thing to understand, to say it again, is that something terrible is happening to our country — and it’s not about Those People, it’s about the white majority.

The second post yesterday was “Roosting Chickens and Fed-Bashing:”

So I look at Business Insider and see that Stanley Druckenmiller is issuing dire warnings that terrible things will happen unless the Fed hikes rates now now now. I guess this is supposed to be news. But wait; haven’t I heard this before? Why, yes: two and half years ago he warned that a crash worse than 2008 was coming unless we slash Social Security now now now.

Basically, Druckenmiller has been warning that disaster looms ever since he closed Duquesne Capital five years ago. And his predictions of doom always involve soaring interest rates. Why?

Well, when Druckenmiller retired he gave as his reason a bad string of decisions (my emphasis):

“I felt I missed a lot of opportunities in 2008 and 2009, and a huge move in bonds this year,” he said during the interview in his New York office on 57th Street overlooking Central Park.

Indeed, he was evidently blindsided by the plunge in interest rates that took place just before he bowed out:

If his later statements are any guide, he may well have been betting on soaring rather than plunging rates. And one way to look at those later statements is that they’re about insisting that he was right all along, but the market just hasn’t realized it yet.

OK, at this point someone will point out that Druckenmiller has made billions, and I haven’t. Indeed; in normal times Druckenmiller could doubtless run circles around me in terms of outguessing the market. But here’s the thing: the post-2008 period has been one in which the instincts of master traders, developed in a very different era, have been a poor guide to events. What has worked, instead, is Macroeconomics 101, which is why people like me — or, if you really dislike yours truly, Ben Bernanke — have done pretty well. (I was at a book party a couple of months back, and was accosted by one very famous investor who said, bitterly, “Well, so far the markets agree with you.”)

And one way to see these pronouncements of doom from hedge fund guys is that they are talking their book, literally or figuratively; they lost money by shorting bonds, and are looking for justification.


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