Archive for the ‘Krugman’s Blog’ Category

Krugman’s Blog, 2/25/15

February 26, 2015

There were two posts yesterday.  The first was “Explaining Recovery Performance in Europe:”

I was very interested by the new paper by Claeys and Walsh on “plucking” as an explanation of differential performance in Europe; basically, they’re saying that fast growth has come in countries that previously had deep slumps. But how does that result interact with the result many of us have found, which is that differences in austerity seem to explain a lot? Here’s an example of what I find:

I tried to see where their result fits in; but I used a slightly different sample. I included Greece; I’m not sure why they excluded it (they say that they’re dropping countries that didn’t have any recovery, but why?) I also used the same dates for everyone, 2007-9 for the slump and 2009-14 for the recovery. And since I wanted to use structural deficits to measure austerity, I could only include Latvia among the Baltics.

What I got was this:

Latvia stands out, but in this sample it’s alone; the estimated coefficient on the size of the slump is large but hugely uncertain.

What happens if you throw both variables in? With standard errors in parentheses, I get Growth in GDP 2009-14 = 7.91 – .26(.28)*Change in GDP 2007-9 – 1.41(.27)*Change in structural balance as % of potential GDP. Plucking might be important, but it’s hard to tell given the lack of data. Austerity, on the other hand, comes in very clear.

Maybe the point is that there aren’t any deep mysteries that need explaining. You can point to individual countries and say that they did better than you might have expected, but any kind of non-cherry-picked analysis of the data really, really wants to tell you not just that austerity hurts growth but that it’s the major factor causing some European countries to do worse than others.

Yesterday’s second post was “Monetarism in Winter:”

Brad DeLong is writing about “cognitive closure” on the right, and focuses on the case of Allan Meltzer, the long-time monetarist standard-bearer and co-founder of the Shadow Open Market Committee. Meltzer has been predicting inflation, just around the corner, for six years; the experience apparently has had no impact on his conviction that he understands the economy better than the Fed. And he considers it rude and unprofessional when some of us point out how wrong he has been for how long.

But there’s one thing that struck me in particular about the last entry in Brad’s bill of particulars, where Meltzer says this:

The Fed’s third major error is its baffling inattention to the growth of monetary and credit aggregates. Central banks supply the raw material on which financial markets build the credit and money magnitudes. The reason given for neglecting these aggregates is usually a claim they are unstable. That is true only, if at all, of quarterly values. It is not true of medium- and longer-term values, as many researchers have shown.

I’m not sure what Meltzer is saying here, exactly. Surely the claim is not so much that the aggregates are unstable as that the relationship between those aggregates and variables of interest — like inflation — is unstable. Now, where might the Fed have gotten that idea? Maybe from this:

The velocity of M2 — the ratio of nominal GDP to a broadly defined version of the money supply — has turned out to be hugely variable. Once upon a time Milton Friedman called for slow, steady growth in M2 as the key to a stable economy; surely you can’t think that makes sense given developments since the mid-1980s.

But here we have Meltzer insisting that the Fed is making a terrible mistake by not worrying about monetary aggregates, and complaining bitterly about those who question whether, given his track record, he has any authority to lecture the Fed. It’s really very sad.

Krugman’s blog, 2/22/15

February 23, 2015

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

Now that the dust has settled a bit, we can look calmly at the deal — if it really is a deal that survives through tomorrow, which some people doubt. And it’s increasingly clear that Greece came out in significantly better shape, at least for now.

The main action, always, involves the Greek primary surplus — how much more will they need to raise in revenue than they can spend on things other than interest? The question these past few days would be whether the Greeks would be forced into agreeing to aim for very high primary surpluses under the threat of being pushed into immediate crisis. And they weren’t.

One way to see this is through careful parsing of the language, as done here. That’s quite useful. But I’d argue that in an important sense we’re past that kind of word-chopping. Instead, we need to think about what happens substantively from here out.

Right now, Greece has avoided a credit cutoff, and worse yet an ECB move to pull the plug on its banks, and it has done so while getting the 2015 primary surplus target effectively waived.

The next step will come four months from now, when Greece makes its serious pitch for lower surpluses in future years. We don’t know how that will go. But nothing that just happened weakens the Greek position in that future round. Suppose that the Germans claim that some ambiguously worded clause should be interpreted to mean that Greece must achieve a 4.5 percent of GDP surplus, after all. Greece will say no, it doesn’t — and then what? A couple of years ago, when all the VSPs of Europe believed utterly in austerity, Greece might have faced retaliation thanks to wording issues; not now.

So Greece has won relaxed conditions for this year, and breathing room in the run-up to the bigger fight ahead. Could be worse.

Yesterday’s second post was “Rip Van Skillsgap:”

There’s been quite a lot of commentary about the Hamilton Project conference on robots and all that. Let me just add my two cents about the “framing paper“.

What strikes me about this paper — and in general what one still hears from many people inside the Beltway — is the continuing urge to make this mainly a story about the skills gap, of not enough workers having higher education or maybe the right kind of education. The paper acknowledges, sort of, that the trends people thought they saw in the 1990s aren’t visible in later data, but then jumps right back into discussing education as the solution as if nothing had happened.

But if my math is right, the 90s ended 15 years ago — and since then wages of the highly educated have stagnated. Why on earth are we still hearing the same rhetoric about education as the solution to inequality and unemployment?

The answer, I’m sorry to say, is surely that it sounds serious. But, you know, it isn’t.

The last post yesterday was “Austerity and the Costs of Internal Devaluation:”

Were the costs of Greek adjustment unavoidable, regardless of the currency? Could they have been much less, even given the euro? This paper says no; Simon Wren-Lewis is aghast, and rightly so. How can alleged experts have learned so little from so much terrible experience?

I’d like to focus in on one point in particular, which I’m not sure is completely clear in Simon’s argument. We’re all agreed that Greece needed to reduce its wages and other costs relative to those of the euro area core. This could have happened quickly, with no need for high unemployment, if Greece had had an independent currency to devalue — as happened in Iceland. Given membership in the euro area, however, Greece had to go through a period of relatively high unemployment depressing wage growth.

There was, however, a question of how fast this had to happen. Think of this schematic picture:

We can think of Greece needing to move wages toward a sustainable path that is itself rising over time thanks to inflation in the rest of the euro area (and of course it’s crucial that this inflation be fast enough). Even given this need, however, there’s the question of how fast; here Plan A is a cold turkey, very high unemployment and deflation route, while Plan B is one in which unemployment need only be high enough to keep wages from rising.

Clearly Plan A involves front-loading the pain. But is the total pain — as measured, say, in point-years of excess unemployment — the same in the two cases?

If the Phillips curve were linear, so that an additional point of unemployment always reduces wage inflation by the same amount, the answer would be yes. But we have overwhelming evidence at this point that the Phillips curve is NOT linear, that it gets very flat at low inflation because of downward nominal wage rigidity.

What this means is that Plan A doesn’t just front-load the pain; it produces a lot more total pain, even though it takes place over a shorter period, because you’re trying to break through strong inhibitions against actual wage cuts as opposed to mere wage restraint.

So Greece could have avoided the bulk of its nightmare if it had had its own currency; but it could have had a much less terrible nightmare even given the euro if austerity had been less extreme and adjustment slower.

Krugman’s blog, 2/21/15

February 22, 2015

There was one post yesterday, “People Aren’t Androids:”

My soon-to-be-colleague Branko Milanovic writes forcefully against the term “human capital”; Elizabeth Bruenig notes an especially unpleasant use of the term by reformicons trying to sell child tax credits to their conservative allies.

I’m in agreement with both. It’s actually shocking how readily we have fallen into rhetoric that treats human beings as assets; it’s closely related to the remarkable, equally shocking way that we now talk about medical patients as health care “consumers”.

But I think there’s a bit more to add.

Branko says that the essential difference between skills and physical capital is that the former aren’t worth anything unless you work, and that is certainly an essential difference. I would, however, also emphasize the flip side: if you think of capital as something that rentiers can own, which is surely one of the important things we connote when we use the c-word, then labor force skills are not capital in that sense. Children of the wealthy can inherit or buy factories and buildings; absent indentured servitude or the coming of androids, they can’t buy worker skills.

Meanwhile, Bruenig is unhappy with James Pethokoukis for trying to sell humanitarian policies, more or less, as a cynical pro-capitalist ploy (which is, to give credit where it’s due, the opposite of the usual thing on the right). What I immediately noted was that Pethokoukis is wrong about what actually works in the direction he wants. He argues that big welfare states discourage having children, and dismisses pro-natalist policies as ineffectual. Here are fertility rates in advanced countries:

The two most extensive, generous welfare states in the world — France and Sweden — also have higher fertility than we do, significantly so in the case of France. And there’s a reason: strong pro-natalist policies, which greatly reduce the burden, financial and otherwise, of raising children. As I’ve written in the past, if you want to see policy informed by genuine family values — as opposed to “pro-family” values that are actually about patriarchy — France is a much better example than America.

Krugman’s blog, 2/2015

February 21, 2015

There were five (!) posts yesterday.  The first was “Europe Needs To Stop The Clock:”

I’ve been in correspondence with various people trying to track the current Greece/euro crisis, and everyone seems to have reached the same conclusion I’ve reached — namely, that what’s needed above all right now is some way to stop the clock, call a time-out, whatever. We’re talking about weeks, maybe a month or two — but that pause is desperately needed, because otherwise it will be all too easy to stumble into a preventable disaster.

Why do we need a time-out? Mainly because the new Greek government simply hasn’t had time to do its homework. This is not a criticism: it’s a new government, it’s outside the existing political establishment (because voters feel, with justification, that the establishment has failed), and Syriza doesn’t have a deep technocratic bench. Even with the best will in the world — and from what I hear, we are talking about well-intentioned people here — the Greeks can’t present a detailed proposal, decide exactly what they must do and can’t do, just yet.

In a different phase of history, they might have been able to turn to outside institutions with a lot of technical expertise — but now? The Commission is, in their eyes and pretty much in reality, a bad actor which has had terrible judgment. The IMF are pretty good guys these days, but are part of the troika and certainly can’t be directly involved in drafting the agenda of this government. Ditto the ECB.

Now, maybe after 60 or 90 days it would become clear that there is no possible deal, and Grexit it is. But we don’t know that.

What we do know is that what appears to be the demand of hardliners — that the new Greek government agree in the next few days to abandon everything it campaigned on, that it lock in draconian fiscal targets, privatization, and other things it hasn’t had time to assess — is impossible. I don’t know whether the hard-liners believe that this bum’s rush will work, or are just pushing Greece out the door. But this is not how it should go. Everyone needs some time to think.

The second post yesterday was “Chastened Exceptionalism:”

Jamelle Bouie has a very good article responding to Rudy Giulani’s attack on Obama’s patriotism, making the point that Obama, while clearly deeply patriotic, does talk about America a bit differently from his predecessors.

Oh, and read this about Giuliani.

But I’m not sure that Bouie has the whole story. He attributed Obama’s relatively chastened version of American exceptionalism to his personal identity — that as a black American he is more in touch with the areas of ambivalence in our history. That may well be true. But there are many Americans who love their country in pretty much the way the president does — seeing it as special, often an enormous force for good in the world, but also fallible and with some stains on its record. I’m one of them. So you don’t have to be black to see things that way.

What’s more, there have always been American patriots who could acknowledge flaws in the country they loved. For example, there’s the guy who described one of our foreign wars as “the most unjust ever waged by a stronger against a weaker nation.” That was Ulysses S. Grant — who long-time readers know is one of my heroes — writing about the Mexican-American War.

But now we (finally) have a president who is willing to say such things while in the White House. Why?

Maybe it’s history: the Greatest Generation is fading away, and the most recent war in our memories is Iraq — a war waged on false pretenses, whose enduring images are not of brave men storming Omaha Beach but of prisoners being tortured in Abu Ghraib. My sense is that Iraq has left a lasting shadow on our self-image; many people now realize that we, too, can do evil.

Maybe it’s just that we are becoming, despite everything, a more sophisticated country, a place where many people do understand that you can be a patriot without always shouting “USA! USA!” — maybe even a country where people are starting to realize that the shouters are often less patriotic than the people they’re trying to shout down.

All of this doesn’t change the fact that we really are an exceptional country — a country that has played a special role in the world, that despite its flaws has always stood for some of humanity’s highest ideals. We are not, in other words, just about tribalism — which is what makes all the shouting about American exceptionalism so ironic, because it is, in fact, an attempt to tribalize our self-image.

I can’t urge you strongly enough to read the piece from the NY Daily News.  Ouch!  The third post yesterday was “Waiting for Eurogodot.”  (I’m a bit of a doofus — I read that three times as Waiting for Euro Go Dot, instead of Godot…)  Here it is:

So we’ll be hearing from the Eurogroup soon; word is that there will be a deal, which will either be a big defeat or a big win for Tsipras. Huh? Here’s why I think there may be confusion.

Unless I totally misread the situation, there’s no way Greece will get a formal acknowledgment that the terms of austerity must be permanently eased. Too soon, not enough homework done. Instead, a Greek win consists of an extension of the loan agreement that resets the ticking clock without locking in huge primary surpluses as the target. A German win would be Greece folding, and agreeing to the previous plan in return for cash.

The thing is, a Greek win along these lines could easily be misread as a German win — the language would suggest continuity, and you’d have to read very carefully to see what Greece did or didn’t agree to.

We should see in a few minutes.

Fourth up yesterday was “Delphic Demarche:”

OK, we have an agreement re Greece, according to which … what?

We do have four months of funding, plus what looks like an agreement not to hold Greece to fiscal targets for right now in the face of probably fiscal deterioration. The question is what strings were attached.

Greece seemingly gave a lot of ground on the language: the stuff about fiscal adjustment in line with the November 2012 Eurogroup is back in, which Germany will presumably claim represents a commitment to stay with the 4.5 percent primary surplus target. But Greece apparently is claiming that the agreement offers new flexibility, which means that it will assert that it has agreed to no such thing.

So we’re in a weird place: this looks like a defeat for Greece, but since nothing substantive was resolved, it’s only a defeat if the Greeks accept it as one; which means that nothing at all is clearly resolved. And that’s arguably a good outcome — time for Greece to get its act together.

I do find myself remembering an old joke, which slightly modified works for this situation: what do you get if you cross a godfather with a group of finance ministers? Someone who makes you an offer you can’t understand.

And, as usual, the work week ended with music.  Here’s “Friday Night Music: 10,000 Maniacs:”

Lots of new music I intend to feature soon. But the wonders of online video mean that I also get to watch old live performances, including by bands that I was oblivious about at the time. And here’s the ultimate complain about the weather song, more or less appropriate during the deep freeze we’re in:

 

Krugman’s blog, 2/19/15

February 20, 2015

There was one post yesterday, “Insert German Curse Word Here:

Germany says no to Greek request.To be fair, I think news reports describing the Greek letter as a complete u-turn and capitulation are wrong. I see this:

and it looks to me as if Greece is quite carefully not committing to the original fiscal targets; it will attain “appropriate primary fiscal surpluses”, which almost surely means less than 4.5 percent of GDP. So if the German complaint is that Greece is not agreeing to lock in total surrender to the preexisting austerity plan, this appears to be right. Instead, Greece appears to be seeking to buy some time to put together an economic strategy (remember, this is a new government without a deep bench of technocrats), and to negotiate terms later. Germany, on the other hand, is trying to force Syriza into complete abandonment of its election promises right now, today.

Do the Germans really think that’s a likely outcome? I suspect not. This looks to me like an attempt to force Greece out of the euro, right now. German policy is objectively pro-Grexit.

It’s also, given the likely fallout, objectively pro-Golden Dawn.

The role of the ECB is critical here, and Peter Doyle says what I’ve been meaning to say, but better:

[I]n the event that Euro-Greek negotiations fail, the ECB should unequivocally continue to provide full ELA to Greece. Furthermore, it should make that position clear now, while negotiations on the program continue. This would determine that Euro policymakers must not only resolve Greece without the ECB stick corralling them but must also find themselves another Euro enforcement mechanism.

Crunch time.

Krugman’s blog, 2/18/15

February 19, 2015

There were two posts yesterday.  The first was “Subtle Bias, Fed Head Edition:”

This isn’t a big deal, but it nonetheless had me doing a double-take. I was looking up educational backgrounds of prominent economists, for a post I haven’t found time to put together yet, and when I got to Janet Yellen I saw something that seemed off; so I went to see whether there was anything comparable on her predecessor. No, there wasn’t:

Why would Janet Yellen’s height belong here? Is this a high-finance version of the pattern in which women, no matter how accomplished, are judged by their appearance? (This has happened to Yellen before.)

Anyway, it caught my eye, and not in a good way.

Yesterday’s second post was “The Mystery of Moore:”

Jonathan Chait seems boggled at an op-ed from Stephen Moore, the chief economist at the Heritage Foundation, attacking Obamacare: Not one alleged fact cited in the piece is right. And we’re not talking about matters of interpretation. CBO has not changed its view that the ACA will reduce the deficit; health costs have not increased faster than before; premiums are not skyrocketing.

Chait treats this as a story about the way the right is handling Obamacare’s success. Conservatives made a number of very specific predictions about what would happen when the ACA went into effect: health spending would soar, deficits would balloon, premiums would shoot up, more people would lose insurance than gain it. When none of these things happened, when the law’s first year of full operation went better than even supporters had expected, the reaction was, I believe, something new in American politics: right-wingers simply acted as if their predictions had come true, as if all the imagined disasters were actual truths on the ground.

That is indeed part of the story about that Moore op-ed. But there’s another aspect of the story, which is Moore himself: this is a guy who has a troubled relationship with facts. I don’t mean that he’s a slick dissembler; I mean that he seems more or less unable to publish an article without filling it with howlers — true, all erring in the direction he wants — in a way that ends up doing his cause a disservice. For example, his attempt to refute something I wrote about Kansas ended up being mainly a story about why Stephen can’t count, which presumably wasn’t his intention.

But here’s the mystery: evidently Moore has had a successful career. Why?

Think about Heritage: It’s immensely wealthy, and could surely afford to hire a technically competent right-wing hack. The Wall Street Journal, similarly, could have attracted someone much less likely to trip over his own intellectual shoelaces. Again, the problem isn’t even that Moore got the macroeconomics of recent years all wrong, although he did; it’s the inability to write without making embarrassing mistakes.

So why is he there (and he’s not alone — there are some other incompetent hacks at Heritage)?

I suspect that the incompetence is actually desirable at some level — a smart hack might turn honest, or something, But it’s remarkable.

Krugman’s blog, 2/17/15

February 18, 2015

There was one post yesterday, “Comparative Austerity:”

Kevin O’Rourke is angry at the Irish government for self-righteously lecturing Greece on the need to suck it up and be austere like the Irish. Indeed. Here’s a different comparison:


European Commission

Greece has done a lot more austerity than those countries cited as supposed success stories (which is another issue — success being defined as “not total collapse, and slight recovery after years of horror” — but that’s a different story). And as Kevin says, the Irish government is acting against its own citizens by beating up on Greece.

 

Krugman’s blog, 2/16/15

February 17, 2015

There were four posts yesterday.  The first was “Good Odds, But Odd Goods:”

This paper using a dynamic search model to explain why “most single people are crazy” is brilliant — and I don’t just say that because it starts with homage to a classic forerunner.

Maybe we can somewhat merge the subjects and consider this an explanation of why being single can seem like a black hole from which there is no escape — the singlelarity.

Yesterday’s second post was “New York Diversifies:”

One thing I learned from Ed Glaeser’s fine work on the economy of New York was that the city, after a complex past, had become essentially a monoculture. That is, its export sector — the part of the economy that sells to other locations, as opposed to providing local, nontraded goods and services — was basically finance and nothing else.

But that is, apparently, ceasing to be true: since the crisis New York has seen a lot of job growth in tourism and technology.

The thing is, it’s easy to see why both sectors find New York attractive. Tourism is obvious, especially now that the city is surprisingly safe. (My personal view is that New York is a great place to live, but I wouldn’t want to visit there — the tourists jamming midtown have no idea how relatively gracious life can be on the Upper West Side. But never mind.) Tech also makes sense: innovation benefits a lot from density.

But why now? Is it reverse Dutch disease, with the relative decline of Wall Street making the city more affordable for other sectors? (Hard to see in apartment prices!) I think I’m going to spend some time on this, in part because I need an occasional break from austerity and deflation.

When I was a young thing the major industry in New York City was “the rag trade,” the garment industry.  The third post yesterday was “Triumph of the Chart:”

I’ve been behind the curve on the Vox interview with President Obama. But the reactions to that interview — not just from the right, but from centrists — are remarkable. Jack Schafer compares it to a Scientology recruitment film; Rich Lowry compares it to Leni Riefenstahl. Why?

First, read the transcript while ignoring the infographics. It’s a generally friendly, sympathetic interview — but that’s hardly unusual, and it’s nothing like the actually fawning interviews that were standard in the Bush years. So what sets these guys off? Well, it’s those charts and numbers, illustrating the points Obama is making.

So, is this propaganda? I don’t seem to remember a lot of charts and data in Triumph of the Will. It would be propaganda if the charts were misleading, or if they were empty visual flourishes. But they’re neither of those things. In part one, on domestic policy, they’re pretty much the standard charts anyone uses to illustrate the issues surrounding inequality and health care, and aren’t cooked at all. Nor are they just eye candy — I know all this stuff, but most readers don’t.

Yes, the charts are generally supportive of what Obama is saying, but only because the facts he alludes to are indeed facts.

But what seems to offend the critics is the very idea of covering a politician’s policies, and the facts relevant to those policies, rather than making it about personalities.

Back in 2004 I looked at policy coverage of the Bush-Kerry race and discovered that there wasn’t any, at least on TV — that you could watch all the network and major cable coverage for two months, and learn literally nothing about, say, the candidates’ health care plans. You might encounter some stories about how the plans were playing politically, but not a single thing about their content.

That’s the kind of thing the people at Vox are trying to fix — and the response is to accuse them of acting like cultists if not Nazis.

Well, Prof., as you well know facts have a liberal bias…  The last post yesterday was “Athenae Delenda Est:”

OK, this is amazing, and not in a good way. Greek talks with finance ministers have broken up over this draft statement, which the Greeks have described as “absurd.” It’s certainly remarkable. On my reading, here’s the key sentence:

The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability.

Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP.

There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing.

I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work.

Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I.

Either way, the lack of wisdom is astonishing and appalling.

Krugman’s blog, 2/15/15

February 16, 2015

There were two posts yesterday.  The first was “Shovel Ready:”

That tells you everything you might want to know about why I don’t live in New York any more!  The second post yesterday was “Weimar and Greece, Continued:”

Try to talk about macroeconomics, and you’re sure to encounter accusations that your policies would turn us into Weimar Germany; those wheelbarrows full of cash remain the ultimate bogeymen for many, despite years of being wrong about everything. As some of us have noted, however, there’s a peculiar selectivity in the use of Weimar as cautionary tale: it’s always about the hyperinflation of 1923, never about the deflationary effects of the gold standard and austerity in 1930-32, which is, you know, what brought you-know-who to power.

But that’s not the only piece of Weimar history that has gone missing; there was also the reparations issue, which as I noted yesterday has considerable bearing on the issue of how large a primary surplus Greece must run.

Thinking about this led me to an interesting question. We know that part of the reason large postwar reparations were such an unreasonable and irresponsible demand was the dire, shrunken state of the German economy after World War I. So how does Greece compare? The answer startled me:

Austerity, it turns out, has devastated Greece just about as much as defeat in total war devastated imperial Germany. The idea of demanding that this economy triple the size of its primary surplus is … disturbing.

Krugman’s blog, 2/13/15

February 14, 2015

There were two posts yesterday.  The first was “20-20 Foresight:”

Simon Wren-Lewis has a long-form discussion of the “austerity con” in the London Review of Books, which is well worth reading; he also has a sort of commentary on his commentary on the blog, which makes some good points about the difficulty in talking about macroeconomics to a general audience.

Another point he makes, however, is how successful mainstream Keynesian macro — it didn’t matter too much whether you were neo- or neo-paleo — has been:

The other thing that struck me writing both the LRB and NIER articles was how little depends on the benefits of hindsight … With the Coalition, the key mistake was obvious at the time. What has come with hindsight are in a sense details, albeit important ones: exactly why the Eurozone was special, the motivations behind the policy, and mediamacro.

That’s exactly right. Back in 2009 I was trying to explain why massive expansion of the monetary base wouldn’t cause inflation and why budget deficits wouldn’t cause soaring interest rates; in 2010, in the original “confidence fairy” piece, I was trying to explain why the case for austerity was nonsense and fiscal contraction would reduce output. And it all looks really good, four or five years later.

True, the usual suspects do everything they can to claim that people like me were wrong somewhere — that one year’s performance of one country somewhere wasn’t what Keynesian models predicted. But that’s no way to assess economic models, and surely the overall pattern of economic performance, not to mention this world of deflation and low or even negative interest rates we’ve arrived at, fits the Keynesian vision and makes nonsense of the other side’s claims.

And look at the contrast between people like Simon and me, able to acknowledge not having been perfect but by and large having no need to make excuses, with the desperate and, well, shameful efforts of inflation/interest scaremongers to claim that they never said what they said.

The point is that in a rational world these past five years would be viewed as a triumph for mainstream economic analysis; the world has behaved the way the models said it would. And in the long run I think it will be seen that way. But in the long run …

The second post yesterday was “Friday Night Music: San Fermin, Jackrabbit:”

Saw them at Lincoln Center last night — great performance, but unfortunately photography was banned so I can’t show you what it looked like in that terrific space, with Central Park South behind them out the huge windows. Here’s hoping some videos pop up soon for the forthcoming album– the band has developed really great stage presence. Still, they sound great too:

 


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