Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 9/1/15

September 2, 2015

There were four posts yesterday.  The first was “Gravity:”

Now that’s fun: Adam Davidson tells us about trade in the ancient Near East, as documented by archives found in Kanesh — and reports that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.

But what does the seemingly universal applicability of the gravity equation tell us? Davidson suggests that it’s an indication that policy can’t do much to shape trade. That’s not where I would have gone, and it’s not where those who have studied the issue closelyhave gone.

Here’s my take: Think about two cities with the same per capita GDP — we can relax that assumption in a minute. They will trade if residents of city A find things being sold by residents of city B that they want, and vice versa.

So what’s the probability that an A resident will find a B resident with something he or she wants? Applying what one of my old teachers used to call the principle of insignificant reason, a good first guess would be that this probability is proportional to the number of potential sellers — B’s population.

And how many such desirous buyers will there be? Again applying insignificant reason, a good guess is that it’s proportional to the number of potential buyers — A’s population.

So other things equal we would expect exports from B to A to be proportional to the product of their populations.

What if GDP per capita isn’t the same? You can think of this as increasing the “effective” population, both in terms of producers and in terms of consumers. So the attraction is now the product of the GDPs.

Is there anything surprising about the fact that this relationship works pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing in accord with their comparative advantage — England does cloth, Portugal wine. And these models suggest that how much countries trade should have a lot to do with whether they are similar or not. Cloth exporters shouldn’t be selling much to each other, but should instead do their trading with wine exporters. In reality, however, there’s basically no sign of any such effect: even seemingly similar countries trade about as much as a gravity equation says they should.

Calibrated models of trade have long dealt with this reality, somewhat awkwardly, with the so-called Armington assumption, which simply assumes that even the apparently same good from different countries is treated by consumers as a differentiated product — a banana isn’t just a banana, it’s an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes. The new trade theory some of us introduced circa 1980 — or as some now call it, the “old new trade theory” — does a bit more, and possibly better, by introducing monopolistic competition and increasing returns to explain why even similar countries produce differentiated products.

And there’s also a puzzle about both the effect of distance and the effect of borders, both of which seem larger than concrete costs can explain. Work continues.

Does any of this suggest the irrelevance of trade policy? Not really. Changes in trade policy do have obvious effects on how much countries trade. Look at what happened when Mexico opened up starting in the late 1980s, as compared with Canada, which was fairly open all along — and which, like Mexico, mainly trades with the US:

So what does gravity tell us? Simple Ricardian comparative advantage is clearly incomplete; the process of international trade is subtler, with invisible as well as visible costs. Not trivial, but not too unsettling. And gravity models are very useful as a benchmark for assessing other effects.

The second post yesterday was “Multipliers: What We Should Have Known:”

There’s a very nice interview with Olivier Blanchard, who is leaving the IMF, in which among other things Olivier says the right thing about changing one’s mind:

With respect to outside, the issue I have been struck by is how to indicate a change of views without triggering headlines of “mistakes,’’ “Fund incompetence,’’ and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a “mistake’’ in the way people think of mistakes, e.g., mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful.

Indeed. There are a lot of people out there whose idea of a substantive argument is “you used to say X, now you say Y” — never mind the reasons why you changed your view, and whether it was right to do so.It’s important not to fall into the trap of being afraid to let new evidence or analysis speak.

One thing I would say, however, is that on this particular issue the Fund should have known better. Olivier says that the evidence “turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts”, but didn’t we know that? I certainly did.

And let me also beat one of my favorite drums: the prediction that multipliers would be much larger in a liquidity trap came out of IS-LMish macro (or, to be fair, New Keynesian models) and has been overwhelmingly confirmed by experience. So this was yet another victory for Keynesian analysis, the success story nobody will believe.

Yesterday’s third post was “The Triumph of Backward-Looking Economics:”

We don’t get to do many controlled experiments in economics, so history is mainly what we have to go on. Unfortunately, many people who imagine that they know how the economy works go with what they think they heard about history, not with what actually happened. And I’m not just talking about the great unwashed; quite a few well-known economists seem not to have heard about FRED, or at least haven’t picked up the habit of doing a quick scan of the actual data before making assertions about facts.

And there’s one decade in particular where people are weirdly unaware of the realities: the 1980s. A lot of this has to do with Reaganolatry: the usual suspects have repeated so often that it was a time of extraordinary, incredible success that I often encounter liberals who believe that something special must have happened, that somehow the events were at odds with what the prevailing macroeconomic models of the time said would happen.

But nothing special happened, aside from the unexpected willingness of the Fed to impose incredibly high unemployment in order to bring inflation down.

What did orthodox salt-water macroeconomists believe about disinflation on the eve of the Volcker contraction? As it happens, we have an excellent source document: James Tobin’s “Stabilization Policy Ten Years After,” presented at Brookings in early 1980. Among other things, Tobin laid out a hypothetical disinflation scenario based on the kind of Keynesian model people like him were using at the time (which was also the model laid out in the Dornbusch-Fischer and Gordon textbooks). These models included an expectations-augmented Phillips curve, with no long-run tradeoff between inflation and unemployment — but expectations were assumed to adjust gradually based on experience, rather than changing rapidly via forward-looking assessments of Fed policy.

This was, of course, the kind of model the Chicago School dismissed scathingly as worthy of nothing but ridicule, and which was more or less driven out of the academic literature, even as it continued to be the basis of a lot of policy analysis.

So here was Tobin’s picture:

Here’s what actually happened:

Unemployment shot up faster than in Tobin’s simulation, then came down faster, because the Fed didn’t follow the simple rule he assumed. But the basic shape — a clockwise spiral, with inflation coming down thanks to a period of very high unemployment — was very much in line with what standard Keynesian macro said would happen. On the other hand, there was no sign whatsoever of the kind of painless disinflation rational-expectations models suggested would happen if the Fed credibly announced its disinflation plans.

So how does the decade of the 1980s end up being perceived as a defeat for Keynesians? To see it that way you have to systematically misrepresent both what happened to the economy and what people like Tobin were saying at the time. In reality, Tobinesque economics looks very good in the light of events.

The last post yesterday was “Bad Ideas Down Under:”

I’m heading off to Sydney, for the Festival of Dangerous Ideas. Blogging will be limited due to travel, plus blood rushing to my head from standing upside down when I get there.


Krugman’s blog, 8/31/15

September 1, 2015

There was one post yesterday, “The China Debt Zombie:”

Matthew Klein notes that Very Serious People are now worried that China’s troubles, which have caused it to switch rather suddenly from a buyer of Treasuries to a seller, will cause U.S. interest rates to spike. He rightly finds this unconvincing. What he doesn’t note is we’re looking at another instance of an economic zombie in action.

For the new concern about China is, in economic terms, the same as the old concern – that the Chinese could destroy our economy by cutting off funding, either for political reasons or out of disgust over our budget deficits. This always reflected a fundamental failure to understand the economic logic, as was pointed out many times not just by yours truly (and much earlier here)but also by people likeDan Drezner. But scare stories about our supposed financial dependence on China just keep shambling along, propounded by people who don’t even realize that there are other views, let alone that they’re talking nonsense.

Krugman’s blog, 8/28 and 8/29/15

August 31, 2015

There was one post yesterday and two posts on Friday.  He didn’t post to his blog yesterday.  The first post on Friday was “1998 in 2015:”

David Beckworth has a good if possibly over-elaborate discussion of China’s flirtation with crisis. What I find striking is the extent to which China has managed to put itself into something like the situation many of its neighbors faced in the late 1990s. The renminbi “wants” to depreciate, partly because of a slowing economy and monetary easing, partly because of a crisis of confidence and capital flight. But Chinese authorities aren’t willing to let it drop all the way, perhaps because of fears of trade conflict but also perhaps because the private sector and state-owned enterprises now have a lot of foreign-currency debt.

What happened in 1997-1998 was that Asian depreciations turned into balance-sheet disasters, because domestic firms were highly leveraged and had lots of dollar debt. This debt soared as a share of GDP, not because of massive new borrowing, but because the denominator crashed as currencies plunged:

International Monetary Fund

I and others wrote about this at the time; you can see, by the way, why I get annoyed at assertions that economists paid no attention to debt until the 2008 crisis, but also why I’m annoyed at myself for not realizing how a housing crash could produce balance-sheet stress just as currency crashes did in 1998 Asia.

Anyway, it looks like time to dust off the extensive analysis that took place back then. Obviously there are some important differences between China 2015 and Indonesia 1998, including huge foreign exchange reserves but also what looks like a much bigger and more problematic overhang of internal debt. But we do have a lot of material to draw on; no need to reinvent everything from scratch.

Friday’s second post was “Fear of Asymmetry:”

David Roberts has a very nice essay on American politics, framed as an analysis of what nerds don’t get; but it’s not just nerds who seem weirdly blind to the reality here.

One problem with the essay, however, is that Roberts never really explains why people who pride themselves on their ability to think things through slide into lazy cliches when it comes to politics. And that’s important: just lecturing Silicon Valley types on the need to get serious about politics won’t work if there are deeper reasons smart people get stupid when politics enters the picture.

Here’s how I see it: it’s about self-image. Tech types like to imagine themselves above the fray, operating on a higher plane than those grubby political types. But if you get serious about US politics, you realize that this is actually an irresponsible pose. As Roberts says, the parties are not symmetric, and wisdom does not lie somewhere between the extremists on both sides. In fact, policies that the tech elite support, like carbon taxes, are supported only by the left wing of the Democratic Party; the entire Republican Party is controlled by climate denialists, and anti-science types more broadly. And in general the modern GOP is basically anti-rational analysis; it’s at war not just with the welfare state but with the Enlightenment.

But for an ubernerd to acknowledge this reality would be to sound, horrors, partisan. And so they refuse to go there; all their belief in data and careful analysis gets set aside when it comes to politics, because the political data — and there really are a lot of data on all this — tell you what they don’t want to hear.

As readers might guess, I face some personal frustration here. When it comes to economics, I try to base what I say on evidence and on models that have stood the test of confrontation with evidence; but I often encounter people who assume that I’m just a left-wing version of Stephen Moore. Why do they believe that? Have they actually looked at my analysis and track record? No, they just know that I’m much more critical of the right than of the left, and they assume that this means ipso facto that I’m biased. But what if in modern America the right is much more wrong than the left? Not a possibility they’re willing to contemplate.

So are efforts to change this futile? I hope not. Roberts may well have the right approach: keep stressing the evidence of political asymmetry. Maybe, maybe, someone will listen.

Saturday’s post was “Artificial Unintelligence:”

In the early stages of the Lesser Depression, those of us who knew a bit about the macroeconomic debates of the 1930s, and realized how relevant the hard-won insights of Keynes and Hicks were to the post-financial crisis world, often felt a sense of despair. Everywhere you looked, people who imagined themselves sophisticated and possessed of deep understanding were resurrecting 75-year-old fallacies and presenting them as deep insights.

A lot of water has passed under the bridge since then, and I at least no longer feel the same sense of despair. Instead, I feel an even deeper sense of despair — because people are still rolling out those same fallacies, even though in the interim those of us who remembered and understood Keynes/Hicks have been right about most things, and those lecturing us have been wrong about everything.

So here’s William Cohan in the Times, declaring that the Fed should “show some spine” and raise rates even though there is no sign of accelerating inflation. His reasoning:

The case for raising rates is straightforward: Like any commodity, the price of borrowing money — interest rates — should be determined by supply and demand, not by manipulation by a market behemoth. Essentially, the clever Q.E. program caused a widespread mispricing of risk, deluding investors into underestimating the risk of various financial assets they were buying.

Oh dear.

Cohan’s theory of interest rates is basically the old notion of loanable funds: the interest rate is determined by the supply of and demand for credit. As Keynes and Hicks explained three generations ago, this is a completely inadequate story — because it misses the reality that the level of income isn’t fixed, and changes in income affect the supply and demand for funds. So loanable funds doesn’t determine the interest rate; all it does is define a relationship between interest rates and income, the IS curve of the IS-LM model:

What determines where we end up on that curve? Monetary policy. The Fed sets interest rates, whether it wants to or not — even a supposed hands-off policy has to involve choosing the level of the monetary base somehow, which means that it’s a monetary policy choice.

And how would you know if the Fed is setting rates too low? Here’s where Hicks meets Wicksell: rates are too low if the economy is overheating and inflation is accelerating. Not exactly what we’ve seen in the era of zero rates and QE:

OK, there are arguments that the Fed should be willing to abandon its inflation target so as to discourage bubbles. I think those arguments are wrong — but in any case they have nothing to do with the notion that current rates are somehow artificial, that we should let rates be determined by “supply and demand”.

The worrying thing is that, as I’ve suggested, crude misunderstandings along these lines are widespread even among people who imagine themselves well-informed and sophisticated. Eighty years of hard economic thinking, and seven years of overwhelming confirmation of that hard thinking, have made no dent in their worldview. Awesome.

Krugman’s blog, 8/26/15

August 27, 2015

There was one post yesterday, “The Reactionary Soul:”

Frank Bruni marvels at polls indicating that Donald Trump, with his multiple marriages and casinos, is the preferred candidate among Republican evangelicals. Others are shocked to see a crude mercantilist make so much headway in the alleged party of free markets. What happened to conservative principles?

Actually, nothing — because those alleged principles were never real. Conservative religiosity, conservative faith in markets, were never about living a godly life or letting the invisible hand promote entrepreneurship. Instead, it was all as Corey Robin describes it: Conservatism is

a reactionary movement, a defense of power and privilege against democratic challenges from below, particularly in the private spheres of the family and the workplace.

It’s really about who’s boss, and making sure that the man in charge stays boss. Trump is admired for putting women and workers in their place, and it doesn’t matter if he covets his neighbor’s wife or demands trade wars.

The point is that Trump isn’t a diversion, he’s a revelation, bringing the real motivations of the movement out into the open.

Krugman’s blog, 8/25/15

August 26, 2015

There were two posts yesterday.  The first was “It’s Getting Tighter:”

When thinking about the market madness and its possible real effects, here’s something you — where by “you” I mean the Fed in particular — really, really need to keep in mind: the markets have already, in effect, tightened monetary conditions quite a lot.

First of all, if break-evens (the difference between interest rates on ordinary bonds and inflation-protected bonds) are any guide, inflation expectations have fallen sharply:

Second, while interest rates on Treasuries are down, rates on private securities viewed as even moderately risky are up quite a lot:

So real borrowing costs are up sharply for many private borrowers. This is a significant headwind for the U.S. economy, which was hardly growing like gangbusters in any case.

A Fed hike now looks like an even worse idea than it did a few days ago.

Yesterday’s second post was “Unnatural Obsessions:”

One enduring constant of the world economy since 2008 is the chorus of sober-sounding people declaring that the Fed must act responsibly and raise rates. A few years back, rising commodity prices and a flood of money into emerging markets were proof that low rates were dangerously inflationary and must be hiked. Now we have plunging commodity prices and a flood of money out of emerging markets; clearly, this shows that the Fed must do the right thing, and raise rates.

The underlying claim in all such demands is that the low interest rates we’ve had since 2008 are “unnatural” or “artificial”. So it’s probably worth repeating that while very low rates may seem strange, they also seem fully justified by the economic situation. The original Wicksellian concept of the natural rate of interest defined that rate as the rate consistent with stable prices, with an economy that was neither too hot nor too cold. If we had had an unnaturally low rate these past 7 years, we should have seen accelerating inflation; we haven’t.

Quantitative easing, by the way, is just more of the same. If you are claiming that the Fed has created artificially easy credit, you have to explain how it can do that year after year without producing inflation or an overheating economy. Nobody has ever produced a coherent story about how Fed policy can drive interest rates below their natural level without inflationary effects.

So even if you believe that a low-rate environment is helping to feed a series of bubbles, you have to ask how it can possibly make sense to raise rates when the underlying problem is overall economic weakness, which a rate hike would make worse.

One last point: many people have noted the resemblances between current events and the market instability of 1998. However, few have pointed out that the volatility of 1998 followed a long period in which long-term interest rates never dropped below 5 percent. Hot money doesn’t need ultra-low rates to be subject to enthusiasms and sudden losses of confidence.

Krugman’s blog, 8/14/15

August 25, 2015

There were two posts yesterday.  The first was “Rate Hike Fever:”

How central bankers see themselves
How central bankers see themselves

Larry Summers argues that a Fed rate hike would be a big mistake; I completely agree. Yet he also suggests that the Fed “seems set” to do this foolish thing. Why?

What’s odd about this debate is that it’s not like debating monetary policy with the seventeen stooges conservatives whose doctrine tells them that fiat money will turn us into Zimbabwe any day now, and are impervious to evidence. The Fed chair is Janet Yellen; the vice chair is Stan Fischer; both are, as Brad DeLong emphasizes, salt-water economists whose underlying macro worldview is surely very much like Larry’s, or mine, not least because we studied under Stan himself. So why the difference on policy?

Surely it has something to do with where people are sitting; something about being on the inside is making the Fedsters more rate-hike prone than those of us on the outside. It might be regular contact with Wall Street types — but Larry actually has plenty of that too. I don’t think it’s extra information: basically the Fed knows no more than anyone keeping reasonably close tabs on the economy, whatever snippets of supposed inside info it may get, and I believe that Janet and Stan are smart and level-headed enough to get that.

Pressure from the usual suspects — the constant sniping against easy money — may play a role. But I also suspect that a lot has to do with the urge to resume a conventional central-banker role. The whole culture of central banks involves saying no to stuff people want, taking away the punch bowl as the party gets going, having the courage to do unpopular things; everyone wants to be Paul Volcker. The Fed is really, really eager to return to that position — and is, I fear, engaging in wishful thinking, believing much too readily that a return to normalcy is appropriate.

It’s not. I’m with Larry here: this attitude has the makings of a big mistake. Think Japan 2000; think ECB 2011; think Sweden. Don’t do it.

Yesterday’s second post was “Stupid China Stories:”

So a stock crash in China triggered a big decline around the world, while I was trying to have a personal life (and succeeding, actually). Leaving aside whether this really made sense, why should events in China matter for the rest of us?

Well, you and I might think that it’s because China is a pretty big economy — a huge buyer of commodities and a significant importer of manufactured inputs too. So when China slumps, you can and should expect knock-on effects elsewhere.

But trust the Republican field to declare that it’s all Obama’s fault. Scott Walker wants Obama to cancel a state dinner with Xi; Donald Trump says that it’s because Obama has let China “dictate the agenda” (no, I have no idea what he thinks he means). And Chris Christie says that it’s because Obama has gotten us deep into China’s debt.

Actually, let’s play a bit with that last one, OK? You could, conceivably, tell a story in which America becomes dependent on Chinese loans; then, when China gets in trouble, it demands repayment, pushing us into crisis too. But any story along those lines has a corollary: we should be seeing a spike in US interest rates as our credit line gets pulled. What you actually see is falling rates:

10-year Treasury
10 Year Treasury, Bloomberg News

Oh, why am I even bothering?

But remember: all the experts said that the GOP had an unusually strong field, a very deep bench, a lot of talent running for president.

Krugman’s blog, 8/23/15

August 24, 2015

There was one post yesterday, “Nobody Could Have Predicted, Interest Rates Edition:”

The Wall Street Journal speaks
The Wall Street Journal Speaks

Sorry about sparsity of posts; on the road for family reasons, with real life getting in the way of digital. But I did see a number of people praising remarks from Charlie Munger declaring himself “flabbergasted” by low interest rates, with a sideswipe at anyone who claims to have had some inkling:

I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted. I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted.

Well, negative rates were a big shock; I had thought they were ruled out by the possibility of holding cash, and hadn’t thought the mechanics through. But this kind of “nobody saw it coming” remark is, if you ask me, a big dodge, an evasion of responsibility.

For sure, nobody saw negative rates coming, and few predicted that rates would stay this low this long. But there were different degrees of wrongness here. Read that WSJ piece, or anything just about everyone on the “Eek! Deficits!” side was saying, and compare it with, say, what I had to say. One reveals a world-view that has been utterly refuted by events; the other looks pretty good in the light of experience.

Pretending that everyone was equally flummoxed may make those who really were clueless feel better, but it’s not the truth.

Krugman’s blog, 8/21/15

August 22, 2015

There were four posts yesterday.  The first was “Fairy Tales:”

Brad DeLong is searching for the origins of the phrase “confidence fairy”. I’m pretty sure — you can never be completely sure, because things can stick in your mind — that it was an original coinage on my part, a snappy way to characterize the deep implausibility of the Alesina-Ardagna stuff that was sweeping Brussels and other corridors of power in 2010. Since then, a lot of further evidence has come in — and all of it confirms the original critique.

But confidence-fairy type arguments and critiques of the same go back a long way, of course. And there’s a reason. As Mike Konczal, channeling Kalecki, pointed out some time ago, arguments rejecting Keynes and declaring that only business confidence can achieve full employment serve a very useful political purpose: they empower plutocrats and big business, while rendering populists impotent.

This is the story of Greece right now. Euro membership — and the unwillingness of Tsipras and co to take the risks of a plan B — have left Syriza with no policy tools, nothing it can do except try to placate investors, which means not just macro punishment but the forced adoption of policies like privatization.

And this speaks to the wider point of the politicization of macroeconomics. Why did freshwater macroeconomists refuse to learn from the lessons of the Volcker recession and recovery, which clearly refuted their approach and supported some kind of Keynesian view on monetary policy? Why has the overwhelmingrecent evidence for a Keynesian view of fiscal policy been ignored? You might think that business, at least, would welcome policies that boost sales; but the ideology of confidence must be defended.

Yesterday’s second post was “Winner Take Less? (In Music):”

I very much liked Steven Johnson’s piece on the failure of the feared creative apocalypse to materialize. I do have a bone to pick, however: you do not write things like this:

According to one source, the top 100 tours of 2000 captured 90 percent of all revenue, while today the top 100 capture only 43 percent.

without either naming the source or providing a link. As it happens, however, a bit of searching does lead to the actual source — Pollstar, whose concert revenue data do suggest a decline in the dominance of live music by the biggest acts.

And that’s a result that makes me happy. As regular readers know, I’ve turned into a 60-something wannabe hipster, with a taste for indie bands that aren’t giant grossers and will probably never get into the top 100, no matter how devoted their fans. What I’d like to believe is that streaming media makes it possible for more people like me to find these bands, and then seek out the live experience. And a casual look at the Pollstar data seems to support that hopeful story.

What I don’t know is whether we can safely use the data that way. Did the top 100 acts really account for 90 percent of concert revenue in 2000? Pollstar mentions that festivals are a rapidly growing field; how are they handled in the totals? For what it’s worth, these data show top 100 revenues growing roughly in line with GDP, but overall revenues growing considerably faster; is this real, or an artifact of wider reporting?

Inquiring minds want to know.

The third post yesterday was “Classification Follies:”

The Clinton email “scandal” goes on — still no sign that she broke any rules, no sign that she sent or received anything labeled “classified”, but she may have received and even forwarded items that were later classified or “should” have been classified. By normal human standards this is a big nothing; but Clinton Rules apply, under which malign behavior is the default assumption and where there’s smoke there must be fire even if everyone knows that the usual suspects are operating big smoke machines. How many people still think that there really was a Whitewater scandal, or for that matter that Hillary is the subject of a criminal investigation?

But Jeffrey Toobin adds a further twist: to the extent that some things may have been classified after the fact, it’s a very good guess that they shouldn’t have been — because the government classifies everything.

I know a bit about this from first-hand, if very old, experience. I was the senior international economist at the Council of Economic Advisers in 1982-83. (Yes, Reagan was president, but it was a technocratic post. The senior domestic economist was a guy named Lawrence Summers. Whatever happened to him?) And I received a lot of reports labeled SECRET NOFORN NOCONTRACT PROPIN ORCON (maybe out of date — no foreign nationals, no contractors, proprietary information, origin controlled). I can’t remember a single document so labeled with information that was remotely sensitive — or for that matter, with stuff that you couldn’t read in the Times or the Post.

Pretty soon, by the way, I got casual. We had a security officer who would come through offices at night, and if he found classified material left out he would take it away, put it in the safe, and issue a demerit. Luckily, the chairman got even more black marks than I did.

Of course, I wasn’t working in an area of genuine security concerns. But that’s kind of the point.

Yesterday’s last post was “Carter, Reagan, and Machiavelli:”

Rex Nutting has a very nice article about the reality of Jimmy Carter’s presidency, which has been distorted out of recognition by the myth of Saint Reagan. As he points out, Carter presided over faster average job growth and lower unemployment than Reagan; unfortunately for Carter, his timing was bad, with vigorous growth for most of his presidency but a recession at the end.

Or to be more specific: the Federal Reserve put the US economy through the wringer from 1979 to 1982 in order to bring inflation down. Carter presided over the first part of that double-dip recession, and got wrongly blamed for it; Reagan presided over the second part, and wrongly got credit for the later recovery.

What you see in all this is the remarkable political dominance of recent rates of change over even medium-term comparisons. The chart shows real median family income, which rose a lot through 1979, and was still far from having returned to that peak by the end of Reagan’s first term. Nonetheless, Carter was booted from office amid derision — “are you better off now than you were four years ago?” (actually yes), while Reagan won a landslide as a triumphant economic savior.

But Machiavelli knew all about this:

Hence it is to be remarked that, in seizing a state, the usurper ought to examine closely into all those injuries which it is necessary for him to inflict, and to do them all at one stroke so as not to have to repeat them daily.

Make sure that the bad stuff happens early in your rule; then you can claim credit when things get better, even if you leave the nation in a worse condition than it was when you arrived.

Krugman’s blog, 8/19/15

August 20, 2015

There were three posts yesterday.  The first was “How Not To Be Read (Trivial):”

A public service announcement for those who want a hearing: if you send me an email with an attached letter, which says “Please read attached letter” without any indication of what it’s about, you should know what will (or actually won’t) happen. Life is short, and if you can’t be bothered to take the time to say more, I can’t be bothered to open an attachment.

Yesterday’s second post was “Pension-cutters and Privatizers, Oh My:”

I wrote Monday about the strange phenomenon of Republicans lining up to propose cuts to Social Security, a deeply unpopular policy that is, however, also a really bad idea. How unpopular? Lee Drutman has the data: only 6 percent of American voters support Social Security cuts, while a majority want it increased. I argued that this apparent act of political self-destructiveness probably reflected an attempt to curry favor with wealthy donors, who are very much at odds with the general public on this issue:

Now we have another example: Marco Rubio has announced hishealth care plan, and it involves (a) greatly shrinking the tax deductibility of employer health benefits and (b) turning Medicare into a voucher system. Part (a) is favored by many economists, although I would argue wrongly, but would be deeply unpopular; part (b) is really terrible policy — proposed precisely at the moment when Medicare is showing that it can control costs better than private insurers! — and also deeply unpopular.

The strategy here, surely, is to propose things that voters would hate if they understood what was on the table, but hope that Fox News plus “views on shape of planet differ” reporting elsewhere will keep them confused, while at the same time pleasing mega-donors. It might even work, especially if Trump can be pushed out of the picture and the Hillary-hatred of reporters overcomes professional scruples. But it’s still amazing to watch.

The last post yesterday was “Trump in a Box:”

As pundits are discovering to their horror, there’s probably more to the Trump phenomenon than mere celebrity. The fact is that the central planks of modern conservatism — slashing taxes on the rich and benefits for the public at large — are deeply unpopular. Republicans have won elections only by wrapping these policies in other stuff; it’s about cutting benefits for welfare queens and “strapping young bucks” (that’s a Reaganism, in case you’re wondering) buying T-bone steaks with food stamps. And this in turn means that there is a sort of empty box in U.S. politics waiting to be filled.

The matrix here shows the possible positions. A welfare state available to all is the Democratic position, which is pretty much what other Western countries call the social democratic position. The dominant role in the modern GOP is played by a faction that links de facto disdain for Those People with a desire to slash social insurance. Libertarians are, in principle, small-government without the undertones; they are also basically absent from the actually existing electorate.

And then there’s the empty box. Once upon a time that box was filled by southern Democrats, who preserved Jim Crow while supporting the New Deal. But they’ve all moved over to the GOP now, and in the process become anti-social-insurance. But there are plenty of voters who want Social Security and Medicare for people who look like them, but not those other people. And at some level Trump is catering to that unserved population.

Of course, Trumpism is a really bad name for this, partly because the man himself isn’t actually coherent, partly because it’s still likely that he’s a case of hair today, gone tomorrow. And maybe nobody else will make a play for that box. But it’s also possible that we’ll see the rise of a movement that needs a better name. Hmm. How about National Social Democracy? Any problems with that?

Krugman’s blog, 8/17/15

August 18, 2015

There were two posts yesterday.  The first was “The Medicaid Two-Step:”

The estimable Charles Gaba notes the latest in Obamacare denialism; OK, say the usual suspects, maybe the number of insured Americans has risen, but it’s mainly because of Medicaid expansion. As he says, this is only shocking if you consider Medicaid recipients somehow not worth counting, because, um, well.

Actually, however, this is an even worse argument than Gaba indicates. You see, before the ACA went into effect the very same people loudly insisted that expanding Medicaid was worthless, because instead of insuring more people it would mainly crowd out private insurance, making only a small dent in the number of uninsured Americans.

And maybe the Medicaid expansion has in some cases led people to drop the private coverage they would have had otherwise. But the number of uninsured has dropped sharply, especially in Medicaid expansion states. So if there was crowding out, it was more than offset by the expansion in private coverage due to the other features of Obamacare.

The point is that even aside from the facts that Medicaid is real insurance and Medicaid recipients are real people, the whole “but it’s just a Medicaid expansion” claim is outrageous coming from people who insisted just the other day that expanding Medicaid wouldn’t work.

So will the Medicaid-won’t work claim be dropped? Of course not. No anti-Obamacare argument ever is. These are people completely untroubled by cognitive dissonance.

Yesterday’s second post was “Base Versus Base:”

“This is an impressive crowd — the haves and the have-mores. Some people call you the elites; I call you my base.”

George W. Bush

Ezra Klein’s piece this morning on The Donald, and how his views are actually more representative of the GOP base than the establishment want to admit, dovetails with my piece about Social Security. Ezra is, however, a little vague about who he means by the Republican establishment; I argue that we’re really talking at this point about a small group of very wealthy donors. As the old joke by W indicates, these donors actually constitute a sort of different base.

And what we’re seeing here is a stark conflict between the two bases. The Bush base wants, well, Bush; it has anted up well over $100 million in an attempt to anoint Jeb! as the nominee, in part because he faithfully espouses its priorities. (Interesting note: If Jeb! really believed he could achieve 4 percent growth, there would be no need for Social Security cuts, since that kind of growth would rapidly fill federal coffers. But slashing the welfare state is, of course, not about the money — it’s about the pain.)

It turns out that Bro! was, for a while, pretty good at convincing the voter base that he was one of them, even while showing real featly to the big money. But that fell apart in 2005 during his attempt to privatize Social Security. And Jeb! has no talent at all for that kind of salesmanship — or, actually, anything as far as I can see. All that money, and he’s fourth in the polling.

Everyone still says that DT can’t win this thing, and they may be right. But who, exactly, is supposed to come out on top and how? The money seems to have lost its knack for hoodwinking the voters.


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