Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 10/22/16

October 24, 2016

There was one post yesterday, “Debt, Diversion, Distraction:”

There was a time, not long ago, when deficit scolds were actively dangerous — when their huffing and puffing came quite close to stampeding Washington into really bad policies like raising the Medicare age (which wouldn’t even have saved money) and short-term fiscal austerity. At this point their influence doesn’t reach nearly that far. But they continue to play a malign role in our national discourse — because they divert and distract attention from much more deserving problems, depriving crucial issues of political oxygen.

You saw that in the debates: four, count them, four questions about debt from the CRFB, not one about climate change. And you see it again in today’s Times, with Pete Peterson (of course) and Paul Volcker (sigh) lecturing us about the usual stuff.

What’s so bad about this kind of deficit scolding? It’s deeply misleading on two levels: the problem it purports to lay out is far less clearly a major issue than the scolds claim, and the insistence that we need immediate action is just incoherent.

So, about that supposed debt crisis: right now we have a more or less stable ratio of debt to GDP, and no hint of a financing problem. So claims that we are facing something terrible rest on the presumption that the budget situation will worsen dramatically over time. How sure are we about that? Less than you may imagine.

Yes, the population is getting older, which means more spending on Medicare and Social Security. But it’s already 2016, which means that quite a few baby boomers are already drawing on those programs; by 2020 we’ll be about halfway through the demographic transition, and current estimates don’t suggest a big budget problem.

Why, then, do you see projections of a large debt increase? The answer lies not in a known factor — an aging population — but in assumed growth in health care costs and rising interest rates. And the truth is that we don’t know that these are going to happen. In fact, health costs have grown much more slowly since 2010 than previously projected, and interest rates have been much lower. As the chart above shows, taking these favorable surprises into account has already drastically reduced long-run debt projections. These days the long-run outlook looks vastly less scary than people used to imagine.

Still, it’s probably true that something will eventually have to be done to bring spending and revenues in line. But that brings me to the second point: why is this a crucial issue right now?

Are debt scolds demanding that we slash spending and raise taxes right away? Actually, no: the economy is still weak, interest rates still low (meaning that the Fed can’t offset fiscal tightening with easy money), and as a matter of macroeconomic prudence we should probably be running bigger, not smaller deficits in the medium term. So proposals to “deal with” the supposed debt problem always involve long-term cuts in benefits and (reluctantly) increases in taxes. That is, they don’t involve actual policy moves now, or for the next 5-10 years.

So why is it so important to take up the issue right now, with so much else on our plate?

Put it this way: yes, it’s possible that we may at some point in the future have to cut benefits. But deficit scolds talk as if they offer a way to avoid this fate, when in fact their solution to the prospect of future benefit cuts is … to cut future benefits.

If you try really hard, you can argue that locking in policies now for this future adjustment will make the transition smoother. But that is really a second-order issue, hardly deserving to take up a lot of our time. By putting the debt question aside, we are NOT in any material way making the future worse.

And that is a total contrast with climate change, where our failure to act means pouring vast quantities of greenhouse gases into the atmosphere, materially increasing the odds of catastrophe with every year we wait.

So my message to the deficit scolds is this: yes, we may face some hard choices a couple of decades from now. But we might not, and in any case there aren’t any choices that must be made now. Meanwhile, there are genuinely scary things happening as we speak, which we should be taking on but aren’t. And your fear-mongering is distracting us from these real problems. Therefore, I would respectfully request that you people just go away.

Krugman’s blog, 10/17/16

October 18, 2016

There was one post yesterday, “Distrust of Data:”

Like Claudia Sahm, I was struck by polling results indicating that around half of Trump supporters completely distrust official data — although maybe a bit less surprised, since I’ve been living in that world for years. In particular, the failure of high inflation to materialize led quite a few people on the right side of the political spectrum — including the likes of Niall Ferguson — to insist that the numbers were being cooked, so this is neither a new phenomenon nor one restricted to Trump types.

As it happened, there was a very easy answer to the inflation truthers: quite aside from the absurdity of claiming a conspiracy at the BLS, we had independent estimates such as the Billion Prices Index that closely matched official data. And there’s similar independent evidence for a lot of the things where people now claim that official numbers are skewed. For example, the Gallup Healthways index provides independent confirmation of the huge gains in insurance coverage under the Affordable Care Act.

But aside from validity, what explains this distrust of statistics? Is it because peoples’ own experience clashes with what they’re being told? I don’t think so. In fact, when people are asked about personal outcomes, not about “the economy,” the story they tell is a lot like the official numbers. From that poll about Trumpian distrust of the data:

So people are feeling better, in line with what the data say, but claim that the economy is getting worse. Hard to believe that this isn’t political, a case of going with the party line in the teeth of personal experience.

Krugman’s blog, 10/11/16

October 12, 2016

There was one post yesterday, “Notes on Brexit and the Pound:”

The much-hyped severe Brexit recession does not, so far, seem to be materializing – which really shouldn’t be that much of a surprise, because as I warned, the actual economic case for such a recession was surprisingly weak. (Ouch! I just pulled a muscle while patting myself on the back!) But we are seeing a large drop in the pound, which has steepened as it becomes likely that this will indeed be a very hard Brexit. How should we think about this?

Originally, stories about a pound plunge were tied to that recession prediction: domestic investment demand would collapse, leading to sustained very low interest rates, hence capital flight. But the demand collapse doesn’t seem to be happening. So what is the story?

For now, at least, I’m coming at it from the trade side – especially trade in financial services. It seems to me that one way to think about this is in terms of the “home market effect,” an old story in trade but one that only got formalized in 1980.

Here’s an informal version: imagine a good or service subject to large economies of scale in production, sufficient that if it’s consumed in two countries, you want to produce it in only one, and export to the other, even if there are costs of shipping it. Where will this production be located? Other things equal, you would choose the larger market, so as to minimize total shipping costs. Other things may not, of course, be equal, but this market-size effect will always be a factor, depending on how high those shipping costs are.

In one of the models I laid out in that old paper, the way this worked out was not that all production left the smaller economy, but rather that the smaller economy paid lower wages and therefore made up in competitiveness what it lacked in market access. In effect, it used a weaker currency to make up for its smaller market.

In Britain’s case, I’d suggest that we think of financial services as the industry in question. Such services are subject to both internal and external economies of scale, which tends to concentrate them in a handful of huge financial centers around the world, one of which is, of course, the City of London. But now we face the prospect of seriously increased transaction costs between Britain and the rest of Europe, which creates an incentive to move those services away from the smaller economy (Britain) and into the larger (Europe). Britain therefore needs a weaker currency to offset this adverse impact.

Does this make Britain poorer? Yes. It’s not just the efficiency effect of barriers to trade, there’s also a terms-of-trade effect as the real exchange rate depreciates.

But it’s important to be aware that not everyone in Britain is equally affected. Pre-Brexit, Britain was obviously experiencing a version of the so-called Dutch disease. In its traditional form, this referred to the way natural resource exports crowd out manufacturing by keeping the currency strong. In the UK case, the City’s financial exports play the same role. So their weakening helps British manufacturing – and, maybe, the incomes of people who live far from the City and still depend directly or indirectly on manufacturing for their incomes. It’s not completely incidental that these were the parts of England (not Scotland!) that voted for Brexit.

Is there a policy moral here? Basically it is that a weaker pound shouldn’t be viewed as an additional cost from Brexit, it’s just part of the adjustment. And it would be a big mistake to prop up the pound: old notions of an equilibrium exchange rate no longer apply.

Krugman’s blog, 10/4/16

October 4, 2016

At 3:06 AM Prof. Krugman posted “The King of False Equivalence:”

So, now we’re supposed to feel sorry for Paul Ryan?

For years, Ryan has cultivated a reputation on both sides of the aisle as a paragon of decency, earnestness, and principle; that rare creature of D.C. who seems genuinely guided by good faith. To many in Washington — including no small number of reporters — Ryan’s support for Trump is not merely a political miscalculation, but a craven betrayal.

Ugh. Ryan is not, repeat not, a serious, honest man of principle who has tainted his brand by supporting Donald Trump. He has been an obvious fraud all along, at least to anyone who can do budget arithmetic. His budget proposals invariably contain three elements:

1. Huge tax cuts for the wealthy.
2. Savage cuts in aid to the poor.
3. Mystery meat – claims that he will raise trillions by closing unspecified tax loopholes and save trillions cutting unspecified discretionary spending.

Taking (1) and (2) together — that is, looking at the policies he actually specifies — his proposals have always increased the deficit, while transferring income from the have-nots to the haves. Only by invoking (3), which involves nothing but unsupported and implausible assertion, does he get to claim to reduce the deficit.

Yet he poses as an icon of fiscal probity. That is, he is, in his own way, every bit as much a fraud as The Donald.

So how has he been able to get away with this? The main answer is that he has been a huge beneficiary of false balance. The media narrative requires that there be serious, principled policy wonks on both sides of the aisle; Ryan has become the designated symbol of that supposed equivalence, even though actual budget experts have torn his proposals to shreds on repeated occasions.

And my guess is that the media will quickly forgive him for the Trump episode too. They need him for their bothsidesism. After all, it’s not as if there are any genuine honest policy wonks left in the party that nominated Donald Trump.

Krugman’s blog, 9/26/16

September 29, 2016

Prof. Krugman posted “A General Theory of Austerity?” at 3:19 this morning.  Here he is:

Simon Wren-Lewis has an excellent new paper trying to explain the widespread resort to austerity in the face of a liquidity trap, which is exactly the moment when such policies do the most harm. His bottom line is that

austerity was the result of right-wing opportunism, exploiting instinctive popular concern about rising government debt in order to reduce the size of the state.

I think this is right; but I would emphasize more than he does the extent to which both the general public and Very Serious People always assume that reducing deficits is the responsible thing to do. We have some polling from the 1930s, showing a strong balanced-budget bias even then:

I think Simon would say that this is consistent with his view that large deficits grease the rails for deficit phobia, since FDR’s administration did run up deficits and debt that were unprecedented for peacetime. But has there ever been a time when the public favored bigger deficits?

Meanwhile, as someone who was in the trenches during the US austerity fights, I was struck by how readily mainstream figures who weren’t especially right-wing in general got sucked into the notion that debt reduction was THE central issue. Ezra Klein documented this phenomenon with respect to Bowles-Simpson:

For reasons I’ve never quite understood, the rules of reportorial neutrality don’t apply when it comes to the deficit. On this one issue, reporters are permitted to openly cheer a particular set of highly controversial policy solutions. At Tuesday’s Playbook breakfast, for instance, Mike Allen, as a straightforward and fair a reporter as you’ll find, asked Simpson and Bowles whether they believed Obama would do “the right thing” on entitlements — with “the right thing” clearly meaning “cut entitlements.”

Meanwhile, as Brad Setser points out, the IMF — whose research department has done heroic work puncturing austerity theories and supporting a broadly Keynesian view of macroeconomics — is, in practice, pushing for fiscal contraction almost everywhere.

Again, this doesn’t exactly contradict Simon’s argument, but maybe suggests that there is a bit more to it.

Krugman’s blog, 9/28/16

September 28, 2016

He posted “VAT of Deplorables” at 3:27 AM:

I’ve been writing about Donald Trump’s claim that Mexico’s value-added tax is an unfair trade policy, which is just really bad economics. Here’s Joel Slemrod explaining that a VAT has the same effects as a sales tax. Now, nobody thinks that sales taxes are an unfair trade practice. New York has fairly high sales taxes; Delaware has no such tax. Does anyone think that this gives New York an unfair advantage in interstate competition?

But it turns out that Trump wasn’t saying ignorant things off the top of his head: he was saying ignorant things fed to him by his incompetent economic advisers. Here’s the campaign white paper on economics. The VAT discussion is on pages 12-13 — and it’s utterly uninformed.

And it’s not the worst thing: there’s lots of terrible stuff in the white paper, at every level.

Should we be reassured that Trump wasn’t actually winging it here, just taking really bad advice? Not at all. This says that if he somehow becomes president, and decides to take the job seriously, it won’t help — because his judgment in advisers, his notion of who constitutes an expert, is as bad as his judgment on the fly.

Krugman’s blog, 9/27/16

September 27, 2016

At 4:34 this morning Prof. Krugman posted “Trump On Trade:”

For the most part, at least as of now — mid-morning where I am, even if it’s the middle of the night back in America — the media consensus seems to be that Clinton won. This is a big deal: you know, just know, that they were primed to declare Trump the winner based on Clinton’s snooty insistence on facts, or maybe her “body language”. (Imagine what they would have said if she had engaged in Trump-like grimacing, pouting, and smirking, not to mention sniffling.) But he was so bad and she so good that they couldn’t.

Even so, it seems to be conventional wisdom that Trump did well in the first 15 minutes. And I guess he did if you are impressed by someone talking loudly and confidently about a subject he really doesn’t understand. But really: Trump on trade was ignorance all the way.

There were specifics: China is “devaluing” (not so — it was holding down the yuan five years ago, but these days it’s intervening to keep the yuan up, not down.) There was this, on Mexico:

Let me give you the example of Mexico. They have a VAT tax. We’re on a different system. When we sell into Mexico, there’s a tax. When they sell in — automatic, 16 percent, approximately. When they sell into us, there’s no tax. It’s a defective agreement. It’s been defective for a long time, many years, but the politicians haven’t done anything about it.

Gah. A VAT is basically a sales tax. It is levied on both domestic and imported goods, so that it doesn’t protect against imports — which is why it’s allowed under international trade rules, and not considered a protectionist trade policy. I get that Trump is not an economist — hoo boy, is he not an economist — but this is one of his signature issues, so you might have expected him to learn a few facts.

More broadly, Trump’s whole view on trade is that other people are taking advantage of us — that it’s all about dominance, and that we’re weak. And even if you think we’ve pushed globalization too far, even if you are worried about the effects of trade on income distribution, that’s just a foolish way to think about the problem.

So don’t score Trump as somehow winning on trade. Yes, he blustered more confidently on that subject than on anything else. But he was talking absolute garbage even there.

Krugman’s blog, 9/26/16

September 26, 2016

He must be in Europe…  This was posted at 3:51 AM EST today:  “The Falsity of False Equivalence:”

If Donald Trump becomes president, the news media will bear a large share of the blame. I know some (many) journalists are busy denying responsibility, but this is absurd, and I think they know it. As Nick Kristof says, polls showing that the public considers Hillary Clinton, a minor fibber at most, less trustworthy than a pathological liar is prima facie evidence of massive media failure.

In fact, it’s telling that this debate is usually framed as one of false equivalence and whether it’s a problem. It’s a lot better to have this debate than a continuation of the unchecked media assault on Clinton. But it’s actually much worse than that. The media haven’t treated Clinton fibs as the equivalent of outright Trump lies; they have treated more or less innocuous Clintonisms as major scandals while whitewashing Trump. Put simply, until the past few days the media have had it in for Clinton; only now, at the last moment or possibly after the last moment has the enormity of the sin begun to sink in.

Think about the Matt Lauer debacle. That wasn’t a case of false equivalence; a rough summary of his performance would be “Emails, emails, emails; yes, Mr. Trump, whatever you say, Mr. Trump.” One candidate was repeatedly harassed over something trivial, the other allowed to slide on grotesque falsehoods.

Or as Jonathan Chait says, the problem hasn’t just been the normalization of Trump, it has been the abnormalization of Clinton. Consider the AP report on the Clinton Foundation. An honest report would have said, “The foundation arguably creates the possibility of self-dealing and undue influence, but we’ve looked hard and haven’t found much of anything.” Instead, the report played up meetings with a Nobel Peace Prize winner as being somehow scandalous.

And it’s still happening, if not quite so relentlessly. We’re still seeing reports about how something Clinton did “raises questions,” “casts shadows,” etc. – weasel words that allow reporters to write negative stories regardless of the facts.

I’ve compared this to what went down in the 2000 campaign; Nick compares it to what happened in the runup to the Iraq war. Pick your analogy. But let’s use Nick’s example: actually, the media didn’t do false equivalence in 2002. What they – alas, including this paper – actually did was to breathlessly hype the case for war, reporting as an inside scoop everything that Dick Cheney fed them, while freezing out critics and skeptics. The other side was out there; McClatchy found plenty of insiders willing to say that we were being sold a bill of goods. But the skeptics couldn’t get a word in edgewise. Effectively, the media were pro-war.

And this time they have effectively been pro-Trump – actually anti-Clinton, but it comes to the same thing. I doubt that reporters or even editors have thought of themselves as trying to elect Trump; many of them will be horrified if he wins. But they went all in on Clinton Rules, under which sneering at and razzing a Clinton is considered good for your career. It’s really more like high school than high journalism, but it may have horrendous consequences.

A lot depends on whether the same behavior continues for the final stretch. If the media report on the debates the way they did in 2000 – if substance is replaced by descriptions of Clinton’s facial expressions, her sighs, or how she “comes across,” while downplaying Trump’s raw lies, say hello to the Trump White House. And history will not forgive the people who made it possible.

Krugman’s blog, 9/22/16

September 23, 2016

There was one post yesterday, “The Curious Confidence of Charlatans and Cranks:”

Brad DeLong tells us about a letter being circulated by economists for Trump — although, as he notes, they don’t dare say that, and describe themselves only as critics of Clinton. Several things are notable about the letter, including the absence of many usually reliable Republican hired guns economists. But they do have a Nobelist, Eugene Fama, at the top. And the substance of the letter — government bad! taxes and regulation bad! free markets rool like Reagan! — is pretty standard.

What’s curious is why, exactly, anyone should believe this story. In recent memory, GW Bush failed to deliver the promised Bush boom and eventually presided over disaster; the Obama economy has not been all one might have hoped, but as many have noted, the job growth of the past three years and the income growth that has finally emerged would have been hailed as triumphs if Mitt Romney were president. Taking the longer view, Clinton > Reagan and Obama > Bush, by almost any measure. Why doesn’t this reality seem to register?

One big answer, I think, lies in profound ignorance, in the insistence that history is what it was supposed to be, not what it was. Way back Mr. Fama was caught insisting that there was a great takeoff of global growth after 1980 due to financial deregulation. In fact, growth in advanced countries has been slower since 1980 than it was before, and it’s really, really hard to attribute Chinese growth under Deng Xiaoping to U.S. banking deregulation. But this is the right: legends that support the cause trump awkward facts.

And let’s be clear: this is a problem that won’t go away even if Trump goes down to defeat. People like Paul Ryan are barely more in touch with reality than @ilduce2016.

Krugman’s blog, 9/17/16

September 17, 2016

Prof. Krugman must be out of the country, or having insomnia, because this was posted at 3:09 AM today.  Here’s “A Lie Too Far?”:

I suspect Donald Trump is feeling a bit sandbagged right now, or will be when he wakes up. All along he has treated the news media with contempt, and been rewarded with obsequious deference — his lies sugar-coated, described as “disputed” or “stretching the truth,” while every aspect of his opponent’s life is described as “raising questions” and “casting shadows”, despite lack of evidence that she did anything wrong.

If Greg Sargent and Norm Ornstein are to be believed (and they are!), the cable networks at least initially followed the same pattern in their response to DJT’s latest:

But the print media appear to have finally found their voice (which may shape cable coverage over time). The Times and the AP, in particular, have put out hard-hitting stories that present the essence in the lede, not in paragraph 25.

What’s so good about these stories? The fact that they are simple straightforward reporting.

First, confronted with obvious lies, they don’t pretend that the candidate said something less blatant, or do views differ on shape of planet — they simply say that what Trump said is untrue, and that his repetition of these falsehoods makes it clear that he was deliberately lying.

Second, the stories for today’s paper are notable for the absence of what I call second-order political reporting: they’re about what Trump said and did, not speculations about how it will play with voters.

Doing these things doesn’t sound very hard — but we’ve seen very little of this kind of thing until now. Why the change?

You could say that the lies were so blatant that doing the right thing became unavoidable. But there were plenty of earlier lies — Trump lying about his opposition to the Iraq War, about his donations to charity, and much more. There was already the unprecedented contempt for the press he showed by refusing to release his tax returns. And all of these were soft-pedaled, with the media spending its main energy doing neener-neener on Clinton emails and the Clinton Foundation. Why did the press hit its limit?

One answer might be the storm of criticism over election coverage, with, for example, the Washington Post editorial page essentially taking its own reporting to task. The Matt Lauer debacle may have helped bring things into focus. And tightening polls probably matter too, not because journalists are being partisan, but because they are now faced with the enormity of what their fact-free jeering of HRC and fawning over DJT might produce.

There are now two questions: will this last, and if it does, has the turn come soon enough? In both cases, nobody knows. But just imagine how different this election would look if we’d had this kind of simple, factual, truly balanced (as opposed to both-sides-do-it) reporting all along.