Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 12/5/16

December 6, 2016

There was one post yesterday, “Trade, Facts, and Politics:”

I see that Tim Duy is angry at me again. The occasion is rather odd: I produced a little paper on trade and jobs, which I explicitly labeled “wonkish”; the point of the paper was, as I said, to reconcile what seemed to be conflicting assessments of the impacts of trade on overall manufacturing employment.

But Duy is mad, because “dry statistics on trade aren’t working to counter Trump.” Um, that wasn’t the point of the exercise. This wasn’t a political manifesto, and never claimed to be. Nor was it a defense of conventional views on trade. It was about what the data say about a particular question. Are we not allowed to do such things in the age of Trump?

Actually, maybe not. Part of the whole Trump phenomenon involves white working class voters rallying around a candidate who promised to bring back the coal and industrial jobs of the past, and lashing out at anyone who refuses to make similar promises. Yet the promise was and is fraudulent. If trying to get the analysis right is elitist, we’re in very big trouble — and perhaps we are.

So what would a political manifesto aimed at winning over these voters look like? You could promise to make their lives better in ways that don’t involve bringing back the old plants and mines — which, you know, Obama did with health reform and Hillary would have done with family policies and more. But that apparently isn’t an acceptable answer.

Can we promise new, different jobs? Job creation under Obama has been pretty good, but it hasn’t offered blue-collar jobs in the same places where the old industrial jobs have eroded.

So maybe the answer is regional policies, to promote employment in declining regions? There is certainly a case in principle for doing this, since the costs of uprooting workers and families are larger than economists like to imagine. I would say, however, that the track record of regional support policies in other countries, which spend far more on such things than we are likely to, is pretty poor. For example, massive aid to the former East Germany hasn’t prevented a large decline in population, much bigger than the population decline in Appalachia over the same period.

And I have to admit to a strong suspicion that proposals for regional policies that aim to induce service industries to relocate to the Rust Belt would not be well received, would in fact be attacked as elitist. People want those manufacturing jobs back, not something different. And it’s snooty and disrespectful to say that this can’t be done, even though it’s the truth.

So I really don’t know the answer. But back to the starting point: when I analyze the effects of trade on manufacturing employment, the goal is to understand the effects of trade on manufacturing employment — not to win over voters. No, dry statistics aren’t good for political campaigns; but that’s no reason to ban statistics.

Krugman’s blog, 12/3 and 12/4/16

December 5, 2016

There was one post on Saturday, and one yesterday.  Saturday’s post was “When The Ridiculous Is Ominous:”

I’m still mulling over the Carrier deal, which I suspect will be a template for the Trump years in general — again and again, we’ll see actions that are ridiculous in themselves, but add up to a very scary picture.

Start with the ridiculous nature of the whole thing: we’re talking, it now turns out, about 800 jobs in a nation with 145 million workers. Around 75,000 workers lose their jobs every working day. How does something that isn’t even rounding error in the overall jobs picture come to dominate a couple of news cycles?

Yet it did — with overwhelmingly positive coverage, at least on TV news. And that’s ominous in itself. It says that large parts of the news media, whose credulous Trump coverage and sniping at HRC helped bring us to where we are, will be even worse, even more poodle-like, now that this guy is in office.

Meanwhile, as Larry Summers says, the precedent — although tiny — is not good: it’s not just crony capitalism, it’s government as protection racket, where companies shape their strategies to appease politicians who will reward or punish based on how it affects their PR efforts and/or personal fortunes. That is, we’re looking at what may well be the beginning of a descent into banana republic governance.

This is, as Larry says, bad both for the economic and for freedom. And there’s every reason to expect many stories like this in the days ahead.

Yesterday’s post was “Trade and Manufacturing Jobs (Wonkish):”

Recent conversations indicate some confusion about what the economic analysis of trade and jobs actually says, with an impression of big disagreements when what is really happening is that different papers ask different questions. So I attempt a wonkish clarification.

(The link goes to his paper at CUNY.)

Krugman’s blog, 11/19/16

November 21, 2016

There was one post on Saturday, “Infrastructure Build or Privatization Scam?”:

Trumpists are touting the idea of a big infrastructure build, and some Democrats are making conciliatory noises about working with the new regime on that front. But remember who you’re dealing with: if you invest anything with this guy, be it money or reputation, you are at great risk of being scammed. So, what do we know about the Trump infrastructure plan, such as it is?

Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects — which would be the straightforward, obvious thing to do. It is, instead, supposed to involve having private investors do the work both of raising money and building the projects — with the aid of a huge tax credit that gives them back 82 percent of the equity they put in. To compensate for the small sliver of additional equity and the interest on their borrowing, the private investors then have to somehow make profits on the assets they end up owning.

You should immediately ask three questions about all of this.

First, why involve private investors at all? It’s not as if the federal government is having any trouble raising money — in fact, a large part of the justification for infrastructure investment is precisely that the government can borrow so cheaply. Why do we need private equity at all?

One answer might be that this way you avoid incurring additional public debt. But that’s just accounting confusion. Imagine that you’re building a toll road. If the government builds it, it ends up paying interest but gets the future revenue from the tolls. If it turns the project over to private investors, it avoids the interest cost — but also loses the future toll revenue. The government’s future cash flow is no better than it would have been if it borrowed directly, and worse if it strikes a bad deal, say because the investors have political connections.

Second, how is this kind of scheme supposed to finance investment that doesn’t produce a revenue stream? Toll roads are not the main thing we need right now; what about sewage systems, making up for deferred maintenance, and so on? You could bring in private investors by guaranteeing them future government money — say, paying rent in perpetuity for the use of a water system built by a private consortium. But this, even more than having someone else collect tolls, would simply be government borrowing through the back door — with much less transparency, and hence greater opportunities for giveaways to favored interests.

Third, how much of the investment thus financed would actually be investment that wouldn’t have taken place anyway? That is, how much “additionality” is there? Suppose that there’s a planned tunnel, which is clearly going to be built; but now it’s renamed the Trump Tunnel, the building and financing are carried out by private firms, and the future tolls and/or rent paid by the government go to those private interests. In that case we haven’t promoted investment at all, we’ve just in effect privatized a public asset — and given the buyers 82 percent of the purchase price in the form of a tax credit.

Again, all of these questions could be avoided by doing things the straightforward way: if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff. You could try to come up with some justification for the complexity of the scheme, but one simple answer would be that it’s not about investment, it’s about ripping off taxpayers. Is that implausible, given who we’re talking about?

Krugman’s blog, 11/18/16

November 19, 2016

There was one post yesterday, “The Sorry and the Pity:”

A lot of people in politics and the media are scrambling to normalize what just happened to us, saying that it will all be OK and we can work with Trump. No, it won’t, and no, we can’t. The next occupant of the White House will be a pathological liar with a loose grip on reality; he is already surrounding himself with racists, anti-Semites, and conspiracy theorists; his administration will be the most corrupt in America history.

How did this happen? There were multiple causes, but you just can’t ignore the reality that key institutions and their leaders utterly failed. Every news organization that decided, for the sake of ratings, to ignore policy and barely cover Trump scandals while obsessing over Clinton emails, every reporter who, for whatever reason — often sheer pettiness — played up Wikileaks nonsense and talked about how various Clinton stuff “raised questions” and “cast shadows” is complicit in this disaster. And then there’s the FBI: it’s quite reasonable to argue that James Comey, whether it was careerism, cowardice, or something worse, tipped the scales and may have doomed the world.

No, I’m not giving up hope. Maybe, just maybe, the sheer awfulness of what’s happening will sink in. Maybe the backlash will be big enough to constrain Trump from destroying democracy in the next few months, and/or sweep his gang from power in the next few years. But if that’s going to happen, enough people will have to be true patriots, which means taking a stand.

And anyone who doesn’t — who plays along and plays it safe — is betraying America, and mankind.

The New York Times is pussy footing around like a long tailed cat in a room full of rocking chairs.  It’s disgusting, and the editorial staff should be ashamed.

Krugman’s blog, 11/11/16

November 12, 2016

There was one post yesterday, “The Long Haul:”

As I said in today’s column, nobody who thought Trump would be a disaster should change his or her mind because he won the election. He will, in fact, be a disaster on every front. And I think he will eventually drag the Republican Party into the abyss along with his own reputation; the question is whether he drags the rest of the country, and the world, down with him.

But it’s important not to expect this to happen right away. There’s a temptation to predict immediate economic or foreign-policy collapse; I gave in to that temptation Tuesday night, but quickly realized that I was making the same mistake as the opponents of Brexit (which I got right). So I am retracting that call, right now. It’s at least possible that bigger budget deficits will, if anything, strengthen the economy briefly. More detail in Monday’s column, I suspect.

On other fronts, too, don’t expect immediate vindication. America has a vast stock of reputational capital, built up over generations; even Trump will take some time to squander it.

The true awfulness of Trump will become apparent over time. Bad things will happen, and he will be clueless about how to respond; if you want a parallel, think about how Katrina revealed the hollowness of the Bush administration, and multiply by a hundred. And his promises to bring back the good old days will eventually be revealed as the lies they are.

But it probably won’t happen in a year. So the effort to reclaim American decency is going to have to have staying power; we need to build the case, organize, create the framework. And, of course, never forget who is right.

It’s going to be a long time in the wilderness, and it’s going to be awful. If I sound calm and philosophical, I’m not — like everyone who cares, I’m frazzled, sleepless, depressed. But we need to be stalwart.

Krugman’s blog, 11/9/16

November 10, 2016

There were two posts yesterday.  The first was “Ending the American Romance:”

I tweeted this out earlier, but for blog readers here it is in this form.

Some morning-after thoughts: what hits me and other so hard isn’t just the immense damage Trump will surely do, to climate above all. There’s also a vast disillusionment that as of now I think of as the end of the romantic vision of America (which I still love).

What I mean is the notion of US history as a sort of novel in which there may be great tragedy, but there’s always a happy ending. That is, we tell a story in which at times of crisis we always find the leader — Lincoln, FDR — and the moral courage we need.

It’s a particular kind of American exceptionalism; other countries don’t tell that kind of story about themselves. But I, like others, believed it.

Now it doesn’t look very good, does it? But giving up is not an option. The world needs a decent, democratic America, or we’re all lost. And there’s still a lot of decency in the nation — it’s just not as dominant as I imagined. Time to rethink, for sure. But not to surrender.

Yesterday’s second post was “Now What? Personal Thoughts:”

Anyone who claims to be philosophical and detached after yesterday is either lying or has something very wrong with him (or her, but I doubt many women are in that camp.) It’s a disaster on multiple levels, and the damage will echo down the decades if not the generations. And like anyone on my side of this debate, I keep feeling waves of grief.

It’s natural, only human, to engage in recriminations, some of which are surely deserved. But while a post-mortem is going to be necessary, lashing out doesn’t seem helpful — or good for the lashers-out themselves.

Eventually those of us on the center-left will have to talk about political strategy. For now, however, I want to share some thoughts on how we should deal with this personally.

First of all, it’s always important to remember that elections determine who has the power, not who has the truth. The stunning upset doesn’t mean that the alt-right is correct to view nonwhites as inferior, that voodoo economics works, whatever. And you have to hold to the truth as best you see it, even if it suffers political defeat.

That said, does it make sense on a personal level to keep struggling after this kind of blow? Why not give up on trying to save the world, and just look out for yourself and those close to you? Quietism does have its appeal. Admission: I spent a lot of today listening to music, working out, reading a novel, basically taking a vacation in my head. You can’t help feeling tired and frustrated after this kind of setback.

But eventually one has to go back to standing for what you believe in. It’s going to be a much harder, longer road than I imagined, and maybe it ends in irreversible defeat, if nothing else from runaway climate change. But I couldn’t live with myself if I just gave up. And I hope others will feel the same.

From your lips to God’s ear, Paul.

Krugman’s blog, 10/31/16

November 1, 2016

There was one post yesterday, “Trade Plateaus (Wonkish):”

Binyamin Appelbaum has a nice piece about the stall in world trade growth, which I (and many others) have been tracking for a while. And I thought I’d write a bit more about this, if only to serve as a much-needed distraction from the election.

If there’s a problem with the Appelbaum piece, it is that on casual reading it might seem to suggest that slowing trade growth is (a) necessarily the result of protectionism and (b) necessarily a bad thing. Neither of these is right.

I found myself thinking about this some years ago, when teaching trade policy at the Woodrow Wilson School. I was very struck by a paper by Taylor et al on the interwar decline in trade, which argued that much of this decline reflected rising transport costs, not protectionism. But how could transport costs have gone up? Was there technological regress?

The answer, as the paper correctly pointed out, is that real transport costs will rise even if there is continuing technological progress, as long as that progress is slower than in the rest of the economy.

To clear that story up in my own mind, I wrote up a little toy model, contained in these class notes from sometime last decade (?). Pretty sure I wrote them before the global trade stagnation happened, but they’re a useful guide all the same.

As I see it, we had some big technological advances in transportation — containerization, probably better communication making it easier to break up the value chain; plus the great move of developing countries away from import substitution toward export orientation. (That’s a decline in tau and t in my toy model.) But this was a one-time event. Now that it’s behind us, no presumption that trade will grow faster than GDP. This need not represent a problem; it’s just the end of one technological era.

It is kind of ironic that globalization seems to be plateauing just as the political backlash mounts. But we’re not going to talk about the election.

Krugman’s blog 10/28/16

October 31, 2016

On Friday Prof. Krugman had one post:  “Conservative Intellectuals: Follow the Money:”

Both Ross Douthat and David Brooks have now weighed in on the state of conservative intellectuals; both deserve credit for taking a critical look at their team.

But — of course there’s a but — I’d argue that they and others on the right still have huge blind spots. In fact, these blind spots are so huge as to make the critiques all but useless as a basis for reform. For if you ignore the true, deep roots of the conservative intellectual implosion, you’re never going to make a real start on reconstruction.

What are these blind spots? First, belief in a golden age that never existed. Second, a simply weird refusal to acknowledge the huge role played by money and monetary incentives promoting bad ideas.

On the first point: We’re supposed to think back nostalgically to the era when serious conservative intellectuals like Irving Kristol tried to understand the world, rather than treating everything as a political exercise in which ideas were just there to help their team win.

But it was never like that. Don’t take my word for it; take the word of Irving Kristol himself, in his book “Neoconservatism: The Autobiography of an Idea.” Kristol explained his embrace of supply-side economics in the 1970s: “I was not certain of its economic merits but quickly saw its political possibilities.” This justified a “cavalier attitude toward the budget deficit and other monetary or financial problems”, because “political effectiveness was the priority, not the accounting deficiencies of government.”

In short, never mind whether it’s right, as long as it’s politically useful. When David complains that “conservative opinion-meisters began to value politics over everything else,” he’s describing something that happened well before Reagan.

But shouldn’t there have been some reality checks along the way, with politically convenient ideas falling out of favor because they didn’t work in practice? No — because being wrong in the right way has always been a financially secure activity. I see this very clearly in economics, where there are three kinds of economists: liberal professional economists, conservative professional economists, and professional conservative economist — the fourth box is more or less empty, because billionaires don’t lavishly support hacks on the left.

Again, how can you even begin to talk about conservative intellectuals without discussing the founding of Heritage in 1973, or the roughly contemporaneous weaponizing of AEI as a political entity? Heritage in particular is flamboyantly incompetent on economics — remember the claim that the Ryan plan would reduce unemployment to 2.8 percent, or the chief economist’s complete botch on state job growth? But no matter: the foundation has plenty of money, because it advocates huge tax cuts for the rich, and the demand for that never goes away.

Remember, too, that climate denial is essentially an industry, funded by interest groups with a stake in promoting bad science. And this means a market for conservative “intellectuals” who are basically anti-science.

The point is that the intellectual side of movement conservatism has been a corrupt enterprise for around four decades. In its early years it could draw on right-wing intellectuals who had some prior reputation outside political work, but it has relied on home-grown hacks for a long time. I don’t see any reason to believe that such an enterprise is about to reform itself: if just being wrong and losing an election were enough, this would have happened in the 1990s.

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.