The Paul Krugman thread

[Dusty Bake Activate]

I thought maybe he could have an official thread the post and discuss the gawd's columns and blogs.

I think it might be a good idea for others to do the same for other columnists, pundits, and economists they read.

http://www.nytimes.com/2012/09/28/opinion/krugman-europes-austerity-madness.html?ref=paulkrugman

So much for complacency. Just a few days ago, the conventional wisdom was that Europe finally had things under control. The European Central Bank, by promising to buy the bonds of troubled governments if necessary, had soothed markets. All that debtor nations had to do, the story went, was agree to more and deeper austerity — the condition for central bank loans — and all would be well.

But the purveyors of conventional wisdom forgot that people were involved. Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit: With unemployment at Great Depression levels and with erstwhile middle-class workers reduced to picking through garbage in search of food, austerity has already gone too far. And this means that there may not be a deal after all.

Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain.

Consider Spain’s woes. What is the real economic problem? Basically, Spain is suffering the hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe. When the bubble burst, Spain was left with the difficult problem of regaining competitiveness, a painful process that will take years. Unless Spain leaves the euro — a step nobody wants to take — it is condemned to years of high unemployment.

But this arguably inevitable suffering is being greatly magnified by harsh spending cuts; and these spending cuts are a case of inflicting pain for the sake of inflicting pain.

First of all, Spain didn’t get into trouble because its government was profligate. On the contrary, on the eve of the crisis, Spain actually had a budget surplus and low debt. Large deficits emerged when the economy tanked, taking revenues with it, but, even so, Spain doesn’t appear to have all that high a debt burden.

It’s true that Spain is now having trouble borrowing to finance its deficits. That trouble is, however, mainly because of fears about the nation’s broader difficulties — not least the fear of political turmoil in the face of very high unemployment. And shaving a few points off the budget deficit won’t resolve those fears. In fact, research by the International Monetary Fund suggests that spending cuts in deeply depressed economies may actually reduce investor confidence because they accelerate the pace of economic decline.

In other words, the straight economics of the situation suggests that Spain doesn’t need more austerity. It shouldn’t throw a party, and, in fact, it probably has no alternative (short of euro exit) to a protracted period of hard times. But savage cuts to essential public services, to aid to the needy, and so on actually hurt the country’s prospects for successful adjustment.

Why, then, are there demands for ever more pain?

Part of the explanation is that in Europe, as in America, far too many Very Serious People have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are the clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess.

Beyond that, a significant part of public opinion in Europe’s core — above all, in Germany — is deeply committed to a false view of the situation. Talk to German officials and they will portray the euro crisis as a morality play, a tale of countries that lived high and now face the inevitable reckoning. Never mind the fact that this isn’t at all what happened — and the equally inconvenient fact that German banks played a large role in inflating Spain’s housing bubble. Sin and its consequences is their story, and they’re sticking to it.

Worse yet, this is also what many German voters believe, largely because it’s what politicians have told them. And fear of a backlash from voters who believe, wrongly, that they’re being put on the hook for the consequences of southern European irresponsibility leaves German politicians unwilling to approve essential emergency lending to Spain and other troubled nations unless the borrowers are punished first.

Of course, that’s not the way these demands are portrayed. But that’s what it really comes down to. And it’s long past time to put an end to this cruel nonsense.

If Germany really wants to save the euro, it should let the European Central Bank do what’s necessary to rescue the debtor nations — and it should do so without demanding more pointless pain.

 

[Dusty Bake Activate]

http://www.nytimes.com/2012/10/01/opinion/krugman-the-real-referendum.html?ref=paulkrugman&_r=0

Republicans came into this campaign believing that it would be a referendum on President Obama, and that still-high unemployment would hand them victory on a silver platter. But given the usual caveats — a month can be a long time in politics, it’s not over until the votes are actually counted, and so on — it doesn’t seem to be turning out that way.

Yet there is a sense in which the election is indeed a referendum, but of a different kind. Voters are, in effect, being asked to deliver a verdict on the legacy of the New Deal and the Great Society, on Social Security, Medicare and, yes, Obamacare, which represents an extension of that legacy. Will they vote for politicians who want to replace Medicare with Vouchercare, who denounce Social Security as “collectivist” (as Paul Ryan once did), who dismiss those who turn to social insurance programs as people unwilling to take responsibility for their lives?

If the polls are any indication, the result of that referendum will be a clear reassertion of support for the safety net, and a clear rejection of politicians who want to return us to the Gilded Age. But here’s the question: Will that election result be honored?

I ask that question because we already know what Mr. Obama will face if re-elected: a clamor from Beltway insiders demanding that he immediately return to his failed political strategy of 2011, in which he made a Grand Bargain over the budget deficit his overriding priority. Now is the time, he’ll be told, to fix America’s entitlement problem once and for all. There will be calls — as there were at the time of the Democratic National Convention — for him to officially endorse Simpson-Bowles, the budget proposal issued by the co-chairmen of his deficit commission (although never accepted by the commission as a whole).

And Mr. Obama should just say no, for three reasons.

First, despite years of dire warnings from people like, well, Alan Simpson and Erskine Bowles, we are not facing any kind of fiscal crisis. Indeed, U.S. borrowing costs are at historic lows, with investors actually willing to pay the government for the privilege of owning inflation-protected bonds. So reducing the budget deficit just isn’t the top priority for America at the moment; creating jobs is. For now, the administration’s political capital should be devoted to passing something like last year’s American Jobs Act and providing effective mortgage debt relief.

Second, contrary to Beltway conventional wisdom, America does not have an “entitlements problem.” Mainly, it has a health cost problem, private as well as public, which must be addressed (and which the Affordable Care Act at least starts to address). It’s true that there’s also, even aside from health care, a gap between the services we’re promising and the taxes we’re collecting — but to call that gap an “entitlements” issue is already to accept the very right-wing frame that voters appear to be in the process of rejecting.

Finally, despite the bizarre reverence it inspires in Beltway insiders — the same people, by the way, who assured us that Paul Ryan was a brave truth-teller — the fact is that Simpson-Bowles is a really bad plan, one that would undermine some key pieces of our safety net. And if a re-elected president were to endorse it, he would be betraying the trust of the voters who returned him to office.

Consider, in particular, the proposal to raise the Social Security retirement age, supposedly to reflect rising life expectancy. This is an idea Washington loves — but it’s also totally at odds with the reality of an America in which rising inequality is reflected not just in the quality of life but in its duration. For while average life expectancy has indeed risen, that increase is confined to the relatively well-off and well-educated — the very people who need Social Security least. Meanwhile, life expectancy is actually falling for a substantial part of the nation.

Now, there’s no mystery about why Simpson-Bowles looks the way it does. It was put together in a political environment in which progressives, and even supporters of the safety net as we know it, were very much on the defensive — an environment in which conservatives were presumed to be in the ascendant, and in which bipartisanship was effectively defined as the effort to broker deals between the center-right and the hard right.

Barring an upset, however, that environment will come to an end on Nov. 6. This election is, as I said, shaping up as a referendum on our social insurance system, and it looks as if Mr. Obama will emerge with a clear mandate for preserving and extending that system. It would be a terrible mistake, both politically and for the nation’s future, for him to let himself be talked into snatching defeat from the jaws of victory.

 

[same damn lo sweater]

Swift Economics - he's a krugman hater though

umair haque writes interesting stuff https://twitter.com/umairh

 

[Domingo Halliburton]

I don't get the big deal with this guy. He doesn't say anything that Keynes didn't say 80 years ago and he's a liberal hack.

 

[Dusty Bake Activate]

http://www.nytimes.com/2012/10/22/opinion/krugman-the-secret-of-our-non-success.html?ref=paulkrugman

The U.S. economy finally seems to be recovering in earnest, with housing on the rebound and job creation outpacing growth in the working-age population. But the news is good, not great — it will still take years to restore full employment — and it has been a very long time coming. Why has the slump been so protracted?

The answer — backed by overwhelming evidence — is that this is what normally happens after a severe financial crisis. But Mitt Romney’s economic team rejects that evidence. And this denialism bodes ill for policy if Mr. Romney wins next month.

About the evidence: The most famous study is by Harvard’s Carmen Reinhart and Kenneth Rogoff, who looked at past financial crises and found that such crises are typically followed by years of high unemployment and weak growth. Later work by economists at the International Monetary Fund and elsewhere confirmed this analysis: crises that followed a sharp run-up in private-sector debt, from the U.S. Panic of 1893 to the Swedish banking crisis of the early 1990s, cast long shadows over the economy’s future. There was no reason to believe that this time would be different.

This isn’t an after-the-fact rationalization. The Reinhart-Rogoff “aftermath” paper was released almost four years ago. And a number of other economists, including, well, me, issued similar warnings. In early 2008 I was already pointing out the distinction between recessions like 1973-5 or 1981-2, brought on by high interest rates, and “postmodern” recessions brought on by private-sector overreach. And I suggested that the recession we were then entering would be followed by a prolonged “jobless recovery” that would feel like a continuing recession.

Why is recovery from a financial crisis slow? Financial crises are preceded by credit bubbles; when those bubbles burst, many families and/or companies are left with high levels of debt, which force them to slash their spending. This slashed spending, in turn, depresses the economy as a whole.

And the usual response to recession, cutting interest rates to encourage spending, isn’t adequate. Many families simply can’t spend more, and interest rates can be cut only so far — namely, to zero but not below.

Does this mean that nothing can be done to avoid a protracted slump after a financial crisis? No, it just means that you have to do more than just cut interest rates. In particular, what the economy really needs after a financial crisis is a temporary increase in government spending, to sustain employment while the private sector repairs its balance sheet. And the Obama administration did some of that, blunting the severity of the financial crisis. Unfortunately, the stimulus was both too small and too short-lived, partly because of administration errors but mainly because of scorched-earth Republican obstruction.

Which brings us to the politics.

Over the past few months advisers to the Romney campaign have mounted a furious assault on the notion that financial-crisis recessions are different. For example, in July former Senator Phil Gramm and Columbia’s R. Glenn Hubbard published an op-ed article claiming that we should be having a recovery comparable to the bounceback from the 1981-2 recession, while a white paper from Romney advisers argues that the only thing preventing a rip-roaring boom is the uncertainty created by President Obama.

Obviously, Republicans like claiming that it’s all Mr. Obama’s fault, and that electing Mr. Romney would magically make everything better. But nobody should believe them.

For one thing, these people have a track record: back in 2008, when serious students of history were already predicting a prolonged slump, Mr. Gramm was dismissing America as a “nation of whiners” experiencing a mere “mental recession.” For another, if Mr. Obama is the problem, why is the United States actually doing better than most other advanced countries?

The main point, however, is that the Romney team is willfully, nakedly, distorting the record, leading Ms. Reinhart and Mr. Rogoff — who aren’t affiliated with either campaign — to protest against “gross misinterpretations of the facts.” And this should worry you.

Look, economics isn’t as much of a science as we’d like. But when there’s overwhelming evidence for an economic proposition — as there is for the proposition that financial-crisis recessions are different — we have the right to expect politicians and their advisers to respect that evidence. Otherwise, they’ll end up making policy based on fantasies rather than grappling with reality.

And once politicians start refusing to acknowledge inconvenient facts, where does it stop? Why, the next thing you know Republicans will start rejecting the overwhelming evidence for man-made climate change. Oh, wait.

 

[Gallo]

I don't get the big deal with this guy. He doesn't say anything that Keynes didn't say 80 years ago and he's a liberal hack.

It's not about the man, its about the model. And the models Krugman and others(salt water guys like De Long and Martin Wolf) are using have been spot on the last few years while the Fresh water guys(Chicago school) have been wrong about almost everything. The Austrians, they are irrelevant. Combine his prescience, large platform(Times) and a Nobel the results are that you hear about him a lot.

 

[Street Knowledge]

 

[GetInTheTruck]

When vic claims he "studies economic theory" what he really means is he reads all of krugmans op-eds in the nytimes.

 

[Dusty Bake Activate]

When vic claims he "studies economic theory" what he really means is he reads all of krugmans op-eds in the nytimes.

Yeah that's all I do. I see you're still mad because I called you out for not knowing shyt about political philosophy, government policy, or economics but still trying to form opinions about them and share them. I understand the basis for the ideas you favor better than you do.

 

[GetInTheTruck]

Yeah that's all I do. I see you're still mad because I called you out for not knowing shyt about political philosophy, government policy, or economics but still trying to form opinions about them and share them. I understand the ideas you favor better than you do.

I'm fukking with you breh , I'm not way off though.

 

[Dusty Bake Activate]

I'm fukking with you breh , I'm not way off though.

I obviously agree more with someone like Krugman, but I'm not gonna act like people like Friedman or Hayek don't make some good points and haven't contributed substantially to the study of economics.

But like Gallo said, Krugman's been on point since 2008 when I began to be interested in econ more. And I encourage others to post material from other reputable economists.

 

[Type Username Here]

One good thing is that the deficit scolds are furious: they had their hearts set on exploiting this crisis to push through benefit cuts, and it didn’t happen — part of the larger good news that Obama didn’t gut Social Security or Medicare this time around.

And as I pointed out yesterday, the numbers are disappointing, but the disappointment isn’t that big a deal. Let me offer more detail on that.

Before the deal, it was widely expected that Obama could get $800 billion in revenue. You may wonder how this reconciles with the much bigger numbers in his original proposal; the answer is that part of this came from the estate tax, on which he couldn’t count on backing from Senate Dems, but most of it came from going beyond just getting rid of the Bush tax cuts — he was proposing that itemized deductions be turned into tax credits at a maximum of 28 percent, which would have collected a lot of additional revenue from people in the 39.6 bracket. And that wasn’t something he could get just by going over the cliff.

So the disappointment, to simplify, is that he got $600 billion instead of $800 billion. Now, you want to scale that by the size of the fiscal problem.

The deficit is no problem now, but eventually we will emerge from the liquidity trap, and at that point you do want to start stabilizing debt. How big a deal is that? If you look at the CBO numbers, under their “alternative fiscal scenario” (Bush tax cuts extended and realistic spending), in 2022 the deficit would be 5.5 percent of GDP, about 2 percentage points higher than would be required to stabilize debt at 90 percent of GDP.

So what we eventually need is something like 2 or more points — probably more, because aging and the rise in health care costs won’t stop in 2022. Now, that’s nothing like the catastrophic sense about the budget you get from the usual suspects, but it is big compared with anything we’ve seen so far.

As I pointed out in the last post, nominal GDP over the next decade should be around $200 trillion. An $800 billion revenue take would be 0.4 percent of GDP; the $600 billion Obama got is 0.3 percent. Not big stuff, and either way the big fight over taxes versus benefit cuts is still to come.

So, why am I feeling so despondent, and why do so many other progressives, like Noam Scheiber, feel the same? Because of the way Obama negotiated. He gave every indication of being more or less desperate to cut a deal before the year ended — even though going over the fiscal cliff was not at all a drop-dead moment, since we could have gone weeks or months without much real economic damage.

Now, given his evident antsiness to cut a deal in this case, how credible is his promise to hang tough over the debt ceiling, which is a much brighter red line? He may say that he absolutely, positively won’t negotiate over the ceiling — but nothing in his past behavior makes that believable.

Maybe this time will be different. Maybe the Treasury is secretly preparing to invoke the 14th amendment, or issue a trillion-dollar platinum coin, or direct that the whole budget gap be taken out of spending dear to Republicans. But I have to say that I now expect Obama to cave on the ceiling; and so, of course, do the Republicans, which means that the crisis is going to happen.

The only thing that might save this situation is the fact that Obama has to be aware just how much is now riding on his willingness to finally stand up for his side; if he doesn’t, nobody will ever trust him again, and he will go down in history as the wimp who threw it all away.

But even that may not be enough. I guess we’ll see.

That Bad Ceiling Feeling - NYTimes.com

 

[Dusty Bake Activate]

Economic debates rarely end with a T.K.O. But the great policy debate of recent years between Keynesians, who advocate sustaining and, indeed, increasing government spending in a depression, and austerians, who demand immediate spending cuts, comes close - at least in the world of ideas. At this point, the austerian position has imploded; not only have its predictions about the real world failed completely, but the academic research invoked to support that position has turned out to be riddled with errors, omissions and dubious statistics.

Yet two big questions remain. First, how did austerity doctrine become so influential in the first place? Second, will policy change at all now that crucial austerian claims have become fodder for late-night comics?

On the first question: the dominance of austerians in influential circles should disturb anyone who likes to believe that policy is based on, or even strongly influenced by, actual evidence. After all, the two main studies providing the alleged intellectual justification for austerity - Alberto Alesina and Silvia Ardagna on "expansionary austerity" and Carmen Reinhart and Kenneth Rogoff on the dangerous debt "threshold" at 90 percent of G.D.P. - faced withering criticism almost as soon as they came out.

And the studies did not hold up under scrutiny. By late 2010, the International Monetary Fund had reworked Alesina-Ardagna with better data and reversed their findings, while many economists raised fundamental questions about Reinhart-Rogoff long before we knew about the famous Excel error. Meanwhile, real-world events - stagnation in Ireland, the original poster child for austerity, falling interest rates in the United States, which was supposed to be facing an imminent fiscal crisis - quickly made nonsense of austerian predictions.

Yet austerity maintained and even strengthened its grip on elite opinion. Why?

Part of the answer surely lies in the widespread desire to see economics as a morality play, to make it a tale of excess and its consequences. We lived beyond our means, the story goes, and now we're paying the inevitable price. Economists can explain ad nauseam that this is wrong, that the reason we have mass unemployment isn't that we spent too much in the past but that we're spending too little now, and that this problem can and should be solved. No matter; many people have a visceral sense that we sinned and must seek redemption through suffering - and neither economic argument nor the observation that the people now suffering aren't at all the same people who sinned during the bubble years makes much of a dent.

But it's not just a matter of emotion versus logic. You can't understand the influence of austerity doctrine without talking about class and inequality.What, after all, do people want from economic policy? The answer, it turns out, is that it depends on which people you ask - a point documented in a recent research paper by the political scientists Benjamin Page, Larry Bartels and Jason Seawright. The paper compares the policy preferences of ordinary Americans with those of the very wealthy, and the results are eye-opening.

Thus, the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security - that is, "entitlements" - while the public at large actually wants to see spending on those programs rise.

You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.

Does a continuing depression actually serve the interests of the wealthy? That's doubtful, since a booming economy is generally good for almost everyone. What is true, however, is that the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they're doing well enough to indulge their prejudices.

And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won't we just see new justifications for the same old policies?I hope not; I'd like to believe that ideas and evidence matter, at least a bit. Otherwise, what am I doing with my life? But I guess we'll see just how much cynicism is justified

 

[Domingo Halliburton]

I know I called him a liberal hack in this thread months ago, but I like him. I just think he lets his bias color his work. Keep posting his articles I don't always check the new York times.

Edit: I said this in the other thread lets actually do Keynesian economics as in no cuts and lower taxes. And I'm referring to Obama and the congress

 

[Dusty Bake Activate]

Krugman on point again about the liquidity trap. All those fearful claims about hyperinflation were unfounded.

http://www.nytimes.com/2013/05/03/opinion/krugman-not-enough-inflation.html?ref=paulkrugman&_r=0

Ever since the financial crisis struck, and the Federal Reserve began “printing money” in an attempt to contain the damage, there have been dire warnings about inflation — and not just from the Ron Paul/Glenn Beck types.


Thus, in 2009, the influential conservative monetary economist Allan Meltzer warned*that we would soon become “inflation nation.” In 2010, the Paris-based Organization for Economic Cooperation and Development urged the Fed*to raise interest rates to head off inflation risks (even though its own models showed no such risk). In 2011, Representative Paul Ryan, then the newly installed chairman of the House Budget Committee,*raked Ben Bernanke, the Fed chairman, over the coals, warning of looming inflation and intoning solemnly that it was a terrible thing to “debase” the dollar.

And now, sure enough, the Fed really is worried about inflation. You see, it’s getting too low.

Before I get to the trouble with low inflation, however, let’s talk about what we should have learned so far.

It’s not hard to see where inflation fears were coming from. In its efforts to prop up the economy,*the Fed has bought*more than $2 trillion of stuff — private debts, housing agency debts, government bonds. It has paid for these purchases by crediting funds to the reserves of private banks, which isn’t exactly printing money, but is close enough for government work. Here comes hyperinflation!

Or, actually, not. From the beginning, it was or at least should have been obvious that the financial crisis had plunged us into a “liquidity trap,” a situation in which many people figure that they might just as well sit on cash. America spent most of the 1930s in a liquidity trap; Japan has been in one since the mid-1990s. And we’re in one now.Economists who had studied such traps — a group that included Ben Bernanke*and, well, me*— knew that some of the usual rules of economics are in abeyance as long as the trap lasts. Budget deficits, for example, don’t drive up interest rates; printing money isn’t inflationary; slashing government spending has really destructive effects on incomes and employment.

The usual suspects dismissed all this analysis; it was “liquidity claptrap,” declared Alan Reynolds of the Cato Institute. But that was four years ago, and the liquidity trappers seem to have been right, after all.

And it’s worth mentioning another issue on which the inflation non-worriers have been vindicated: how to measure inflation trends. The Fed relies on a measure that excludes food and energy prices, which fluctuate widely from month to month. Many commentators ridiculed this focus on “core” inflation, especially in early 2011, when rising food and energy prices briefly sent “headline” inflation above 4 percent even as the core stayed low. But, sure enough, inflation came back down.

So all those inflation fears were wrong, and those who fanned those fears proved, in case you were wondering, that their economic doctrine is completely wrong — not that any of them will ever admit such a thing.

And, at this point, inflation — at barely above 1 percent*by the Fed’s favored measure*— is dangerously low.

Why is low inflation a problem? One answer is that it discourages borrowing and spending and encourages sitting on cash. Since our biggest economic problem is an overall lack of demand, falling inflation makes that problem worse.Low inflation also makes it harder to pay down debt, worsening the private-sector debt troubles that are a main reason overall demand is too low.

So why is inflation falling? The answer is the economy’s persistent weakness, which keeps workers from bargaining for higher wages and forces many businesses to cut prices. And if you think about it for a minute, you realize that this is a vicious circle, in which a weak economy leads to too-low inflation, which perpetuates the economy’s weakness.

And this brings us to a broader point: the utter folly of not acting to boost the economy, now.

Whenever anyone talks about the need for more stimulus, monetary and fiscal, to reduce unemployment, the response from people who imagine themselves wise is always that we should focus on the long run, not on short-run fixes. The truth, however, is that by failing to deal with our short-run mess, we’re turning it into a long-run, chronic economic malaise.

I wrote recently*about how, by allowing long-term unemployment to persist, we’re creating a permanent class of unemployed Americans. The problem of too-low inflation is very different in detail, but similar in its implications: here, too, by letting short-run economic problems fester we’re setting ourselves up for a long-run, perhaps permanent, pattern of economic failure.

The point is that we are failing miserably in responding to our economic challenge — and we will be paying for that failure for many years to come.