Krugman is really mad at the Washington Post

This is the just latest time that Krugman has bashed the Washington Post. He can't believe they published a news article that claimed the Ryan/Murray budget deal is a budget buster. He says how the one 'expert' mentioned in the article is really a deficit hawk (not a true unbiased analyst) and why could they have not also gotten a quote from an expert who doesn't believe deficits are a problem. Krugman provides some data from the CBO (Congressional Budget Office) that shows deficits are not a growing concern.

The future, economics and the Great Recession, Cochrane has no credibility -- and a little turkey defense

Krugman tells us he believes that the world could be on the cusp of major technological breakthroughs. Some examples are self-driving cars, good, automatic translation, computer speech recognition, etc. Krugman's post is in response to some people saying technological innovation is coming to an end.

Krugman then has a couple posts defending economics (specifically main street, textbook macroeconomics). He says that this standard economics had a good model for the economic crash and what to do for recovery – namely have governments spend more money while interest rates are very low and other participants in the economy are not spending. He ends one post with quite a zinger saying the problem was not with economics but with some economists who decided to turn their back on standard macro and we should go back and review the old classical economics texts.

For Thanksgiving, Krugman refutes a half in jest post about how people hate turkey because chicken is way more popular. Krugman says bogus – it’s just that chicken is much more convenient…

Krugman goes on quite a riff against John Cochrane who claimed four years that inflation was a danger – but now that no inflation has come - has yet to admit he’s wrong or revise his model. Krugman states quite clearly that this should reduce Cochrane’s credibility.

Mean for the sake of mean and ObamaCare

One thing that really sets Krugman off is when officials take policy positions that cause hardship on people when there is no justification for it. His recent example calls out the head of the German Central Bank for saying that printing money is not the way to get out of the financial crisis. Krugman is flabbergasted since he says there is no grounds for this argument as a higher inflation rate would help alleviate the situation. Krugman can't understand the desire for these officials to cause pain when solutions exist that will not cause pain and suffering.

Krugman points out that the latest estimates are that healthcare costs are slowing and some of this may be due to the implementation of Obamacare.

Also on Obamacare he agrees the roll-out has been a disaster but he feels the technical glitches will get worked out quickly. The big story though is that more and more people are getting access to affordable healthcare and that will be the story that will dominate the elections next year -- so the Republicans if they continue to rail against it will be on the losing side.

Larry Summers is the man and a new I was wrong mea cupla

Krugman is really, really jealous of Larry Summers -- basically at a recent very important economics conference, Summers gave a presentation that knocked the socks off of everyone -- including Krugman. Krugman says he has hinted at some of the points in previous works but Summers but it all together in a way that is now getting a lot of attention. The jist of it is that the economy's current depressed state may be the new normal and the only way to get higher employment is through bubbles. The reason for this is that declining population growth which reduces demand. The only way out of this situation is to force more demand -- through government spending and/or aim for higher inflation target.

It is fun to follow Krugman as he bashes others. Three years ago a number of economists signed an advertisement warning of bad things (inflation) if US government didn't stop spending so much money. Krugman now points out that no inflation happened but rather than saying we should just not listen to those who warned, we should see how they reacted. What's especially interesting is that Krugman points out that he has been wrong over the years and he gives a new example that he has not previously mentioned and it's a response to Nigel's long critism of him. He admits he was wrong on the euro coming to an end - back in mid 2012 he said it would just be a matter of months. Krugman ends his point by pointed out that none of the academics who signed the letter have admitted their error and this is a sign of poor character.

For European recovery higher inflation is needed and Ted Cruz is so crazy that no one dares be crazier!

Krugman continues to pound away at the need for greater inflation in the Euro zone. Interestingly enough the European Central bank actually cut their interest rate which of course Krugman applauded, since that should allow for greater inflation.

Krugman makes the point that higher inflation in the late-90's in southern Europe helped Germany recover from its doldrums. But now Germany is advocated low inflation which will not let southern Europe recover. Krugman calls out this hypocrisy - since Germany is now telling southern Europe to recovery through austerity which it never had to do.

On the political scene Krugman points out that no one wants to be seen at crazier than Ted Cruz. You would expect a wide range of viewpoints but it seems right wing stops at Ted Cruz.

Krugman and inflation

One of things that struck me very early on in my following of Krugman is his counter-intuitive embrace of inflation. Like most of the world I think, I had always assumed that inflation was always evil and the lower the better. Krugman however believes some inflation is good and necessary especially when an economy is in recession. One of his reasons is that it allows debts to reduced automatically since a future dollar (or euro) would worth less than one that is borrowed today. For people who are hugely indebted, unfairly in his opinion (think US sub-prime homeowners or Europeans economies which grew to fast due to German's pushing exports), this allows them to get back to normal spending quicker in order to get economies growing again.

Krugman also has a post where he explains (or should I say shouts!) that he has been right for five years now that stimulus spending and expansion of the money supply would not lead to inflation. He points out two Fed presidents who have admitted they have been on the wrong side of the argument and then ponders why this has not led to more pronouncements from other individuals who have been very wrong about inflation.

Niall shoots one over the bow towards Krugman

Niall Ferguson has a couple long posts where he takes apart Krugman. Basically he calls out Krugman for saying he has only been wrong two times. Niall proceeds to explain in great detail how Krugman said the break-up of the Euro was imminent but yet it has still not happened. Niall wonders why Krugman fails to acknowledge this since this is arguably the biggest issue in international economics in the past 5 years.

Niall then moves on to call out Krugman for not predicting the 2008 financial crisis while Niall gives proof that he/himself did. He then gives a couple examples of Krugman's smugness and impoliteness. He can't believe Krugman has the gall to claim to be right about the importance of stimulus spending when his other predictions did not pan out so why should people believe him?

Niall finishes up his piece by saying that Krugman's lack of civility hurts the economic discourse because people are afraid to oppose him. He published his piece to show how wrong Krugman has been so others can feel safe bring arguments that counter Krugman.

Krugman's response to all this is that he would never respond. I assume that is because he doesn't have any respect for Niall but he really doesn't explain. This is especially surprising since Krugman has gone out of his way previously to call out Niall. Very strange, maybe Niall is onto something?

Contratry to what they think - Republicans don't have new ideas, Obamacare will not give the Republicans victory, you don't need a fancy degree to have influence, and five years of low interest rates and no change in policy

Krugman was on This Week with George Stephanopoulos and couldn't believe that Peggy Noonan said that the Republicans are the party of ideas. Krugman wonders what examples there are of new ideas since if it is Medicare and slashing tax rates for the rich - then those come from Newt!

Krugman also finds someone who is happy with the health-care exchanges. He is surprised the Obama administration messed up the web-site programming but says this will get fixed and most importantly there is no way the Republicans will be able to run against it next year since it will be popular.

Krugman makes it clear he doesn't much care for academic prestige if the person is an idiot or fool. If you don't have fancy degrees but your ideas and work are sound then you will get respect. The degree and reputation will still give you a larger audience but you had better still have good quality work.

Krugman is pointing out that we are coming up the 5 year anniversary of interest rates bottoming out. This, he explains, has enormous implications that policy makers have not grasped. Namely that since you can't force interest rates lower than zero than other fiscal solutions must be tried to try and get the economy growing again. But these other solutions (higher stimulus spending) are not being tried.

Krugman came right out and says it - Republican leadership is 'stupid'

Krugman flat out calls Boehner and Cantor stupid for backing themselves into a corner on the shut down/debt ceiling. He says Obama won't back down, his cave-in over the debt ceiling in 2011 was his worst decision, and he won't repeat that again according to Krugman. Boehner and Cantor are stupid because they know Obama won't give ground and Obama is winning this politically so there is no way Boehner and Cantor can come out of this positively. Krugman's 'stupid' remark is quite noteworthy since he says he never believed George W Bush nor his advisers were stupid just 'incurious' and 'dishonest'.

Krugman ends the post very concerned since he thinks the country / world may pay the price for this stupidity since it could lead to a default.

Shutdown, Debt Ceiling, Obamacare, and a new look???

Krugman explains that the biggest worry is not the shutdown but hitting the debt ceiling. He uses the phrase "God help us all". He mentions that he would not be surprised if we get right to the edge and perhaps there is a free pass that the lawyers know about but if not - it will not be pretty.

Krugman talks about how Obamacare will be popular because of the glitches since since so many people were trying to sign up. This has got the Republicans panicking because now they know they won't be able to repeal it.

Also for fun - seems Krugman has lost some weight -- maybe he thinking of running for office???

April 2013

Sept 2013

This is funny and why Asia recovered relatively quickly in '98 and Europe has not

Krugman highlights that the NYT blog Economix is the 2nd most influential econ blog in the world - then when you click on the link you discover who is the most.... shocker, huh?!?

Krugman also explains how Asia recovered quicker from the Asian crisis in the late '90's because they had their own currencies while Europe is taking a lot longer to recover. This is because Europe is tied to one common currency so the poorer countries have less flexibility to make their economies more competitive.  This is also a good segue way to Krug's other recent post on how he was a Euro-skeptic from the inception in the early '90's.

Healthcare and Yellen

Krugman is having a field day bashing the Republicans over healthcare. He firmly believes it will be a raging success and hurt Republicans for years since they did not support it and are actively fighting its implementation. He is especially angry that they have the nerve to try and prevent its implementation through not funding parts of it - he wonders how this can happen since it passed Congress and was signed into law. His other main point is that of course some people's cost will go up since you have to cover and get premiums from healthy, young people - that is the only way to make full coverage of population work. He feels it is disingenuous of Republicans to criticize this if they really believe people have a right to some form of health insurance.

In the drama over the new Federal Reserve chair - Krugman is a big supporter of Janet Yellen over Lawrence Summers. Krugman explains that Yellen has been right numerous times over the past decade in terms of economic insight and forecasting. Summers on the other side has been too cautious and was a key architect in the Obama administration's stimulus package in 2009 that was too small and weak. He faults Obama for pushing Summers saying in essence he just wants a buddy in the position. Of course this is a big problem since the Fed chair should be independent.

Krugman: I am not a derper!

Krugman clarifies the difference between derp and urp.  To urp is just to make a mistake and then apologize. To derp is make a mistake again and again and then claim it is not a mistake despite all evidence to the contrary.  Krugman says that people who claim inflation will increase are derping.

Krugman thinks Bernanke is making a mistake

Bernanke has been saying that the Feb may soon tighten up the money supply since there are signs that the economy is improving.  Krugman think this may be a mistake since employment has still not recovered. Krugman believes that more inflation is needed to truly help employment (by reducing the debt load). With the Feb potentially increasing interest rates this would reduce any future inflation.

Krugman thinks Draghi is naive and there is no debt issue in the USA

Krugman highlights that Draghi (European Central Bank president) believes low inflation is not to bad. Krugman of course takes issue since Krugman argues higher inflation is needed to get out of the crisis. He also offhandedly mentions that Draghi may the be the last ECB president since maybe the Euro won't last much longer. He actually been saying for a couple years that the Euro might not last.

Krugman, by referring someone else's post, restates his point that there is no debt problem in the USA. He backs this up by pointing out that deficits are down and medium term debt projections are not "scary". He also mentions that Medicare spending as a % of GDP is projected to come down and SS is not as critical an issue as most people believe. 

Derp!

Krugman was throwing this word around based on a back and forth between a 'reformed' conservative and diehard conservative.  Need less to say - I had no idea what it meant.  I must have been asleep the past couple years.  Luckily a lot of bloggers have gave some background on it - but still it took me forever to read and understand what they were talking about.  To say ya'll time - basically it means you are so stupid to believe something even when all evidence to the contrary has been presented to you and you keep believing it no matter what.

So Krugman feels the right wing is derpy since all evidence shows their point of view is wrong (economics, climate change, etc) but they still keep believing it and never accept the facts.

Krugman worried about higher bond rates and its getting nasty over California health insurance

Krugman seems a bit worried about the rise in bond rates combined with a lower stock market and higher dollar.  He says this means the market thinks the Feb will raise interest rates too soon - before the economy has truly recovered.

A couple days ago Krugman said the latest healthcare news out of California showed that Obamacare will go better than expected.  Since then there are have been a couple articles - most pointedly in Forbes that have attacked this.  Krugman and his buddies are circling the wagons.  Today he screams at one of the analysts who is pointing out that rates for certain Californians will also go up.  First he says the analyst (Avik Roy) knows his stuff but then says he's being "completely fraudulent" and takes a "cheap, misleading shot.".  After reading both point of views - I can see Krugman's gist that it might be unfair to compare current cheap-o health insurance plans in CA with what Obamacare will provide - but still the fact of the matter is that for healthy people the price does go up.

Krugman comes to ringing defense of food stamps and he debates Newt

In today's column, Krugman explains how important food stamps were during the recession:

1. Helps families and children avoid extreme poverty.
2. Improved the overall economy by injecting money into society when no one else was spending.
3. Is an investment in the country's future since it helps children do better in school since they are not hungry

He then proceeds to delineate how Republicans are trying to cut it since we can't afford it.  The best part is when he uses sarcasm to show how Republicans believe that food stamps were a cause of the economic crisis since they created a culture of dependency.

Krug debated Newt last night in Canada.  Seems Krugman won, as his point of view won over the most of the audience who was undecided. Topic was: Should we tax the rich more?

Krugman vs R&R continues, and he remininsces about Portugal of his youth

The brouhaha between Krugman and the debunked debt v growth authors (Rogoff and Reinhart) has become fodder for mainstream new articles.  An article in today’s WSJ lays out for all how heated the debate has become. Krugman must have gotten a heads up on the article since the day before he posted on his blog that we should be focusing on policy and not hurt feelings.   

Last week Krugman had penned a piece that again battered Rogoff and Reinhart as he had done many times over the past six weeks.  R&R then replied back that he has been “spectacularly uncivil” and also “sloppy”. Krugman’s response pretty much aimed to minimize and end the confrontation, he didn’t apologize for getting personal or for claiming they didn’t make their data available – his response was more academic as he highlighted that his main issue was that they used a hard/fast 90% ratio line to show when debt becomes a big issue.  Krugman feels this particular point has had major policy implications and led governments to be much more austerian than they would have been otherwise.   

In a later post Krugman shows us how bad things have become in Portugal and he is angry.  Angry because he does not understand why the common folk need to suffer under austerity when economics knows how to cure the problem.  The answer he reminds us is modest inflation and having government spend more money to get more capital in the economy.  He then blames R&R (he doesn’t quote them by name here but we can tell who he is talking about) because he feels their papers misled policy makers to shy away from more spending. 

Krugman then has a post where he reminisces about being in Portugal in the 70’s.  Evidently he was there after a dictator was overthrown to help get the economy on its feet.  He tells us how poor it was and then when he returned 25 years later it had become very modern. He uses this as a segue way into how important the current policy debate is because this improvement in lives he feels is threatened by the current austerity.  In posts last year he has even said if austerity continues he worries about a repeat of the 30’s. 

In other exciting topics – Krugman takes the view that the coming implementation of Obamacare will be bad for --- Republicans!  This is quite the contrarian point of view as the press has been full of articles detailing how confusing things are about to become. 

Regarding inflation – Krugman believes we should have a 4% target – (2% is what the Fed currently is targeting). 

Krugman has an interesting discussion on how he doesn’t believe conservatives are allowed to change or update their views on hot topics.  He names some conservatives that have but then says they are branded as former conservatives. What I found most fascinating however was that in order for Krugman to make his point that the right wing is intellectually dead since they don’t allow changing of positions when more evidence comes in, he names examples of liberal viewpoints from yesteryear that some liberals have moved away from to show how the left does allow change.  Some of these liberal points include a) rent control b) airline deregulation c) emission credits and some others.

Kinsley’s in the crosshairs… its getting good!

Krug and buddies continue a crusade against Kinsley.  Kinsley’s fault is that he dared jump into the debate with a defense of austerity supporters. What’s interesting is that Kingsley is not a right-wing person – more liberal than anything else.  His problem is that is seems he jumped into the debate just to defend austerians for believing in what they believe in – he saw parallels between saying you believe in austerity and being pummeled by political correctness.

Krug and buddies got angry because some of the key arguments used by Kinsley to defend austerians were just plain wrong.  Lately Krug called Kinsley stupid and ignorant and basically tells him to stay out of the debate if he’s not going to educate himself to the degree Krug and his allies have.  Kinsley fires back at Krugman by questioning who is more of a liberal and asking if Krug really cares so much for the poor is he (Krug) really out there on weekends painting homes for the poor!

Delicious!

Krug fights back against his original editor, tries to explain away the 80s recovery and sticks it to deficit scolds

The original editor who gave Krugman his first commentary job in the mainstream press writes that Krugman is wrong to rail against austerity.  The editor (Michael Kinsley) writes that the austerians just feel that their view will end the economic slump faster.  Krugman and his buddies have big issues with this and claim that austerians really feel like society should endure pain before recovering.  Actually Krugman says the austerians just want the poorer members of society to suffer – the wealthy classes won’t actually feel pain so that is why they have no problem claiming society should endure some pain.

One of the bigger issues that I have wrestled with is how does Krugman explain the economic crisis of the ‘70s and the subsequent recovery in the Reagan ‘80s.  Looking at this scenario it would seem to support a right-wing / austerity approach to solving economic doldrums, which is exactly the opposite of what Krugman proposes.  Krugman now has a post on this.  He writes that the ‘70s crisis was very different than the current one – no large debt, it was really an inflation crisis whereby businesses increased prices and workers demanded higher wage rates.  Honestly this doesn’t make much sense to me and this post seems to lack the technical rigor that I am used to from Krugman.  He implies that the ‘70s crisis could have ended with a reconciliation between workers, business, and the government (seriously Krugman? I’ve never heard of this type of thing before) but instead it was decided that interest rates needed to be raised to kill inflation. Also he mentions that there was still a national funk into the late 80s and this didn’t really start to improve until the mid 90’s.  This seems bizarre, didn’t Reagan get re-elected in a landslide in ’84 and Bush get elected in ’88?    So basically I can say I learned something from his explanation of the cause of the 70s crisis – but he has done nothing to persuade that high interest rates in the early 80’s didn’t solve the 70s crisis.

Krugman makes clear in another post that there is a parallel between the run-up to war in Iraq and the fetish to impose austerity on the economy.  He doesn’t believe deep down that these supporters necessarily want to kill people (war in Iraq) or throw people out of work (austerity) – he thinks that it is because these believers want to look tough.  Tough like Churchill in the 30s and tough like Volker in the late 70s.  This is totally misguided he argues and misses the point – on the economic front this recession is just a technical malfunction that could be corrected with the right policies – but government keeps making things worse with austerity.

He has fun with “deficit scolds” who have made a career of admonishing the public about the deficit and that something must be done now.  Krugman points out that now the deficit is receding and it has nothing to do with the solutions these deficit scolds have prescribed.

What has Krugman blogged about recently?

We find out that he:

a)      loves libraries, Civil War history, singer/songwriter types, and science fiction with a tinge of econ

b)      is gleeful that a right-wing think tank is associated with a white supremacist and goes on to explain the think-tank is not really serious – it just puts out bull$%#

c)       Because the European central bank has promised to support governments with unlimited money bad times in Europe have not gotten worse. It was not because of austerity.

d)      Things are getting better in Japan because of basically his idea that the government has promised to print a lot more money

e)      Defending Ben Bernanke against very mad hedge fund traders.  They are mad at Ben since bond prices are very strong and they believe they should fall but Krugman says hey you hedge funders, you should have realized they we are in a one in a million crisis so things won’t work out as you always expected.

f)       He’s very proud of himself for thinking that the liquidity trap phenomenon has been relevant for this crisis, matter of fact when some referred to liquid trap as ‘textbook’ he was like – what textbook is that --- I (Krug) wrote the only textbook that mentioned it before this whole crisis.

g)      Pegged a 8k+ word essay/book review at the New York Review of Book on his whole approach to the crisis with some economic history thrown in.  Hmmm, maybe this is why he had no column on Monday.   Relatively short synopsis:

a.       2 academic papers were written that provided proponents of austerity (austerians) the intellectual cover to cut government spending

b.      These papers were proved wrong

c.       Why did important people believe these papers?

d.      Answer is in the history of the crisis

e.      2008 was start of the crisis due to bursting of the housing bubble

f.        Bubble burst because sub-prime mortgage market collapsed

g.       This caused a crisis since now people needed to pay down their debts at the same time – which meant no one was spending

h.      Lessons learned for the ‘30’s meant no depression because of more social welfare programs which automatically pumped money into the economy

i.         Stimulus in 2008 and 2009 also helped but there were too small and too short compared to size of the economy

j.        In 2010 governments suddenly pivoted from stimulus to austerity

k.       They did this since the crisis seemed somewhat over the worst, German government and Republicans never believed in government spending, and there were the aforementioned academic papers which warned of high government debt.

l.         Also the Greek crisis happened which seemed to highlight to the austerians the dangers of high government spending

m.    Austerians claimed that by cutting government spending people would have renewed confidence and growth would return.  These beliefs held sway over policy makers.

n.      Since 2010 there has been emphasis on austerity but no recovery.

o.      Why then did people listen to austerity policies and not classical economics?

p.      Classical economics says that crisis’ are not because bad people (we are spending too much before so there must be pain now) but because of a technical malfunction in the economy.

q.      Wealthy people have not been hurt as much from the non-recovery that has kept interest rates low and no inflation – they are the creditors or people who give out loans since they are more likely to get paid in full and not have the value of the loans reduced through inflation.

r.        This has been terrible since many, many people have needlessly suffered and we had the tools to fight the crisis and have a quicker recovery.  We just choose not to use them.

Krug – do more to end unemployment, be damned with debt (for now)….

Krug has been educating about the lack of inflation and how actually we are at risk of deflation.  This is big problem since when in deflation – people sit on cash and don’t spend and the economy slows.

This creates a cycle where-by debts don’t get paid off and still further reduces demand.  Krug argues that more government spending is the only way to get out of this situation.  The other side says we need to remain focuses on the long-term damage to more government spending but Krug’s point is that this long-term focus is doing innumerable damage short-term and creating a longer term issue since nothing is getting better now.

Krug also explains that the reason there is not more government spending is the lack of it benefits rich people who hold loans on the rest of society and influential people who have advocated for austerity and do not want to admit they have been wrong.  Something else he sees is that people believe if the government spends more now to support the economy then it won’t dial back when the economy recovers.  He offers examples to refute this.  He also explains that the policies he proposes is not only based on more government spending in down times but paying off government debt in boom times.  He notes that of the past 10 presidencies all have the reduced debt ratio except for the last three Republicans. 

Krug is his latest column makes the point we are not in a bond bubble.  Bond prices are at historic highs but he sees a lot of justification for this and doesn’t believe it will change much in the current years.  He also feels stock prices are not unrealistically high.

Krug’s point through all these posts/columns is very clear – the Fed and Obama must do everything possible now to ensure unemployment is reduced – this means more monetary easing and government spending.

Krug has fun calling out people who said 2 years ago there would be a US government fiscal crisis within 2 years – he points out the deficit is falling.

Krug has more fun calling to the carpet 8 specific economists who have been dead wrong over the past four years.

 

Krug sees some support from the right and he reaffirms he was not political during the stimulus debate 4 years ago – it was all economic.

Krug is in shock that a well-known European economic organization has been advocated austerity for over three years and keeps advocating it – despite the lack improvement in Europe. He can’t believe the chief economist there still has a job.
 

Krug also has a diatribe on why he uses not nice language on people who are not used to it. Basically he believes some policy makers and pundits confuse their political viewpoint with the way things are. He admits he is political but that he keeps that separate from his economic analysis.
 

In the past day a policy analyst who worked for Reagan and Bush #1 has written that we need a lot more government spending.  Krug links to the article with glee.   Krug makes a point of disagreement with the title of the article – but the important thing is that another right wing analyst is agreeing that more aggressive government policy to support the economy is needed.
 

Krug also defends himself against a columnist who says because he was so political that it harmed that call for more stimulus four years ago.  Krug says yes I have been political – but absolutely not during the stimulus discussion. The columnist’s point is that if Krug were to be a little less harsh he might influence more.  Krug and some of his fellow blogs point out extensively that he was not political in the stimulus argument and this columnist is just bending over backwards to be centrist.
 

Back to what Krug knows best... battle between him and the WSJ

When I started this blog I thought I would just do a weekly summary, but there has been so much news that I feel it’s necessary to be more active.  From what has transpired over the past couple weeks it appears we are at a tipping point when it comes to resolving the debate on how best to move forward.

WSJ has come out all guns firing with a challenge to the spend-more-now camp led by Krug.  Naturally their point of view is that the huge increase in debt during Obama is terrible and government spending must be reduced.  This couldn’t be more opposite of what Krug writes.  I must admit after reading both sides Krug’s argument holds more water.  The WSJ point of view seems simplistic:

WSJ: “every dollar of government spending has to come from somewhere, which means it is either taxed or borrowed from the private economy” – Krug has said no – not in the this current economic climate since private sector spending is reduced, who is going to spend – if the private sector isn’t then the government must or else there will be no recovery. 

WSJ: “Obama… doubled the debt to an estimated 76.6% of GDP this year” but Krug has explained it is not accurate to measure it straight against GDP – you need to measure it against potential GDP if the economy did not suffer the economic shock - and when looking at it that way debt is not high historically. 

Then there is a perplexing passage – first the Journal says “Another reason to reduce debt today is to create some breathing room if we have another recession or an emergency such as a war.” Then right in the next passage then say “Where we agree with at least some Keynesians is that the main policy goal now should be faster economic growth rather than rapid debt reduction.”   Very confusing as they just said opposite things.  Maybe it was poor editing, but it seems clear Krug has gotten the upper hand as the Journal seems flustered.

Back to his blog, Krug also has fun with a chart showing his blog is 6^th most popular blog on the web.  And he loves rubbing in the inflationistas (specifically Niall Ferguson - ) face that inflation keeps falling.

Bush is a con man and he restates why his policy prescriptions are right and have been right

Krug makes clear that while the debunked debt v growth authors may not have agreed with austerity now, but the fact that they let their work be used to support it without complaining for the past couple years means they in essence supported it.  Krug also makes clear he doesn’t believe a compromise between stimulus now and austerity later is workable in the current political climate.

Krug makes it clear that the US is not engaged in stimulus spending right now.  Compared to Europe, American spending is not quite as austerian but when looking at total spending ratio to GDP (including state and local) it is actually low historically.  Thus in Krug’s view spend, spend, spend to get the economy moving.

Krug is very mad at smart people who he feels are acting dumb and don’t bother to try and understand the austerity vs stimulus arguments.  Specifically he calls out Ken Langone (billionaire who helped start Home Depot and namesake of NYU’s business school) for saying in essence the debate is too complicated for him.  Krug takes the opportunity to restate his economic positions in clear language and continues with this in his Monday column.  My attempt at a very concise summary of his points: a) government budget is not like a family budget b) because of the financial crisis people have been forced to cut spending thus there is no actor in the economy to spend and this leads to unemployment c) this is situation is not always the case – it is rare – and during this time the government and private sector are not in competition for scare capital, the private sector is not spending so if the government doesn’t we won’t ever get out of this mess. d) proof is that his view of what has happened over the past four years have come to pass while the opposing side’s predictions have not.  Examples include continued low inflation, low interest rates, austerity policies in Europe have led to depressions e) yes the deficit must eventually be lowered but in a depressed economy now is not the time to do it.

Krug makes himself clear, money printing by the Feb can’t solve our problems – increased government spending has a more direct, lasting effect.

Krugman than goes on to explain why he is not so nice during these tough economic times.  He feels the policy decisions being taken are directly leading to people’s hardships and it does not have to be this way.  He says he woudn’t normally be this way but the times demand it.

There is also a post about Bush’s legacy – basically he thinks Bush was the biggest loser President ever, he call him a ‘con man”. Mainly because he said he lied about Iraq and the tax cuts early in his Presidency and these lies and subsequent policies are having a last effect.  Now I try not to bring my view points too much into this blog – but now I cannot resist.  I could not disagree more with this post. Now I don’t believe that Bush was a super president but seriously – Bush is the reason for the downfall of America – come on.  I hate to say this but thank god for the financial crisis, as Krug says in this post he has been focused on economic matters due to necessity, if not he would have more articles like this which are not proved in fact and just rants by a political hack.  I don’t for the life of me know he demeans himself like this.  Ahh maybe because it keeps us coming back for the theater of it all…

Krugman responds to the response...

Yup – Krug didn’t waste much time rebutting the rebuttal of the debt v growth academics.  His first post today is an scathing response to their rebuttal.  Krug is NOT impressed.  Accuses them of “bask[ing] in the celebrity” when they were up but now they claim their paper should not have been used to influence austerity supporters.  Krug ends the post reaffirming that their paper should not have any influence on policy.

Krug asks "What am I doing with my life?"

Krug’s Friday column is a victory lap as he pronounces the defeat of austerity as a solution to the economic crisis.  Krug wonders however, how did it gain prominence?  He theorizes because there is an inherent belief that austerity is payback for past sins (overspending), and this is because the upper class (top 1%) feel it is necessary.  They, of course, don’t feel the pain of this policy decision like the rest of society.  Krug is hoping the recent body blows austerity has taken may be a catalyst for change and even makes it personal;  “What am I doing with my life?, he asks if he can’t help change economic thinking.

In a similar vein he also blogs that while academic articles didn’t actually lead to austerity they gave policy makers the foundation (or you could say the cover) to pursue them.

 

Also very interesting is the the authors of the debt v growth paper that has been refuted have an op-ed in today's Times defending their work.  Let's see if Krug responds - when they published a defense last week - Krug was quick with dismissal, calling their response "really, really bad", "disappointing", and "evading the critique" and its "a terrible thing when so much is at stake."

The right is wrong - I (Krug) was right

Krug is flabbergasted that an eminent economist like Samuelson (I think he wrote my college econ textbook) can write an article saying people have lost faith in macro since it couldn’t help with an economic recovery.  Krug begs to differ, what has happened is exactly what he and his Keynesians colleagues thought would happen if you didn’t follow is policy prescriptions four years ago – there should be no surprise.

Krug seems to say Allan Meltzer (big shot right-leaning economist) is a putz (my words) he call him out for being puzzled that all the money printing the Feds have done has not led to inflation.  Krug re-explains that he said four years ago it would not but Meltzer did not listen and now Meltzer said it was because economic growth was weak due to regulatory stuff and Obamacare – nuts says Krug, he was just wrong and won’t admit it.

Krug comes back with another post on how classical economic theory has held up well in the crisis and a lot of what happened (including Europe’s issues) could be explained by existing models.  He also breaks out with a couple graphs showing the current recovery in Europe is worse compared to the Great Depression.  And he squarely lays the blame for this poor recovery on bad policy.  By following long known economic models, recovery would be on its way but European policy makers refused and instead went for austerity - so the blame for all the suffering is with them.

Krug also makes clear that his success in forecasting low inflation and not recovering quickly from the economic crisis since the stimulus was lower than he wanted was due to his knowledge of the appropriate economic models and his experience is seeing what Japan went through in the ‘90’s.

Focus on Unemployment NOW!

In Krug’s Monday article he uses the debt v growth debacle as an entre to issue a clarion call for his strongest held belief – reducing unemployment.  He see this as the most pressing concern for our time and says the reason we are in this high unemployment situation is solely because policy makers have made an enormous mistake, they focused on debt reduction instead of trying to stimulate the economy.  This colossal error will now lead to years of negative ramifications as a permanent class of Americans become unemployable and won’t be able to contribute to the economy.
 
In his blog there is ANOTHER post about the debt v growth scenario and Krug gives a great succinct viewpoint on the current economic malaise – “demand problem not a structural problem, there is no risk of crowding out, there is no risk of inflation from aggressive monetary expansion, there are large negative effects from austerity”.  He also makes an interesting point in that he DOES NOT believe inequality is holding back recovery (interesting in the fact that as a left winger you would assume he would champion it, but clearly he believes the data does not show it).  Krug also sees the Excel error (that was one reason the debt v growth paper has been debunked) as perhaps a turning point to get people not to listen to economic hardliners – and he specifically calls out who these policy makers are: Olli Rehn (European policy official who has advocated more austerity), George Osborne (UK policy official who keeps UK on a economic hard line) and Paul Ryan.  In another post he gives a rousing defense of good ol’ fashioned macroeconomics – the kind that is taught in college intro classes.  While policy makers have been jumping on new-fangled theories and then act confused when things don’t pan out, Krug is amazed that macroeconomics takes the hit since classical macro, he argues, has predicted exactly what has happened throughout this crisis.

Moving away from debt v growth – Krug is shocked that some European policy makers are mystified why the economy has not recovered.  Krug is incredulous as he as explained over and over that when you cut government spending (austerity) in a poor economy of course things are not going to get better since there is no actor in the economy who has the money to spend to move things along.

Gloating

More basking in glory from Krugman on the debunking of the paper that linked high debt to low growth.  Krugman even makes it the subject of his Friday column.  He is really upset that policy makers took the paper as gospel to change focus from trying to stimulate the economy to reducing debt.  Krugman feels that this directly lead to years more of suffering by the unemployed.  He has special ire for the Washington Post who claimed the paper represented the mainstream view of economists  even though Krugman says this was plainly not true. The WSJ even has a 2^nd article this week on how the paper has been shown to be flawed.  And now more gloating that he just reached 1M followers on Twitter…  Good to be Krugman this past week…

Fireworks

A battle has erupted between conservatives and progressives and Krugman is basking in glory. An academic paper widely cited by conservatives and the mainstream press that claimed high debt leads to lower growth (which directly contradicts the solutions Krugman puts forth) is getting a lot of bad press for errors. Previously he has written about issues with the paper so now that it is getting slammed he is doing a victory lap. There was an even a news article in the WSJ citing the controversy.

Key to Europe’s recovery is lower wages – but it is not happening and trusting money

 Krugman talks about how wages in the peripheral Euro zone (Greece, Spain, Portugal, Baltic, Ireland) have not come down.  Basically after a financial crisis and recession wages have to be reduced in order for that country to regain competitiveness (if workers in the US and Mexico or China earned the same then companies would just build plants in the US, where most the consumer market is).  But Krugman’s point is that wages are real hard to be reduced – who would accept lower wages and it legally it is difficult.  Basically the crisis countries will not get out the slump until their wages come down – but there is no evidence this happening (besides Greece) so he does not see much of a room for recovery any time soon --- thus unemployment will stay high.  This is proof that the idea of the Euro was bad from the start - if these countries had their own currency they could have started a recovery by making their national currency worth less (devalue) and thus wages would have been reduced.

In his Monday column he finds a similarity between people’s desire for gold and the new digital currency ‘bitcoins’.  He sees this as big misunderstanding of people who don’t trust government and think it is just printing money and making everyone poorer, but Krugman  He thinks it is silly to think that gold or bitcoins is any more reliable that the dollar.

Pundits are childish and see themselves as Noble and Superior - Sarcasm - Liquidity Trap - Gold

Krugman explains that the pundits (he calls them Serious people with sarcasm) are childish because while they offer mild support for Obama’s recently released budget (which cuts a bit of SS) they will backtrack in no time and denounce Obama for not showing more leadership when the Republicans won’t come to an agreement.  Krugman’s main point is that these pundits will do and say anything to be seen as centrist (he calls them noble and superior) even though he believes the center has now moved right and Obama’s current policies are now center compared to where the political spectrum was in the past.

Krugman also has a sarcastic post highlighting how a Republican has criticized Obama for his proposed to cut Social Security.  Krugman has warned something like would happen if Obama cut social security even though Republicans are the ones to say entitlement spending needs to have an adjustment.  He just can’t believe the hypocrisy.

There is an in-depth discussion of the liquidity trap (see my ‘about’ section for a synopsis of a liquid trap) and what is transpiring in Japan. Basically the western world is in one, but Japan has promised to keep printing money into the foreseeable future (credibly irresponsible in Krugspeak) – Krugman believes this is the only way to get out from the liquidity trap and to get the economy to recover. He is quite excited about this development.

In Krugman’s regular column he glories in the fact that gold has lost double digits percentage points since its most recent peak.  This plays right into his model that inflation is not a danger – since if it was then gold would be up recently not down.  He also uses gold as an example of why people still listen to Fox and right wing ‘goldbugs’ and wonders if they will lose their credibility? He believes they won’t since the gold mania plays right into people’s political viewpoints even if it causes them financial loss.

Thatcher, Analysis, and Deficit

Krugman argues that the data shows the rebound in the UK happened starting in the mid-90’s well after Thatcher implemented her reforms – so she should not get the credit.  In a recent post he also explains how Thatcher generally scrapped progressive taxes for regressive taxes and this was her downfall as her support of a poll tax let to her ouster.  He then compares to her Jindal (darling of the GOP governor of Louisiana) who also supports a regressive sales tax and goes on to show how this is costing Jindal support.

Krugman also posts that it is not critical to know a lot of math to do good economics – the most important thing is intuition and analysis and not get caught up in slogans.

Also there is another post on where he highlights some work being presented that shows deficit/debt is not the end of the world.  This provides him an opportunity to say “I told you so” as he reveals over the fact that he has been yelling about this for a while and now he is starting to see it more widely disseminated.

This Week - Krugman v. Stockman

Stockman v. Krugman was a good show on This Week.  Mostly it came down to Stockman talking about how the debt needs to be reduced now because the US is headed for ruin and Krugman countering back by asking do you really want to raise interest rates in a depressed economy.  Stockman never directly answered.  What is interesting is that Krugman does believe the debt is a problem that should be solved - its just that he doesn't believe that is the biggest issue right now - high unemployment and its suffering is what should be addressed in the short term.  He has said he advocates paying down debt when the economy is at full capacity.

Bad Unemployment, Obama giving in

Krugman is woeful since the unemployment report is not good, seems he was thinking things should be better but as he explains there is actually austerity happening right now that he hurting the economy (rise in payroll tax).  He then explains how sad it is that all talk in DC is about deficit reduction.  Then segues into his concern about how Obama gave into the Republicans on Social Security and reducing benefits.  Should be interesting later today when he mano to mano against Stockman...

More Stockman!

Wow, Stockman must have been getting a lot of attention, for something Krugman mentions earlier in the week that he isn’t going to pay too much attention to now becomes the focus for his Friday column.  Basically it is a good summary of his overall viewpoint --- all the concern we have about debt and deficit is overplayed and the government should be spending more not less to get unemployment down.  People who argue against this idea are just moralistic and puritanical.  Krugman provides examples to prove the predictions of the other side have not come to pass - inflation has not increased and interest rates have remained low. To respond to the other’s side claim of hysteria about living beyond our means he answers that the vast majority of debt is just owned from one American to another so there is no net effect on national wealth.

Krugman vs Stockman

For a couple days now Krugman has been railing against Stockman (Reagan’s budget director who has reputation as an outsider). Stockman feels that the US is greatly in debt and basically there is no hope – we are destined for 3^rd world status. Krugman doesn’t have so much of an issue with this itself – more with the fact that Stockman’s thesis implies that the US must stop going into debt. This is counter to Krugman’s belief that the government has to borrow more and spend more to reduce unemployment so the people will spend more to get the economy growing faster.

At first Krugman thought Stockman’s article wasn’t worth that much effort to respond too since Stockman was so off his rocker – but in the past day Krugman has responded a couple times to Stockman since it seems Stockman’s article is getting a lot of play. It’s been fun reading how he calls Stockman and his article an ‘unfortunate rant’, ‘pathetic and embarrassing’, ‘hasn’t done his homework’, ‘cranky old man’, ‘sad’…