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.