KRUGMAN: “IT’S ALL DOWNHILL FROM HERE”
Love him or hate him Paul Krugman has been awfully right with regards to the macro picture in the last few years. He’s one of the rare economists who had the foresight to see the housing bubble and the likelihood of economic downturn that would result from it. Krugman recently caused a stir when he said the US economy was headed for the third depression. He isn’t backing down from that outlook:
“I’ve had a couple of conversations lately with people who follow politics and public affairs, but aren’t that close to the economic discussion — and I’ve discovered that there are two comforting delusions still out there.
Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.
But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.
Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent. I tried to deal with this last year. The level of GDP depends not on total funds spent, but on the rate at which funds are being spent, which has already peaked; GDP growth on the rate of change in the rate at which funds are being spent, which peaked last year. It’s all downhill from here.”
If you can ignore the schizophrenic market for just a second it’s hard to reject Krugman’s macro outlook. The private sector has been running on fumes since the debt bubble burst in 2007. The government’s extraordinary actions helped bolster the economy, but merely papered over what was a very weak private sector. As we see the government step aside it’s difficult to imagine that the weakness at the private sector won’t again be exposed for what it really is.
Update: This is from Professor Krguman’s weekend op-ed titled “1938 in 2010″:
“The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.
But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.
I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.
But always remember: this slump can be cured. All it will take is a little bit of intellectual clarity, and a lot of political will. Here’s hoping we find those virtues in the not too distant future.”
The more things change the more they stay the same….
Paul Krugman is an idiot. He does, however, have this right. Things are heading downhill from here. http://www.daily-ops.com
PhD’s from MIT don’t generally get classified under the “idiot” category. Dislike his politics all you want, but Krugman is one of the most distinguished economists in the country and unlike the majority in his field he has actually made some pretty good calls over the course of his career.
The problem with Krugman is that his economic calls are so intertwined with his politics as to render them not credible. And the inconsistencies of his calls ove the years have made him look like a partisan hack. In 2003 he was complaining about Bush deficits and how the “fiscal train wreck will drive rates sky high.”
I don’t think he makes accurate calls so much as he sticks his finger in the air and screams “I told you so!” Kinda like Obama when he’s caught in an inconsistency says, “As I said at the time,” when he never said any such thing.
Other than defense spending, new home construction, and consumer discretionary fed by HELOC extraction, the economy has been running on fumes for well over a decade. The West simply is not competitive. We have reached an end point of an almost 30 year credit expansion. Think about it -rates were at 20% in 1980. Now they are at 0%. And the Krugmanites sputter about needing more stimulus. For what exactly? To buy more China stuff?
Krugman is one who was asking a housing bubble in 2002. How can he be right recent years? Well, because 99% of his comments are political driven. To me he is dangerous because he is smart ans famous enough to mislead public.
“To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” — Krugman 2002
This may have been taken out of context, then again maybe not…
http://mises.org/daily/3530
He has tackled these comments before. http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/
Yes, but maybe bubblespan took him literally. You have to admit the foreshadowing is a bit eerie
He didn’t forshadow anything. The boom/ bubble in housing was already under way for 3 years when Krugman wrote his 2002 column. He merely recognized what was happening.
This may have been taken out of context…
One should naturally expect a site as lousy as Mises to take things out of context. Getting it wrong is its stock in trade.
Here’s a suggestion — if you want to critique somebody’s work, then read that person’s work directly, rather than resort to allowing some Austrian extremist to interpret it for you. I don’t always agree with Krugman myself, but I can at least critique him because I actually read what he says, rather than use a right-wing political zealot to spoon-feed his work to me.
No, he really didnt tackle those comments. He just kind of laughed them off. The point of his original article is that consumer spending wouldn’t get there in time to save the economy. Obviously he wholeheartedly supported increased consumer spending.
Either way he wasn’t calling the US market a housing bubble as of 2002. He merely said that Greenspan would need another colossal mistake to save the day. I think he was mostly wrong about that because the Bush economic plan ended up supporting a pretty good economy for 5 years there. From the 2006 period on Krugman was pretty vocal about the destructive forces at work in the housing market so he definitely got that right.
Either way, at the time of that writing in 2002 (or 2003?) he was still super pessimistic about the economy so he clearly got it wrong. We had a pretty nice recovery under Bush and had it not been for the deregulation of banking and housing I think we’d be in a much better place now.
Personally, I think Prof Krugman lets his politics control his outlooks too much. He would have pessimistic about Bush’s outlook no matter what he did and Bush’s economic approach ended up being pretty counter-cyclical – almost to the point where people were calling him a Keynesian.
He would have pessimistic about Bush’s outlook no matter what he did and Bush’s economic approach ended up being pretty counter-cyclical – almost to the point where people were calling him a Keynesian.
Bush 43 was a supply sider. (Ironically, his father was not; Bush Jr did what Reagan would have done.) In contrast, Krugman is a Keynesian. It’s natural that they would disagree; supply siders support perpetual tax cuts and deficits, Keynesians don’t.
Referring to Bush as a Keynesian is simply erroneous. His administration didn’t resort to stimulus spending until the very end, when it was clear that the early 2008 round of tax rebates and new tax credits had completely failed. By the end of his second term, Bush was a supply sider backed into a corner, not a Keynesian.
Bush Jr. did exactly what Reagan did. He cut taxes for the wealthy, and he deregulated bank lending standards.
The results were the same too. Both stimulated the economy for about five years, and then led to a stock market crash, real estate crash, government bailouts, and eventual recession.
Bush’s policies were no different than the ones that led to the S&L scandal. The only difference was that his policies were on a much larger scale.
The comparisons between Bush and Reagan are astounding, and even the results were the same.
6 of one, half dozen of the other. Bush’s economic plan was countercyclical. Up until the very end. We can quibble over what to label him as, but his policies were more Keynesian than you want to admit. He exploded the deficit during the recession in the beginning of his first term and went on a spending rampage. He cut taxes, ramped up spending and we got a pretty nice economic result from it all.
The deficit shrank as the economy recovered. Then he tried the same countercyclical response to the 2008 crisis albeit too late. I don’t see how you can claim that his policies were not even remotely Keynesian. You appear to be getting caught up in the political nonsense here.
You appear to be getting caught up in the political nonsense here.
No, I believe in using the correct terminology, and in not using incorrect terminology.
And describing Bush 43 as a Keynesian is just factually wrong. Bush was a supply sider. It isn’t six of one/ half dozen of the other; there are fundamental differences between supply-side and demand-side.
Bush Jr. did exactly what Reagan did. He cut taxes for the wealthy, and he deregulated bank lending standards.
It’s obvious that today’s Republicans don’t want to associate Bush 43 with Reagan, even though Bush followed the same economic doctrines. I believe that this is a part of their effort to perpetuate The Reagan Myth; they don’t want the public to see any linkage between the policies of these two administrations, even though they were essentially the same. So it becomes easier to claim (inaccurately) that Bush was a Keynesian than it is to admit that Bush was driven by the Laffer Curve and supply-side, just like Reagan did.
Bush 43′s problem was that he tried to run a guns-and-butter policy, fighting two costly wars while cutting taxes. The guns-and-butter policies of the 60s with Vietnam resulted in the collapse of Bretton Woods and helped to feed the 70s inflation; the guns-and-butter policies of this decade fed the oil bubble and created an enormous deficit going into the bubble. Reagan didn’t have to pay for large, costly wars that Bush did.
There’s your politics talking….Just like the 30′s were “strong” you’re now trying to argue that cutting taxes and deficit spending in times of economic weakness aren’t Keynesian approaches….You’re just as bad as Krugman when it comes to letting politics cloud your vision.
You want to know why Krugman was dead wrong when he argued that we wouldn’t recover in 2003? Because he’s guilty of the same things you are – judging the politicians behind the acts and not the actual economics.
Just like the 30′s were “strong”…
I would appreciate it if you would not misquote me or attempt to take my comments out of context.
What I said was that economic growth rates during the 30s were high, but that the crash was so substantial that unemployment remained high. There is a distinct difference in the degree of slippage of this latest recession and what occurred during the Great Depression.
That is a simply a statistical fact, not an opinion. I didn’t make it up; look at the BEA data for yourself and confirm it.
you’re now trying to argue that cutting taxes and deficit spending in times of economic weakness aren’t Keynesian approaches
Bush 43 pursued tax cuts because he is a supply sider. He wasn’t a Keynesian; he cut taxes using the very same arguments used by Reagan, our first supply-side president.
You confuse certain policy overlaps with shared philosophical positions. Supply siders and Keynesians have very different motivations for implementing tax cuts during downturns, and they behave quite differently from each other when times are good. Keynesians see tax cuts as temporary tools for stimulating aggregate demand, while supply siders see tax cuts as a way to motivate output. Not the same thing at all.
You said (and I quote):
“GDP growth was strong”
But the truth is, GDP growth in the 30′s was well below trend.
As for your supply sider comments – facets of supply side economics are just conservative Keynesianism. Some supply siders say so verbatim. You should know that the boost in aggregate supply is all an attempt to target a boost in aggregate demand. You’ve been trained by the media and your textbooks to believe that supply side economics is dramatically different from Keynesianism, but the truth is that there are similarities. Tax cuts are a libertarian policy of boosting agg demand. Deficit spending ultimately has the same target. The fact that one is tied to democrats and the other republicans totally misses the point.
But the truth is, GDP growth in the 30′s was well below trend.
We had double-digit GDP growth in most years after 1933. Unless you believe that the US had triple-digit growth prior to that, then no, it isn’t accurate to say that it was “below trend.”
Even your own chart supports my point: http://pragcap.com/wp-content/uploads/2010/09/US_GDP.png The slope of the curve was steeper during the Great Depression than it was during the 20s; the steeper the slope, the higher the growth rate. The problem was in the absolute decline in GDP — the growth rate out of the bottom was strong, but much had been lost as the result of a loss of almost half of prior GDP.
I don’t understand why you’re trying to argue with basic statistical data. The 30′s were a period of growth following a steep blowout; the result produced strong GDP growth and high unemployment, simultaneously. There is nothing to debate here; this is a fact.
You want facts? How about straight from the US government. Almost no growth in the 30s. Total GNP was WELL below trend – 91 to 101. You’re cherry picking the trough to make it sound like the 30′s were some period of great growth:
As I pointed out, those were double-digit growth rates, and you can see in your own chart that the slope of the curve was steeper in the 30s than it was in the 20s. This is not a matter for debate; those are simply facts.
The growth rates during the 30s were obviously high; you can’t possibly question that. The problem was a matter of catch up, as GDP fell by almost half between 1929 and 1933. The 20s equity bubble created enormous debt and overcapacity, and it took a budget-busting government spending program (called WW2) to finally put it to rest.
91.9 to 101.7 is “double digits”? You might want to run the math on that again. You’re basically saying this:
“2007-2010 has been a fantastic period for the equity markets. Of course, I am going to remove 2008 from the data to prove my point. Thank you, your local data mining expert!”
The BEA’s data doesn’t lie. The 30′s were horrible. And a huge move off a deep trough doesn’t mean a damn thing. And even if you were right (which you’re not) it certainly doesn’t justify your theory that we are in a bond bubble. “Strong” growth in the 30′s didn’t produce a higher move in yields. So your whole point is nonsensical and semantic. You’re just arguing for the sake of arguing. It’s pointless.
OK, seriously, are you skipping my repeated references to the depths of the 1929-32 trough, or just ignoring them because they disprove your thesis?
The 20′s “trendline” was the reflection of a massive bubble; it was, by definition, above the long-term trendline. When the bubble burst, the trendline corrected to a lower point. From that lower point (1934), there was double-digit growth. Just a fact, not a point to debate.
Well, now we agree on something. If we cherry pick the very bottom of the economic trough then yes, growth was “strong” after that. But that was not the argument. The argument was whether growth was strong in the 30′s. It was not.
Regardless, the whole discussion surrounded the rising yield debate. I said strong economic growth would lead to only marginally higher yields and not a crashing bond market that validates the bond bubble nonsense. You’ve shown that growth recovered from 1934 and its obvious that yields did not surge from there so your whole argument is bunk. The 1940′s clearly show that yields will not surge just because of strong economic growth. That is not the only era in US economic history that proves this thinking.
A bond bubble implies surging yields and crashing bond prices. It’s all nonsense. This era proves my entire point. You might think it’s unfair to compare today to the 30′s, but if so, you have not shown why that is so.
If we cherry pick the very bottom of the economic trough then yes, growth was “strong” after that.
That isn’t “cherry picking”, it’s a summation of what occurred at the time. I’ve made this same observation in several posts.
We tend to measure GDP growth in annual terms. There was double-digit growth in most years following 1934. I’ve pointed out repeatedly that this growth occurred following a near-50% plunge in GDP, which resulted in high growth accompanied by high unemployment. These are facts, not points for debate.
I said strong economic growth would lead to only marginally higher yields and not a crashing bond market that validates the bond bubble nonsense.
As I have pointed out on other threads, an investor who buys at today’s yield and ends up in even a 4% market for 10-years is going to get thrashed, given the low long-term return, inability to sell prior to maturity without taking a substantial loss, and the accompanying opportunity cost. There is a middle ground between the inflationista/ dollar destruction camp and the deflationist/ OhmigawdwereJapanese! opposition, and that’s where you’ll find me.
Ok, you’re not cherry picking the bottom (but really you are).
You’ll get “thrashed” in bonds if rates rise to 4%? What a bunch of nonsense. If I buy $100K in 10 year bonds today I’ll make $25K plus over the duration of the bond and receive my principal in full. I’ll lose 1.5% per year in real terms (assuming rates jump to 4% tomorrow – which they won’t). Big deal. This is just another nonsensical argument from you. If you actually invest in bonds, reinvest the dividends and don’t speculate or time the market with your entire life’s savings at ONE POINT then you’ll do just fine investing in bonds. And if you’re stupid enough to put ALL of your money in bonds today and yields jump to 4% you’ll still make 2.5% per year over the life of the bonds. “Thrashed”? I am literally laughing out loud.
House prices were already up dramatically in 2002 over where they were in 1999. I remember how my house taxes were soaring at that time from assessments going up 20% per year. The bubble didn’t peak until much later, but it was already well under way.
TPC,
Your manners are not in question. People are just finally fed up with PC speak and have decided to call a spade a spade. Krugman may be well educated, but when he and his cronies policies for the last few decades have placed this country in a depression I don’t think anyone is worried about his feelings.
To me, this crisis is almost entirely due to the bankrupting of the American household. Personally, I think the blame can be spread around pretty broadly. The Dems ran the surplus and helped continue Reagans massive deregulation. This allowed the banks to put a stranglehold on the US consumer and push them into debt. The housing bubble was worsened by the deregulation and the debt bubble expanded. Who is to blame for all this? Both parties. They’ve overtaxed us and allowed one sector of the economy to strangle us all under their profit motives.
I’ll give you one thing – Obama has been an utter disaster and thus far you look most prescient. You know I voted for him, but mainly because the alternative was an economic nitwit. Obama has thoroughly surprised me. I thought he would bring in real change. Not summers and Geithner and rehash Bernanke. But he’s made all of the mistakes that he promised he wouldn’t. And then when he should have been focused on jobs he jammed a healthcare bill through.
Unfortunately, I think it’s hard to argue that the economy would be in a better place if McCain were in office. To me, all politicians are equally ignorant when it comes to the economy so there is plenty of blame to go around. What’s unfortunate is when economists analyze with their politics hat on and not with their economics hat on. Prof Krugman has a tendency to support all things Democrat (although again, he has bashed Obama at many points during the last few years for his economic plan) and that’s unfortunate. The world is not so black and white.
“You know I voted for him, but mainly because the alternative was an economic nitwit”
Give me a dollar for every politician who isn’t an economic nitwit and I might have enough for my daily bus ride to NYC.
All very good points. The only point I would disagree with you on is the bankrupting of the American household. Maybe we are saying the same thing, but my view is that this was inevitable a long time ago if one actually understood what globalization is. The giant sucking sound became a cliche, but it’s a real phenomenon.
It seems like TPC is defensive here. The article even starts off with “love him or hate him…”, then moves into defensive mode in comments. In my opinion, any credential in the world does not automatically rule one out of the “idiot” category. Just look at Congress, I’m guessing most will get a firsthand look at what the working people think of them come November. Idiot is probably one of the nicer terms used for the people ruining our Country.
I am defensive any time someone uses ad hominem attacks on the site. I do not see the point. If you think someone is an “idiot” then use your personal intelligence to show why that is so. Calling someone a name based on your personal political motives is no better than what you accuse PK of doing.
I have been very critical of Prof Krugman at times. But when I am I try to prove my claims as opposed to just calling him names.
It’s funny how we think it’s better to invest in stocks only after they’re “wrong” (when everyone’s selling), but we credit theorists only after they’re “right” (which is sort of true eventually for every theorist of every stripe, on the broken clock theory).
Whether he made some right calls or not, Paul Krugman is indisputably one of the most articulate and greatest of the post-Keynesian economists in the world. Keynesianism will be significantly re-evaluated by the end of this crisis, but, as in all rigorous theories, some of it under some circumstances will work and continue to be modified and useful. That’s true of all economic theories (“The dismal science,” after all), including the Austrian school.
Most economic theory has nothing to do with predicting macro-economic conditions, and usually there is no “good” or “bad” or “right” or “wrong”, but only more or less useful and/or elegant theory. Thus evaluating economics on explicit calls on macro-conditions is rarely the criterion that fellow economists use to judge one another.
We stumble toward partial and imperfect truths which work sometimes and not others. Krugman is one of the better and more provocative economists of the Keynesian school, and we should value his voice, whether or not we agree with it.
“Thus evaluating economics on explicit calls on macro-conditions is rarely the criterion that fellow economists use to judge one another.”
PK does nothing BUT make macro economic calls, and he gets them wrong as often as he gets them right. Why shouldn’t he be called on them? Live by the sword and all, you know?
Yea. What TPC said. I’ll agree with that.
The U.S. has, apart from India, the most favorable demographics of any developed country or high-developing one; we continue to draw in bright, ambitious young people willing to work hard for a future. The creative industries are thriving and while we lack the social welfare provisioning of Europe, we also don’t have their extortionate tax base.
Are there issues which are going to make things uncomfortable over the short to medium term for many of us? For sure, not least the failure to properly treat the banks that were at the heart of this economic dislocation and to learn from other countries that do combine private healthcare with adequate social coverage, like France.
But like a lot of other people I think the bears are out of control and out of sight of some of the other, longer term fundamentals that will provide the basis for a more positive growth picture. This is not to say values will not whipsaw, because they certainly will. But when everyone tells you the sky is falling, it is time to start buying.
Like TPC, I voted for the president, largely, but not exclusively because Sen. McCain is an “economic nitwit.” Although that is an ad hominem which TPC doesn’t substantiate, there is plenty of extrinsic support (suspending his campaign for, what reason? to prove his nitwittery?) Both Sens. McCain and Obama filled me with anxiety mostly because, politics aside, the US Senate seems to be such a poor place for developing executive political leadership.
I watched Geo. Will and Prof. Krugman yesterday morning snipe over PK’s ad hominem (or at least broad swipe) at Rep. Ryan. I suspect PK is right and that Rep. Ryan is wrong, but there was no real discussion why – just a ugly mutual contempt (via GFW channeling Rep. Ryan).
I’m probably an economic nitwit, too, but the following appear to be the case: 1)Deficit financing – borrowing @ ZIRP, and lending back to the treasury – (as opposed to spending) is what is keeping the financial system going right now given private deleveraging; 2) it is impossible for pundits to have an intelligent or honest discussion over the [a key] role that deficits (or federal debt) play in the financial system; 3) that, like it or not, finance itself is the “real economy” – jobs, manufacturing, trade are secondary; and 4) that politically-focused people are either fine with that, don’t realize that, or have no clue what to do about it.
Only when we decide we need to impose tarriffs on imports will we encourage those business’s that moved to come back. If we don’t import we then make it here. We need to protect a portion of every industry and say unappologetically that this is ours and we are keeping it. We then need to protect workers and their right to organize. Companies don’t raise wages unless forced to and unionization is the only way. Germany is highly productive and highly unionized so their is no argument that the two cannot exist side by side.Stimulus projects are two focused to benefit the whole economy and their simply isn’t enough pick and shovel jobs to go around. Industries that once employed millions like clothing shoes textiles electronics etc need to come back with protections or else we are finished.
I could not agree more with this statement by TPC:
“Personally, I think Prof Krugman lets his politics control his outlooks too much. He would have pessimistic about Bush’s outlook no matter what he did and Bush’s economic approach ended up being pretty counter-cyclical – almost to the point where people were calling him a Keynesian.”
The footnote I would add is that Krugs actually applies his partisanship in almost all his economic analysis. In the end, given several possible approaches, you know before hand what he will opt for. To his credit in his personal writings he makes no excuses for it. As a pedestrian it makes it hard for me to accept his conclusions because I can’t tell where his economics ends and his politics starts. As a consequence I only read him when folks post his articles. He’s just not worth the effort. Greenspan was much more entertaining in his doublespeak.
To the matter at hand, I think Krugs biggest mistake the last few years is his hope that the current situation/outcome could possibly be any different. The historical track record, and he should know this, is pretty clear–post bubble environments are deflationary no matter what you do. Human nature, virtually unchanged over hundreds of years, guarantees it. As such he should less strident with his political partisanship and almost bitchy vindictiveness to his political opponents. It is not helpful in what will continue to be a very difficult five to seven years. He makes it worst with his playpen antics.
The disconnect with Krugman is that he only calls for more government spending, but is agnostic as to its form. His silence on the matter implies that it doens’t matter how the government spends stimulus funds. This is a big mistake. Congress is so dysfunctional that any sensible funding concept never sees the light of day. So the only government spending we end up with is that which can be spread equally around the country towards some vague perception of “fairness” regardless of need or future utility. There’s no idea behind government spending as future investment; rather it largely geos to support current consumption with litle to no future benefit. Think unemployment benefits, paying state and local workers salaries, filling potholes. These are all good things to fund, but they merely satisfy immediate concerns and do little for the future.
If you want good comparisons to the past and today: think Hoover dam versus unemployment checks.
The real issue is to make government stimulus pay off right now in terms of jobs creation, while having those jobs create something that will pay dividends for years to come. If you do it right, you can also create new industries that will create future exports. In this vein, we should be building high speed rail lines crisscrossing the country, upgrading the electrical grid, building wind farm generation in the Midwest and solar arrays in the southwest, etc. But Congress is too dysfunctional to do any of this and special interests will control the debate to maintain the status quo.
There’s also little distinction made between productive, sustainable GDP growth and useless GDP growth. For example, the housing bubble not only produced unsustainable level of GDP activity in the housing sector, but also led people to believe they were wealthier. This led to increased economic activity in landscaping expenses. Simple economics says that if you mow your own lawn, it’s a leisure activity and doesn’t contribute to GDP, but if you pay someone to do, now it does. Does anyone really believe that simply people to mow lawns is a valuable, productive addition to GDP growth that should be encouraged and rewarded? If this really works, then let’s ask everyone to pay their neighbors to retreive their mail. I’ll pay you $10 a day to get my mail, if you pay me the same. Wow, look at that personal income is rising! Things must be looking up.
This is the real problem with Krugman: what he is calling for and what he’ll get are two different things. If he gets his way and it still doens’t work, he’ll ask for even more. Executuion is critical and the missing piece. As a society we’ve lost the ability to see anything but the short term, that is the next quarter.
Mr. Krugman’s position smacks a bit of political opportunism – an attempt to derail a Republican comeback. His prescription may well be the proper one, but he has the benefit that he cannot be wrong. If a given level of fiscal stimulus does not bring about the desired result, he can always say that more is needed. Intellectually he can continue to up the ante until every other player at the table has folded.
Perhaps $10 trillion of stimulus is required to restore prosperity. No politician, government official, or the general public would be willing to support such a program because the consequences of being wrong would be disastrous. If somehow the political will to implement such a program could be found, and it was unsuccessful, Mr. Krugman could simply say, “We needed to spend $11 trillion.”
For me the important thing is that Krugman was right that the increased budget deficits would not generate inflation and lead to higher interest rates. This is what he was saying throughout 2009 while the WSJ was seeing bond vigilantes coming from the hills. Krugman got the big picture right while most other economists got it wrong. When he says that things will go downhill from now he is not being opportunistic. He follows the same economic logic if I understand him correctly. The aggregate demand is decreasing because of private sector de-leveraging. Until this process reverses, the government has to provide fiscal stimulus again, and again, and again… and nothing bad will happen with interest rates and inflation for the same reason that nothing bad happened in 2009 and so far in 2010: the economy operates well under its capacity. Unfortunately, the political window for more stimulus has closed. The Austerian hillbillies are coming in November and we will see an exact replay of 1937-1938. I hope history will stop repeating itself somewhere around 1941-42.
The disconnect with Krugman is that he only calls for more government spending, but is agnostic as to its form.
That isn’t true, either. Krugman has specifically argued for more infrastructure spending and unemployment benefits. Just one example from two years ago: http://www.nytimes.com/2008/10/17/opinion/17krugman.html
Mr. Krugman’s position smacks a bit of political opportunism – an attempt to derail a Republican comeback.
Krugman has been critical of Obama, as well as the Republicans. He has long argued that the Obama stimulus wasn’t large enough. You may agree or disagree with Krugman, but you cannot honestly claim that he has been inconsistent.
As both an American and a Canadian citizen, I see deregulation in the US as the source of many of the problems. Children only play nicely together when the teacher is watching closely, otherwise they tend to misbehave. Large corporations with their 260,000 lobbyist distracting the teachers (Legislators) with candy, is not in the interest of the American public and goodness knows, corporations have been misbehaving.
Tom Peters described business as “making things and selling things”, China is doing this very well, the US, not so much. I would like to pose several questions for discussion.
Were Deregulation, Global Free Trade, coming off the Gold Standard and the resulting Deficit Financing, all great experiments? If so, is it time to reevaluate the experiment and make some adjustments?
If America went back to inventing, making and selling the things that Americans use, would a large number of well paying jobs return?
Will Peak Oil at $100 a barrel, while painful in itself, cause Made in America to be cost effective, compared to Made (usually poorly) Offshore and transported to the US at great expense?
Is it time for America to turn inwards and put its own house in order? If the huge resources, intellectual and financial employed by America throughout the world, were brought to bear on its domestic problems, can anyone doubt that they could be quickly resolved?
Why do you listen to this assclown? More stimulas wont repair the balance sheet. In fact quite the reverse. Remember they gave a peace prize to our kenyan and chief. Clearly they will hand them out to anyone. Krugman should be hung and shot then shot again.
No matter what the additional stimulas was it would not have been enough.
The banksters caused this mess by lending to people who had no hopes of repaying the loans they were taking. The banksters did this in order to earn mega bonuses for themselves. They then earned big fees in selling these loans to pension funds and public after getting fraudulent AAA ratings.
Meanwhile the the regulators and politicians (while counting the contributions they got from the banksters) looked the other way and kept the interest rates very low for an extended period of time fueling the property bubble. When things went out of hand and crashed, the regulators socialised the losses so that the banksters could keep on earning their bonuses while gambling in stocks and commodities making life of a common man miserable.
These problems are not going to be solved till the too big to fail banks fail, derivative (speculative) trading is abolished, the losses are recognised by marked to market assets in the books of banks, banksters are sent to prison so that no other banker dares to take the taxpayer for a ride.
This has no chances of happenning till the banksters cause another market crash with their superfast front running computers and the politicians have no other option but to apply Volcker Rule in its true sense because of public outcry.
Nobody is talking about the true reason why America is in the hole. In the past decades, many US jobs were shifted to China, and those jobs will never come back to US. The real culpit in the job-shifting is the US multinational corps. They call this globalization. This very basic process sent the US wealth to China, and at the same time enriched a small percentage of corporate executives. until this process is stopped, all the talk is BS. Call it protectionism or else, that’s what it is. YES, that’s what I am saying. These multinational corps bought the congress and even presidency, and did whatever they did to screw this country. This country will not get anywhere until those US corps get stopped. Looking at the clowns on the political and economic stages, this country will suffer a lot longer.
Angry MBA took issue with a statement I made:
“The disconnect with Krugman is that he only calls for more government spending, but is agnostic as to its form.”
His reply:
“That isn’t true, either. Krugman has specifically argued for more infrastructure spending and unemployment benefits. Just one example from two years ago: http://www.nytimes.com/2008/10/17/opinion/17krugman.html”
Well here’s the relevant portion of the Krugman article:
“On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.
And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed.”
First note the order of Krugman’s suggestions, it’s all about driving current and past consumption, a rteturn to the status quo. It smacks of an assumption thatn if we can only get everythign back to 2005, we’ll be fine. His infrastructure focus (which comes after extending unemployment, providing funds for state workers, and making sure that the very people who engaged in the most riskiest financial shennanigans like liar loans are taken care of) is basically a glorified pothole filling: bridge repair and rail line upgrade.
I’m sure good old American know how can create new pothole technology that we can export to the world. And do you know what would likely happen if some company were to develop a cheaper faster method to fix potholes or even prevent them in the first place (how about self repairing roads)? I expect that politicians and the construction industry would prevent it from ever seeing the light of day because jobs would be lost and less government money would be needed thus diminishing the size of the intended stimulus.
My focus on infrastructure is next generation stuff that would actually see us well into the bulk of the 21st century. Instead, we are making sure that our 20th century buggy whip manufacturers can stay in business. But this is what happens when the only concept in terms of “stimulating” the economy is interpreted as increasing “demand” for all the same crap that got us into this economic situation in the first place.
The next thing we can expect is promotion of more disease. This would make great sense to Krugman. Health care has been one of the few bright spots in labor over the last several years, so why not encourage that more people get sick so that more economic activity can go into health care and drive up GDP that way (it seems to be the only thing we can do anymore).
All this goes to show is that ecomomists (Noble prize or not) have not clue what really drives economic growth and thus have no informative suggestions for policy decisions. Buying more T shirts ain’t gonna cut it.
First note the order of Krugman’s suggestions…
You obviously are more interested in parsing words so that they reflect your preconceived biases than you are in the actual content.
Krugman has been going on for the last two years about his belief in the need for infrastructure spending. His position is not what you claim it to be.
The focus on unemployment benefits is to be expected from a Keynesian, as the Keynesian view is rooted in grappling with unemployment. It is not surprising that a Keynesian would argue for unemployment benefits to be used as stop gap measures during transition periods when jobs have yet to be created.
Again, I would suggest that if people wish to critique the work of others that they actually read it. Misinterpreting it may be entertaining for some, but it isn’t particularly useful or productive.
This whole mess is rooted in the Reagan / Greenspan fairy tales that markets are efficient and unfettered capitalism holds the higher moral ground — how wrong they were. Unfortunately, these myths will continue because there are still powerful forces with skin in the game, and they will do anything to hold on to their advantages.
In the mean time (and related to the above), we are quickly beginning to take on all of the characteristics of a banana republic, a very large and very sophisticated banana republic, but a banana republic nonetheless. The discrepancies in wealth within this country (and within companies)are stunning. Big business and government are joined at the hip. A few industries dominate GDP, even though they employ relatively few people(Finance and Defense) +/or are acting in a parasitic manner toward society (Finance, Defense, and Healthcare) No economy or society can survive such parasitism.
…what else … Well, the general public is not educated enough to make informed decisions, and then there’s permanent underclass that is growing faster than the middle class, and, oh yes, a nimrod like Glenn Beck can capture the imagination of people who are too frightened to think for themselves.
…on a different rant, TPC, I disagree that ~’02 – ’05 showed anything resembling healthy economic growth. I think that history will show it to be the tipping point in which middle America got suckered into one last attempt at living the American dream– but failed (couldn’t afford it). Real wages contracted during this period due to health and education expenses, economic “expansion” was low-skilled (real estate), industrial output contracted (relative to imports), and education continued its downtrend. I would argue that this period was more of a late term spasm foretelling what was about to come.
Sorry for the negativity and rambling – such are the times.
“And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses”
Ah Ha Ha Ha Ha, The US has been running 11 Trillion worth of deficits with no sign that this is helping.
The problem with Krugman is he is advocating spending more, but never seems to give an indication as to how much is required. The answer is always more.
Amen, Mgkurilla. The biggest shortfalls in Krugman’s thinking are (1) no differentiation between wasteful projects and those which expand productive capacity, and (2) no discussion about how he would ultimately solve the US’ longer term entitlement problems. Substantial additional stimulus could be helpful if it is productive and done in conjunction with efforts to address entitlements. Krugman’s failure to differentiate between productive and non-productive investments is strange since some of his previous (rather prescient) writings on emerging Asia and Russia suggests that he discerns the difference when his political leanings aren’t at stake.
The biggest shortfalls in Krugman’s thinking are (1) no differentiation between wasteful projects and those which expand productive capacity…
Again, another poster who doesn’t actually read Krugman’s work, yet feels the need to comment on it.
If you read Krugman, you’ll find that he makes these claims:
-The US has so much need for infrastructure that there is no shortage of useful projects that could be undertaken
-There has been minimal waste thus far, so the “efficient” spending claim is a red herring argument
Krugman isn’t claiming that inefficiency is good. What he is claiming is that you folks on the right have a habit of exaggerating about it. Hopefully, you can see the difference.
Again, read Krugman’s work directly if you want to comment on it. Reading about it in the echo chamber is not the same as reading it and taking it for what it’s worth.
(And no, I don’t always with Krugman myself. The issue isn’t with Krugman, but with this apparent passionate desire by conservatives to constantly misstate what Krugman says.)
While Krugman may have some insight as to the direction of the economy, his prescription is to keep feeding the bubbles that cause the downturns. Both the Keynsians and Montetarist think that the Great Depression could have avoided if we would have just kept pumping up the stock market and created a lot of artifical economic activity. The reason the economy slid bad into depression in 1938 was because after it hit bottom in 1934; with both the help of the Federal Reserve and fiscal stimulus, they grew the economy way to fast, created another bubble which then burst in 1938. Krugmans prescription would have been to create an even bigger bubble after 1938 with even more dire consequences down the road. I find Krugman just plain funny.
Obama is a redistributionist. He doesn’t care about the health of the economy as long as the lower classes get a bigger piece of the pie. I can’t imagine why ANY capitalist would ever vote for him.
This thread is one of the best critiques of Krugman’s work and philosophies I have ever read. I have long admired PK, and credit him and PJ O’Rourke for my most stimulating education in economics (OK, so I’m NOT an Econ PHD!).
I now count TPC (and a good number of his faithful commentators) among that group. TPC consistently fends off the non-productive ad hominem attackers, while fairly and robustly arguing with the legitimate and well supported arguments that disagree with him.
Thanks for making the effort to provide this site, and striving to maintain it’s standards. You deserve wider recognition, but I fear that the result of such recognition will be much like that which happened to PK: Increase polarization and politicizing of his opinions. While still useful, I preferred his commentary and insights before he became famous.
Angry MBA must be a pseudonym for PK (or else his mother) since he doth protest too much.
Ryan succintly sumamrizes the major issues with PK:
“The biggest shortfalls in Krugman’s thinking are (1) no differentiation between wasteful projects and those which expand productive capacity, and (2) no discussion about how he would ultimately solve the US’ longer term entitlement problems.”
The only comeback he offers for any criticism of PK is that you need to go back and read him. He sounds like Chekov from Star Trek where every idea and invention always came from a russian. In Angry MBA’s mind every thoughtful idea comes from PK.
Regarding infrastructure, there are two types, repair and maintenance versus competely new projects that create new stuff that didn’t exist before. It’s the later that economists in general and PK in particular never get. Whether the US spent $1B on lawn care versus wind farms, economists like PK wouldn’t care – it simply adds $1B to GDP either way.
The current recession (actually let’s call it a depression) is going to last quite a while. Instead of trying to make some short term numbers look good by the next election, we should be focusing on long term projects that will create jobs now AND pay off for the nation well beyond the current economic downturn. Exactly what benefits do unemployments checks and pothole repair provide for 10 years from now?
Angry MBA must be a pseudonym for PK (or else his mother) since he doth protest too much.
No, I find it annoying that posters such as yourself have a compulsion to misquote whomever you decide to demonize.
You obviously don’t read the guy’s work; at best, you read about it. Unfortunately, the sources upon which you rely upon for your hearsay aren’t very good, hence the problem.
The best way to know what a particular pundit is saying is to read his or her work, so that it isn’t filtered by biased parties. Reading your misinterpretations of same is not at all useful, particularly when your sources are secondhand at best.
Angry MBA,
Just because the US has no shortage of useful projects does not mean that such endeavors are the ones actually being undertaken. A useful project is one that expands the productive capacity of our country and is capable of earning a long-run return in excess of its cost of capital. Such projects might include significantly expanding our nations nuclear energy capacity, simple R&D tax credits, or (more generously) any essential project that would not be undertaken by the private market. However, Krugman seems to view government spending as a letter ‘G’ in the Y = C + I + G equation. Don’t take my word for it, take his from 4/14/09 blog entry entitled “Time for bottles in coal mines”:
President Obama hails the fact that stimulus projects are coming in “ahead of schedule and under budget.” Yay — but boo.
Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.
Paging Keynes, who pointed out the problem with projects that are of some use besides their role as stimulus. Such projects
because they are not wholly wasteful, tend to be judged on strict “business” principles.
He then went on to propose an alternative:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.
(http://krugman.blogs.nytimes.com/2009/04/14/time-for-bottles-in-coal-mines/)
In his writings, Krugman makes clear that he prefers useful projects, but if the choice is between a wasteful project and no project, then he prefers the former. Since you are so clearly a veritable Krugman expert, I encourage you to dispute any of my aforementioned claims through excerpts from his actual writings as opposed to your opinion or recollection thereof.
PS: You should be more careful about drawing conclusions about people from such a limited sampling (in my case three sentences). Perhaps I am not the one living in the echo chamber. How on earth could you deduce from what I wrote that I do not read Krugman directly or with an open mind and that I am a partisan republican living in an echo chamber?
Just because the US has no shortage of useful projects does not mean that such endeavors are the ones actually being undertaken
The subject isn’t the policy, but Krugman’s opinions of what the policy should be.
Your previous summation of Krugman’s positions was wrong. Again, Krugman has been critical of Obama, so don’t confuse administration policy with Krugman’s opinions of what policy ought to be.
Krugman makes clear that he prefers useful projects, but if the choice is between a wasteful project and no project, then he prefers the former.
So now you’re admitting that the Krugman-doesn’t-care-how-it’s-spent claim was wrong.
Again, Krugman believes that there are plenty of infrastructure projects worth funding. He isn’t “agnostic” about that; infrastructure is where he believes that the money should go. Believing that some spending is better than nothing is not the same thing as being indifferent about how it’s spent.
Since you are so clearly a veritable Krugman expert…
Actually, I’m not. In many instances, I don’t even agree with him. But I make a deliberate effort to not misquote people, whether or not I agree with them.
Angry MBA,
While you have parsed words and tried to redefine the debate, you have not really addressed either point that I made. I showed you written proof (in his own words) that Krugman’s stated ideology is that if it comes down to deciding between no stimulus and wasteful stimulus, Krugman prefers wasteful stimulus. That is my biggest disagreement with him. In my opinion, if stimulus spending will be unable to earn a positive return on investment, then it is wasteful and should not be undertaken. Krugman clearly disagrees. I am not really sure if you do since you are engaging in sentence parsing and name calling rather than trying to have a real conversation. To suggest that you have somehow proven me wrong because Krugman does in fact have a preference toward productivity enhancing projects over non-productivity enhancing ones is ridiculous. Of course he does. But the litmus test is whether or not a project should still be done even if its knowingly wasteful Krugman says yes–I say no.
On my second point about Krugman’s plan to solve long-term entitlements, I would honestly appreciate your help in locating writings in which he has delineated anything beyond vague notions of “long-term tax increases” and/or “some entitlement reform.” Since he is so vigorous and cantankerous in his defense of raw Keynesianism, it would be helpful if he would also try to steer the debate about tackling the long-term deficits. However, unless I have missed some detailed writings, my inclination is to believe that he is not really that concerned with the solving the long-term deficit problems that are exacerbated by his plans for unbridled stimulus. I actually see the case for productivity enhancing stimulus, provided it is combined with some plan to deal with the long-term deficits. Such a plan would need to address runaway defense spending, SS, and most of all Medicare, and will certainly include future tax increases. I have my own views of what is the best way to balance such reforms, but I am fine with any plan that at least addresses the underlying problem. The voters can decide which plan is best. By refusing to address the long-term deficits while promoting aggressive stimulus, Krugman in some respects is simply the obverse of many republicans who have (now and in the past) vigorously backed tax cuts without corresponding budget discipline. There is credibility to tax cuts as well as Keynesian deficit spending if done correctly as part of a holistic plan; but without concern for the negative effects of the chosen policy choice, one becomes something of an ideologue rather than a problem solver.
Angry MBA (how apropos) said,
“You obviously don’t read the guy’s work; at best, you read about it. Unfortunately, the sources upon which you rely upon for your hearsay aren’t very good, hence the problem.
The best way to know what a particular pundit is saying is to read his or her work, so that it isn’t filtered by biased parties. Reading your misinterpretations of same is not at all useful, particularly when your sources are secondhand at best.”
How about “Peddling Prosperity” and the “Age of Diminished Expectation?” I’ve not only read his work, but paid him for it, so I feel like I have a more than a right to comment. I’ve also follow his NYT Op-Ed pieces and his blog.
Two things are very clear:
1) PK has become much more partisan over time which diminishes his opinions from my perspective.
2) As commentary by Ryan has pointed out, while PK would prefer productive stimulus over wasteful stimulus, he’ll take wasteful stimulus as well.
My point has always been that PK (along with most other mainstream economists) have done little to create discussion about specific productive stimuli.
“Never let a crisis go to waste.” I believe Rahm Emmanuel said that. Yet 2 years later, little has been accomplished that will have long term impacts. Instead much of the focus has been on recreating that status quo pre-2008.
TBTF – let’s ensure that they are even bigger the next time around.
Questionable mortgage standards – let’s have FHA take that over
Sky high housing prices – let’s do all we can to keep them elevated above historical norms, depress sales
Automakers addicted to oversized, gas gussling SUVs – Let’s invest taxpayer dollars to keep them going
Many economists have voiced the opinion (try Calcualted Risk) that the Hoe Purchase Tax Credit was huge waste of money and efforts as has HAMP, yet I’ve never seen PK comment on those programs.
The point is that at every step, actions have been to focus on maintaining the status quo and kicking the can down the road for an extend and pretend. At no point, I have read PK declaring that post WWII we overcame a huge debt load due to the valuable productive capcity we created during the war and the follow-through we provided after (GI Bill, interstate highway system, space program, etc). In addition, to Ryan’s comments on entitlement program, post-WWII, we only had SS, just beginning to kick in.
“Many economists have voiced the opinion (try Calcualted Risk) that the Hoe Purchase Tax Credit was huge waste of money and efforts as has HAMP, yet I’ve never seen PK comment on those programs.”
So it has come to this, has it? The government is giving a tax credit for the purchase of HOES?!!
Things must be worse than I thought.
I’m planting spuds, then cash.
Since he is so vigorous and cantankerous in his defense of raw Keynesianism, it would be helpful if he would also try to steer the debate about tackling the long-term deficits.
Krugman doesn’t think that there is a problem with entitlements spending such as Social Security. You may see a problem, but he does not:
http://krugman.blogs.nytimes.com/2010/08/13/social-security-a-minor-fiscal-issue/
http://www.nytimes.com/2010/08/16/opinion/16krugman.html
As for long-term deficits, it isn’t exactly a secret that he believes that deficit-funded growth beats deflation fed by austerity.
So no, he isn’t silent on these points at all. He obviously doesn’t share your concerns, and largely dismisses “entitlement reform” as a right-wing talking point.
My point has always been that PK (along with most other mainstream economists) have done little to create discussion about specific productive stimuli.
Krugman has pointed out that US infrastructure is aging and falling apart. I don’t think that he, nor any other economist, needs to prepare a detailed list of bad bridges and pothole-ridden streets in my neighborhood in order to support that point. The US has been deferring maintenance for decades, so anyone who wants to argue for infrastructure spending would have an easy time finding stuff to do.
Angry Bear,
Your statement that “As for long-term deficits, it isn’t exactly a secret that he believes that deficit-funded growth beats deflation fed by austerity” is a red herring. We are not discussing deflation fed austerity; we are debating the efficacy of wasteful stimulus versus no stimulus. There is an easy way to avoid the latter: enact productive stimulus projects of which there are many. A series of short-term unproductive stimulus packages is grossly inferior to a well planned, productivity enhancing stimulus that might take a bit longer to get going but which will help our nation in the intermediate and long term. Its not like this recession and our problems are going to disappear in 12 months anyway.
As for entitlements, Social Security is the less of a problem than Medicare. Does he have a solution to that? Does he also believe that the health care cost problems can be solved by full government control via single payer? Where Krugman has lost me in the past 12-18 months is that he is attacking the Right (rightfully) for be intellectually dishonest, but many of his arguments are similarly partisan and incongruent.
Roger, LOL at the Hoes tax credit. That should be a popular one.
Angry MBA, you said:
“Krugman has pointed out that US infrastructure is aging and falling apart. I don’t think that he, nor any other economist, needs to prepare a detailed list of bad bridges and pothole-ridden streets in my neighborhood in order to support that point. The US has been deferring maintenance for decades, so anyone who wants to argue for infrastructure spending would have an easy time finding stuff to do.”
It’s clear that you’re not reading a word of what I’ve been saying about infrastructure (probably too busy slaivating over the next pearls of wisdom from PK). Just as with PK, you regard upkeep and maintenance of existing infrastructure in the same GDP contribution category as something new and different with future returns. Filling potholes is not going to jumpstart the economy. When the pothole is filled everyone goes home, job over. Maybe you saved someone some auto repair expense, but then maybe that corner garage will go under now for lack of business.
In essence, although somewhat necessary, it falls into the make work category in terms of productive worthwhile investment. The fact is we’ve arrived in this condition because states have been negligent in terms of proper maintenance of the years predating the current recession. We’re merely creating another moral hazard by having Federal funding pay for something they should have been doing all along. Instead, you and PK propose letting them continue with sloppy fiscal management and misplaced priorities.
You can criticize the Federal resposne to Katrina, but how many previous recommendations by the Army Corps of Engineers went unheeded by state and local governments in the decades prior to Katrina that would have prevented much of the resulting damage?
When I sepak of infrastructure, I’m talking of 21st century “stuff.” There’s no discussion of next generation technology because neither the economists nor the political class have a clue what any of this means.
We are not discussing deflation fed austerity; we are debating the efficacy of wasteful stimulus versus no stimulus.
I’m not debating anything. I’m merely trying to get you to quote Krugman correctly.
If you want to disagree with Krugman, that’s fine. (As noted, I don’t always agree with him, either.) But don’t misquote him, or attribute positions to him that don’t belong to him.
I happen to agree with Krugman about this wasteful spending rhetoric being overblown; it isn’t really an issue, and there are plenty of worthwhile projects that could benefit from some stimulus cash being lobbed at them. The right has concocted this non-issue so that they can gripe about spending, but a lot of us simply don’t see these alleged issues as being particularly important. Your mountain is my molehill.
I would disagree with Krugman to the extent that he doesn’t seem to understand the logistical complexities and bureaucracy that are associated with putting stimulus spending into the economy, namely that it isn’t that easy in the real world to get large amounts of money spent quickly enough. It’s one thing for Congress to approve the budget and the concept, it’s quite another to rapidly get it administered and into the projects that need to built. Krugman is a policy wonk, not a business guy who has dealt with government, so he really doesn’t know how it actually works day to day.
Filling potholes is not going to jumpstart the economy.
Krugman obviously disagrees with you. You seem to have a problem grasping the concept that all of the alleged problems that trouble you (deficits, “waste”) don’t trouble him.
You’re getting confused Angry MBA:
“Filling potholes is not going to jumpstart the economy.
Krugman obviously disagrees with you. You seem to have a problem grasping the concept that all of the alleged problems that trouble you (deficits, “waste”) don’t trouble him.”
This was my posting you are quoting and responding to while Ryan was discussing deficits.
My point with the pothole comment is that this is another example of the misguided approach that has been taken with stimulus funds. Filling potholes (like paying teachers, buying cars or homes, etc.) is something that goes on all the time. By substituting federal dollars for these activities you are creating a moral hazard by allowing either states or individuals from making their own allocation of limiting resources (and it’s always limiting) as well as simply pulling forward future demand so that when the future comes around there’s another downturn (think 2H10 here).
If we were dealing with a traditional recession where Fed raises rates to tame inflation trends, that’s a fine approach to get over the soft patch beause the underlying economy is basically sound and just needs to cool off. But this time around we have a credit crisis and deleveraging will have to take place over a prolonged period of time and federal dollars for teachers and potholes are not going to save the day. Now if Krugman simply declares that it wasn’t big enough, then no matter what happens he’s always right. But I can yell the same time nonstop and I’ll still be right twice a day, but who cares.
My point with infrastructure is that federal stimulus needs to do things that never would have been done by businesses or state governments, projects that will continue to benefit society long after the shovels have left the area.
Take California as an example. They have a $20B deficit and still no budget. Even without the current recession, the fecal matter would have still hit the circulting blades because they have a dysfunctional state government process for crafting budgets, an overly generous state pension system, no oversight for public employees (recall the Bell city manager making >$750,000 a year), etc. Paying for their teachers will not “get them over” the current downturn. they need to deal with their structural issues and make some tough decisions.
If Federal dollars were able to create new industries, they may have more options for the future, but right now, they need to wallow in a mess of their own making and clean it up themselves. They need to decide what’s important to California and make the hard choices.