Paul Krugman Goes for a Knockout Against Scrappy Austerians
bloomberg.com
bloomberg.com
Also it would be fair to let his side pick a share of the debate points.
"Krugman, armed with his Keynesian model, came into the Great Recession thinking that (a) nominal interest rates can’t go below 0 percent, (b) total government spending reductions in the United States amid a weak recovery would lead to a double dip, and (c) persistently high unemployment would go hand in hand with accelerating price deflation. Because of these macroeconomic views, Krugman recommended aggressive federal deficit spending.
"As things turned out, Krugman was wrong on each of the above points: we learned (and this surprised me, too) that nominal rates could go persistently negative, that the US budget 'austerity' from 2011 onward coincided with a strengthening recovery, and that consumer prices rose modestly even as unemployment remained high. Krugman was wrong on all of these points, and yet his policy recommendations didn’t budge an iota over the years.
"Far from changing his policy conclusions in light of his model’s botched predictions, Krugman kept running victory laps, claiming his model had been 'right about everything.' He further speculated that the only explanation for his opponents’ unwillingness to concede defeat was that they were evil or stupid."
Did Krugman claim that nominal interest rates couldn't go below 0%? Did Krugman claim that austerity would lead to a double dip recession? Did Krugman claim high unemployment would go hand in hand with spiraling deflation? Did Krugman claim that anybody who disagreed with him was evil or stupid? Has Krugman now decided that, even though interest rates went below 0%, austerity did not cause a double dip recession, and high unemployment did not accompany spiraling deflation that he was "right about everything"?
Did the New York Times ombudsman say that Krugman has a "disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults"?
For a hashing of the claims you might have a peek in the comments about this article on Reddit (spoiler: claims don't exactly get a free pass): https://www.reddit.com/r/Economics/comments/386ntm/paul_krug...
Meanwhile, Wikipedia has links to articles where Murphy has made absolutely worded claims that have turned out to be completely wrong. That doesn't make Krugman right, but it's hard to take seriously anything about economics written by someone who said
"We can’t know the timing of the impending monetary catastrophe, but it is coming. Smart investors will minimize their dependence on the dollar before it crashes. At this late date, no one should trust the government and media “experts” who assure us that the worst is over." [1]
Maybe two excesses average out somewhere closer to the truth? But I'd like a more neutral source.
http://www.theamericanconservative.com/articles/killing-the-...
> the zero lower bound turning out to be less than zero hardly vindicates the idea that the entire concept is a "mentality" Krugman is "locked into".
Krugman's been arguing that at the zero lower bound the regular laws of economics don't apply. That's not a caricature ("When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly", http://www.nytimes.com/2008/11/14/opinion/14krugman.html ). Krugman's tried to establish himself as somebody able to reason in this weird realm (although his recommendations always amount to "spend more and don't worry about the deficit"), so it seems important to know where the weird realm actually is. It's certainly true that the US didn't have any experience with the zero lower bound, but it's also true that there are a few other free market economies in the world that might have given a deep thinker something to work off of.
> Also, a prediction that 'X will push the economy in the wrong direction' is not directly contradicted by the economy going in the right direction in the presence of X; it's evidence against the relation, but not necessarily strong evidence in a complex system with many other factors
But Krugman didn't say that austerity would simply cause headwinds, or just push the economy in the wrong direction. According to the Bloomberg article, he said people advocating austerity enjoyed inflicting economic suffering, and he coined the words "austerian" and "sadomonetarist." He routinely said that austerity would cause a new recession before we recovered from the first. Not that it would be hard to overcome austerity, but that it would be impossible to. Then, when the predicted double dip never occurred, he declared victory and claimed he'd been right about everything.
The only substance I can see from the original Bloomberg article is that Krugman enjoys a scrappy technique when debating other economists. But his record doesn't really justify his statements that people only disagree with him because they are evil or insane.
Doesn't wasteful central government stimulus always just enrich cronies and banksters? The whole shovel-ready jobs being nowhere to be found/summer of recovery thing was kindof laughed off by the president, but that obscene $500bil stimulus still got spent.
Austerity has way better rhetoric, you can talk about wasteful spending and living within our means, blah blah, but the predictions have absolutely sucked compared to standard economics.
Edit: other austerity greatest hits:
* don't bail out detroit!
* qe will lead to hyperinflation!
* cancel infrastructure projects!
* buy gold!
Sure 500bln is a delicious shot in the arm, even if most of it is 'wasted' on the cronies. I can't predict what will trigger inflation, hyper- or otherwise, in this distorted economy. All I want to know is, just when exactly can I expect the payoff? Will there be growth or recovery such that the debt holders are paid back? No? Never can expect it, realistically? Ok, let's cut it out with the stimulus then, because I'm sick of bailouts and blatant cronyism.
In other words there was a huge change in the derivative of those rates, downward change flattened and bent upwards.
Now, going instantly another 500bln in the hole and rolling over that much more debt service every year is concrete. I can measure that failure.
Was the stimulus worth it short term or long term? I don't think so!
Honestly it doesn't make much sense, and should really make people hesitate to pursue deflationary measures. China's fiscal policy does serve to deflate the dollar, so that counterweights QE a little, but that much? Maybe, I guess?
Another big issue is all the stuff that got financed that normally couldn't be financed, with investors everywhere willing to buy junk bonds and any imaginable kind of stock. How that works out remains to be seen.
(Personally I don't have a firm opinion on stimulus/austerity, apart from it being a far from obvious issue - that I believe rather firmly.)
My theory is that the administration wanted more stimulus, couldn't make it happen politically in useful ways (infrastructure projects, school building, new nuke plants etc), so the only outlet they had was QE, which did the job somewhat (we're not in a great depression), but did have the negative effects you highlighted. I think we'd be better off had the money been spent on infrastructure projects -- same sugar rush preventing a crash, plus we get a bunch of stuff afterwards. Right now we just have paper assets in the aftermath.
"Couldn't make it happen politically?!" That part I don't get. You mean they couldn't just give everyone money so they spend it instead of giving money more or less directly to the richest people? You mean the citizens would revolt?!
(Actually the possibility of QE on the scale we had in a bunch of democracies left me dumbfounded. Why do people put up with that shit?)
Politically, citizens have nothing to do with it, look at Congress. They're voted in on fears of socialism and kenyans, not like they can turn around and support infrastructure spending.
Also - what do you mean "credit is tight for businesses"? Haven't businesses of all kinds been vigorously buying back their stocks lately, while issuing bonds at the same time? Those bonds having very low yields?
Maybe grandma has a problem getting a loan from a bank to run her small shop (why would the bank lend out money when they get risk-free handouts from governments?.. AFAIK banks are actually notoriously bad at credit risk assessment when giving out loans to businesses so they tend to not bother); but definitely a public company issuing bonds has no problem of prohibitively high yields.
Hyperinflation is almost impossible in a highly leveraged credit economy, but cheap money has to go somewhere.
I'm personally unimpressed with all the various schools of economics. Sometimes it seems like astrologers and palm readers arguing over which technique happened to randomly seem to work last time.
Not always. I think it's a shame that the stimulus wasn't done too well, but I don't think any attempt was destined to failure. If done well, the stimulus might have effectively addressed a large number of problems, such as infrastructure and unemployment as the CCC did in its day.
The real problem with austerity is that it makes debt bigger by shrinking the underlying GDP, and a fallacy of composition where individually rational actions (e.g. cutting your personal expenses so you can pay down your debt) doesn't work if we all do it at the same time. The solution often is some variant of "grow your way out of recession". It's not a great solution, but it's probably the least-worst plan. This may or may not involve make-work programs; an "anti-austerity" plan may simply be a plan that stops ruining the GDP with cuts.
(trickle-down the opposite idea, I'm not sure why you associate it with anti-austerity)
Never mind Krugman - I highly recommend Mark Blyth's (prof. econ. Brown Uni) discussion of the topic ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 - the main lecture starts after a boring introduction at ~12min). While this particular lecture is focusing on the situation in the EU, Blyth covers a lot of general econ topics and spends a lot of time on the history of austerity and what it does to an economy.
"grow your way out of recession" is pretty much making the same argument.
For example, one of the most successful anti-austerity measures was the "kurzarbeit" program of the German government, which prevented mass layoffs and kept the German "mittelstand" (the backbone of the German economy) afloat.
"Kurzarbeit", very simply put, is a program that allows businesses to keep their employees employed part-time, while the government makes up for most of the loss of wages by paying them benefits. Once the recession is over and orders are coming in again, they go back to full-time employment. People don't lose their jobs, there's no drop in consumption, and businesses don't have to go through painful layoff and rehiring processes for high skill positions.
In America, which has a more consumption-driven economy, food stamps (i.e., SNAP) have been shown to be one of the most effective forms of stimulus; not only do they keep low-income families fed, but because the marginal propensity to consume is basically 100% for SNAP recipients, this then creates business for supermarkets, which in turn can keep employing their workers who also have a high marginal propensity to consume, and so forth. As a result, increases in SNAP spending were probably one of the most successful parts of the Recovery Act [1].
[1] http://www.cbpp.org/research/snap-is-effective-and-efficient
It's been shown to have failed. You can't slash spending and increase taxes and expect the GDP to go anywhere but down. Greece is the poster child.
Most of the arguments made for austerity is for countries that modestly reduced some government spending in an otherwise positive economic state.
And let's face it, every 'developed' country's government spends a vast quantity of money, far more than most will admit. Here's a list of countries' government spending as a percentage of GDP: https://en.wikipedia.org/wiki/Government_spending#As_a_perce...
The US is at 42%, Germany at 45%, Sweden at 51%, and France at 56%, and Denmark at 57%. Most of the countries at the lower percentages are '3rd world' or failed states... The idea that a 'smaller' government will lead to economic prosperity has no basis in historical reality.
Of course, this article didn't help, because instead of advancing a thoughtful discussion, it tried to use animated gifs and "clever" web design to distract people from noticing that the content of the article was both vapid and internally incoherent.
I know people are probably thinking, "why do you care", and I don't particularly, but I think this article is basically an insult to all of us. This is bloomberg essentially stating: "this is what we think of you, if you're reading this, we think you're the sort of person that can be distracted by shiny stupidity". My previous feelings towards bloomberg were mildly positive, but I suspect moving forward any articles they write I will have a more critical view towards.
That said, hats off to the people that made the images. They are really good, and obviously the people behind them are very talented. I wish it had been attached to something worthwhile.
If you think that's strange, read internet blogs based around the 'Austrian' economic school.
Anyhow, Keynes' theories weren't so much ideological as they were based on his observations of economic events and models. And they've been elaborated on in the current 'dominant' economic school, which is better called 'Neoclassical Economics', wrongly labelled as 'Keynesian Economics' by the naysayers (though of course much of it does develop on Keynes' ideas).
> while I think that rational people can certainly have differences with regard to his economic views
The problem isn't so much people with 'different' opinions, but rather those who have opinions about economics but no coherent economic models, theories or observations of their own.
And I've found many of those who argue against Keynes' theories are also the ones who espouse things like a gold-backed currency, or eliminating government altogether. I've seen blogs that equate Keynesian economics to satanism... There's far more 'kooks' in the anti-Keynesian camp than in the Neoclassical camp.
Well, I have. And I found myself mostly agreeing with them. That's neither here nor there, I wouldn't think someone was dumb if they didn't share my viewpoint.
> And I've found many of those who argue against Keynes' theories are also the ones who espouse things like a gold-backed currency, or eliminating government altogether. I've seen blogs that equate Keynesian economics to satanism...
That's not really fair though, you can find kooks in ANY subject matter. It proves nothing other than that, kooks exist. Also I don't think people that argue for a gold standard are insane. I personally disagree with them, but they do have some valid points. I actually think it's kind of weird that the modern, relatively young system of governments printing debt with no tethoring to actual economic goods or work is somehow considered "obviously" right. We're barely a hundred years into this experiment and a lot of really bad thing have happened already, it could be entirely wrong.
And that's not surprising, because most 'Austrian' economic tenets are a part of micro-economics. Opportunity cost, marginalism, consumer preference, and other concepts that form part of neoclassical economics originally come from the 'Austrian' school. No one disputes that, and these all are taught in economics courses.
The problem with modern 'Austrian' economists is that they generally don't have a coherent macro-economic model, with the more modern 'Austrian' economists (do any real ones exist?) veering into ideology, philosophy and politics. Most reject the advances made into econometrics, mathematic models, and modern neoclassical macro theory.
And that's not to say there's no disagreement in the neoclassical camp. But pretty much everyone who actually attempts to practice economics as a science, generally falls into the neoclassical camp.
Edit - there's a reason Hayek is more frequently cited by right-wingers and libertarians than by economists. Most of his writings were political, and many of his predictions false.
Still though, when I hear commentary by someone like Peter Schiff, I find it very hard to ignore. Perhaps his ideas are "out there", but so were the people that suggested that the sun does not revolve around the earth. I guess that's a long winded way of saying I don't think they're obviously batshit insane wackos, they have ideas that should be heard.
The article itself, however, is queer--it ends in an unsatisfying ambiguity: apparently Krugman wins because he is both "ref as well as combatant". In fact, the article seems to imply he loses three arguments (there are three gifs of him getting hit) and wins two, although with Osbourne, it's a little ambiguous there who is right. So, 1.5/5...So he...wins?
Pretty much. The pixel art was well made, but the point of design is to convey an idea. The only point conveyed to me here was "I can't read this because things are flickering in the corner of my eye", and the parts I did manage to read did not seem worthwhile of the effort.
I believe all we did following his policies is kick the can down the road, and will eventually pay a bigger price in the future.
The truth is that the question of austerity is a fairly complex one. The reason it seems so cut and dried is that the modal promoter of austerity has no training in macroeconomics and is making arguments that are clearly not supported by theory. That said, to portray Krugman as definitely correct on the matter of austerity is very misleading.
There are basically two camps of people opposing Krugman, "mainstream Austrians" and market monetarists. Mainstream Austrians isn't really a category, but this is people who make arguments based on analogies with household budgets, and worry about hyperinflation from out of control spending. Most of them have economic theories that are not well-supported empirically. These people say austerity is better and will lead to stronger growth, possibly after a painful period of economic adjustment. Often these are head economists at small banks or other pundits that get a lot of airtime for their opinions. They probably don't actually identify as Austrians 95% of the time, but in this particular instance they are following Austrian thinking.
The other major camp is market monetarists, whom Krugman is very dismissive of, despite the fact that their arguments are compelling and their empirical support is probably as strong as pro-spending Keynesians. In his arguments with market monetarists Krugman has been almost dishonestly evasive, initially claiming that the American austerity would be the ultimate test of market monetarist thinking, but then posting no follow-up eating crow after the test showed strong macroeconomic growth "in spite of" the austerity.
The fundamental issue of austerity under market monetarist thinking is that of monetary offset. The central bank has an inflation target, and they are targeting it no matter the fiscal policy of the country as enacted by legislators. If the legislature authorizes dramatically higher spending, monetary authorities increase interest rates to slow down the economy and bring inflation back in line with their 2% target. If the legislature instead goes after austerity policies, the monetary authorities lower interest rates to increase economic activity and again hit that 2% inflation target. In America, when our austerity came into effect, our central bank started a round of additional quantitative easing, which is functionally similar to lowering the interest rate when it is at zero, and this lead to us having continued growth despite the slowdown in government spending.
One of the things about monetary offset is that it only applies to countries that have independent monetary policy, i.e. they have their own independent central bank issuing their own currency. Market monetarists and Keynesians agree that austerity is a terrible policy for countries in the Eurozone, because they do not have independent monetary policy to make up for their decreased spending. The problem is that Keynesians also apply that thinking to countries that have independent monetary policy like the UK, Switzerland and the US. The fact that Krugman does not address this explicitly is one of the best demonstrations of his unwillingness to intellectually engage with his market monetarist opponents. It's much easier to bash on the people making the worst arguments on the other side, rather than those making the best arguments, and he is obviously very political in his thinking, and thus very tribal in his politics. Krugman is a very careful writer, however, so he rarely says anything that's outright wrong, he just chooses not to address the best arguments against his viewpoints, or says more by implication than by direct statement.
For more on market monetarism, one can read the blog of Scott Sumner at http://www.themoneyillusion.com/ or as one of the blggers at http://econlog.econlib.org and in particular one can read recent posts at [1], [2] and [3] on this topic:
1: http://econlog.econlib.org/archives/2015/06/the_other_thing....
2: http://econlog.econlib.org/archives/2015/06/russ_roberts_vs_...
Second, I can't even find the point of this article other than like, Paul Krugman wins at something and they have illustrated this by showing him punching people? Is that really the standard now? Jesus Christ. Even before this I thought Paul Krugman was generally an idiot, and while I don't know if he endorsed this nonsense, it doesn't help my opinion of him.
Third, the animated gifs made this unfucking readable. Even if I wanted to focus on the light weight content, I couldn't, because there's this goddamn gif blinking in the corner of my eye every three seconds. If you're making me queue up an ad blocker to block a thing that's not even an ad, you've failed at web design.
I've got the article open in w3m to see it's even worth reading.