Paul Krugman: third depression

[TraneWreck]

Yeah. Generally, if my mechanic says "hmm; it looks like you're getting a lot of wear on your brakes, and if you don't get a new set of brake shoes put in, they're likely to fail altogether," I consider that to be a good sign in my mechanic.

I don't hold it against him that when I take his advice and replace the shoes, my brakes didn't fail after all.

I think we've developed a bad habit in this modern era (I made this mistake in a thread about economic models) of viewing economics through the lense of horse-race tv shows. There,people really are trying to predict what the markets are going to do so they can make money.

Set aside whether that sort of gambling is good/bad in its own right, people like Krugman (and all sorts of economists with a wide range of political perspectives) are trying to figure out how it works, how to develop an understanding of the world's economy that generates the best outcomes.

The auto mechanic is a perfect analogy. A doctor operates similarly: "We found spots on the x-ray. I fear it could be the early stages of cancer. We need to do ____ in order to keep it from getting worse."

This is wholly different than someone saying, "Your brakes will fail in three months," or "you will get cancer."

 

[drkitten]

I think we've developed a bad habit in this modern era (I made this mistake in a thread about economic models) of viewing economics through the lense of horse-race tv shows. There,people really are trying to predict what the markets are going to do so they can make money.

I think it's a locus-of-control issue.

My doctor has a certain amount of control over my health; my mechanic has a certain amount of control over my car's reliability. And in the circles where Krugman hangs out, the people there have a certain degree of control over the economy. (Bernanke hired Krugman to his position at Princeton, for example.)

Cramer's viewers have reason to be fatalistic about the economy. Anyone who takes Cramer seriously as a source of investment advice doesn't have enough money to move the market.

Cramer and his viewers are people that the economy affects. Krugman and his cronies are people who affect the economy.

 

[Brainster]

And for exactly the reason that he cited would be the path to avoid it:



History suggests that Mr. Greenspan did manage to pull off the creation of a housing bubble.

I'd say that particular column is a good example of the accuracy, not the inaccuracy, of Krugman's ability to do economic analysis.

What? You mean that this was accurate:

But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.

You can argue that his discussion of the "need" for a housing bubble was descriptive and not prescriptive. But Krugman thought it would fail, and in that, he was spectacularly wrong.

 

[drkitten]

You can argue that his discussion of the "need" for a housing bubble was descriptive and not prescriptive. But Krugman thought it would fail, and in that, he was spectacularly wrong.

This is obviously a new meaning of the phrase "spectacularly wrong" with which I was previously unfamiliar.

 

[dudalb]

The problem I have with Krugman is he does not seem to think that huge deficits are a major problem.

 

[Brainster]

The problem I have with Krugman is he does not seem to think that huge deficits are a major problem.

It's an argument of convenience. Krugman wants a lot more spending in the public sector. IMHO, he's playing the opposite game to what some Reagan acolytes in the 1980s were at with tax cuts. Yes, yes, they believed that tax cuts would stimulate the economy. But they also believed that they would hamstring efforts to raise spending significantly. Krugman's saying "increase spending, increase spending," partly in the hope that this will stimulate the economy, but also party in the belief that this will make it harder for Republicans to cut taxes when they take control again.

Having seen the double-dip recession arguments from Krugman earlier in the decade, I am hardly disposed to buy them this time around. Really, the liberals on JREF should be rooting against Krugman, because if he's right, Obama will be toast in 2012.

 

[Random]

It's an argument of convenience. Krugman wants a lot more spending in the public sector. IMHO, he's playing the opposite game to what some Reagan acolytes in the 1980s were at with tax cuts. Yes, yes, they believed that tax cuts would stimulate the economy. But they also believed that they would hamstring efforts to raise spending significantly.

Not really. Despite the long standing myths that Democrats overspent in the 80's, they actually held back Reagan's budgets. Reagan was so hyped up about defense spending that he was willing to outspend Tip O'Neil. Reagan wanted to have a standing army capable of fighting the equivelent of two world wars at the same time.

Reagan was willing to cut social services, not as a way to balance the budget, but as a way to free up more money for the military.

The modern Republican party is strictly about cutting taxes, regardless of what level the taxes are at, and what would need to be cut to make up for the tax cuts. Its not policy anymore, its simply reflex.

Krugman's saying "increase spending, increase spending," partly in the hope that this will stimulate the economy, but also party in the belief that this will make it harder for Republicans to cut taxes when they take control again.

Krugman strikes me as a classic counter-cyclical economist. When the private economy stagnates or declines, you cut taxes increase public spending to make up for the losses until the economy gets back on its feet. Once the economy is up and running again, the government reduces spending and raises taxes to pay off its debts and raise funds to prepare for the next inevitable downturn.

Yes, this means that your boom times will not be as big, but it also means your bust times will not be as bad. Not really any sort of new idea, its explained pretty clearly in the Bible (Genesis: 41).

Of course, in order for this to work, the economy has to recover, and the economy as a whole has not been very healthy since the 80's when we gutted our manufacturing capability to save money at K-Mart. Our economy has been pretty weak since then, but we have been able to cover it up with a series of speculative bubbles (stockmarket silliness/internet boom/housing bubble).

Having seen the double-dip recession arguments from Krugman earlier in the decade, I am hardly disposed to buy them this time around. Really, the liberals on JREF should be rooting against Krugman, because if he's right, Obama will be toast in 2012.

Krugman's argument seemed accurate to me. He argued that if we did not have another speculative bubble we would have a double-dip recession. We then had the housing bubble and the double-dip recession did not happen. Of course, we have no way to go back in time and see what would have happened if the housing bubble did not occur. If a scientist says "If X happens, then Y will happen", and X does not happen, this does not mean the scientist is wrong.

 

[drkitten]

The problem I have with Krugman is he does not seem to think that huge deficits are a major problem.

That's not really correct. He doesn't think that huge deficits are a major problem right now; long-term (multiple-business cycle) deficits are indeed a problem, and he's written extensively about the health care and retirement time bombs. (He's quite harsh about Social Security projections, for example, and has been insisting that something needs to be done about that, probably involving means-testing benefits and raising the retirement age.) He's got an entire novel's worth of columns on this subject that he wrote during Bush's ill-advised attempt to privatize Security, basically saying "yes, something needs to be done, but not this."

But there's a big difference between deficits being a long-term problem and deficits being a short-term problem that need to be fixed right now. Pouring water on your house is generally a bad idea -- but not when it's on fire. A leaky roof is really only a problem when the weather is bad. If you're a farmer in the Utah deserts right now, with a leaky roof and a broken tractor -- you need to fix the tractor. The roof will keep until winter, but you need the tractor right now to work your fields. Fixing your tractor will make sure you have enough money in October to fix the roof, but not the other way around.

 

[drkitten]

Krugman's argument seemed accurate to me. He argued that if we did not have another speculative bubble we would have a double-dip recession.

Even more accurate than that -- he not only argued about the need for another bubble, but even correctly identified where it would need to come from (housing prices).

 

[Arrow]

Saw this article in an investment sight about Krugman's prediction of another depression. Thought it interesting.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=538727

Krugman's Depression

Posted 06/28/2010 06:30 PM ET
Economic Policy: Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression." If he's right, it's only because American policymakers have been following his advice.

Hell knows no wrath like that of an economist scorned — especially one on the left of the political spectrum. Case in point: New York Times columnist and sometime economist Paul Krugman. The world is going to hell in a handbasket, Krugman suggested this week, thanks in large part to its refusal to follow his advice to the letter.

Actually, he has it exactly backward. Krugman was among those who encouraged the new Obama administration and the Democratic Congress to spend massive amounts of money early on in a kind of Keynesian frenzy to shock the moribund economy back to life.

It didn't work. With a stimulus — a deficit, that is — of nearly 11% of GDP, our economy is barely growing, while unemployment remains shockingly close to 10% of the adult working population.

This even prompted our nation's vice president, Joe Biden, to admit last weekend: "There's no possibility to restore 8 million jobs lost in the Great Recession."

And he's right — at least with current policy, which is based on massive spending, new tax hikes, trillion-dollar deficits for decades to come and tight government control of vast swaths of our nation's economy, from banking to autos to energy.

Krugman recognizes, too, that it's a "failure of policy."

Only problem is, he completely misdiagnoses the problem: "Around the world — most recently at last weekend's deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."

Inadequate spending? That's laughable. The reason our economy hasn't improved is because our government has spent too much, siphoning badly needed investments and savings from the highly productive private sector to feed the nonproductive, inefficient, heavily unionized government sector. It's a recipe for stagnation.

This has happened the world over. To their credit, even the socialist nations of Europe now recognize this. They were behind the move at the G-20 to reduce government budgets. Only the neo-socialist Obama administration and its pals in Congress don't get it.

Krugman faults policymakers for failing to learn from history. Since he used the word "Depression," let's look at the last one.

It's an enduring myth that the Great Depression was caused by inadequate government "stimulus," of the sort Lord Keynes and President Obama would have approved. In fact, as a study by economist Randall Holcombe shows, under President Hoover, who served from 1929 to 1933 just as the Depression got under way, real per-capita spending surged 82%. That was even greater than the 74% rise from 1933 to 1940 in FDR's time.

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[TraneWreck]

Saw this article in an investment sight about Krugman's prediction of another depression. Thought it interesting.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=538727

That strikes me as a trite recapitulation of self-serving conventional wisdom backed with hilariously misguided claims about the Great Depression.

Right now several European countries are undergoing severe economic problems. Greece immediately embraced austerity measures. Spain very reluctantly imposed significantly milder measures. Guess which nation is more attractive to investors...

But the claims in the article are fascinating. Stimulus measures freeze out private investment. We hear this wail by right wingers all the time. Last month, however, this nation would have created about 20,000 jobs if it wasn't for the Census. What private growth was frozen out by Census hiring?

It's just 100% BS. Private spending, lending, and growth are either nonexistant or irrelevant. Interest rates cannot be lowered, because they're at the zero bound, to try and generate private growth. The only entity that can borrow money, at 3% interest right now--basically for free considering growth, is the US government.

Where are all these jobs being frozen by the meek stimulus measures?

 

[drkitten]

Saw this article in an investment sight about Krugman's prediction of another depression. Thought it interesting.

Only if by "interesting" you mean "wrong beyond the possibility of repair." I'm not sure there's a single correct sentence after the first in it.

 

[JihadJane]

23 Doomsayers Who Say We're Heading Toward Depression In 2011





Get ready for the next 'Great Crash'

 

[drkitten]

23 Doomsayers Who Say We're Heading Toward Depression In 2011

How many of those 23 Doomsayers have been regularly predicting doom and gloom since the mid 1990s?

There's a lot of money to be made in jeremiads. Idiots read them and believe them.

 

[stilicho]

23 Doomsayers Who Say We're Heading Toward Depression In 2011



Get ready for the next 'Great Crash'

"The depression has already begun in America, yet our politicians continue fiddling away as Nero did while Rome burned."

http://worldchallenge.edgeboss.net/download/worldchallenge/books/gods_plan_to_protect_his_people.pdf

Another clear-thinking doomsayer...from 1998.

 

[Corsair 115]

Saw this article in an investment sight about Krugman's prediction of another depression. Thought it interesting.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=538727

I will simply note two things:

First, Krugman did not say, as the editorial claims, that the U.S. is in the "early stages of a third Great Depression." Rather, he said, as quoted in the OP (relevant portion bolded): "We are now, I fear, in the early stages of a third depression." Those two little words make an important difference in the context of the statement. I fear the Toronto Blue Jays will lose their game in Cleveland tonight. That does not mean I am saying that they will definitely lose, only that I fear that might be the outcome.

Second, the site you linked to is the same site which, in an editorial last year railing against the U.S. health care reform bill, made the statement that Stephen Hawking would surely have died had he been under the care of the British NHS rather than under the care of the American health care system. They were apparently unaware of the fact that Hawking is British and has lived under the care of the NHS his whole life. When a site makes a factual error of that magnitude in an editorial, I am disinclined to trust anything they might have to say in any other editorial.

 

[TraneWreck]

Second, the site you linked to is the same site which, in an editorial last year railing against the U.S. health care reform bill, made the statement that Stephen Hawking would surely have died had he been under the care of the British NHS rather than under the care of the American health care system. They were apparently unaware of the fact that Hawking is British and has lived under the care of the NHS his whole life. When a site makes a factual error of that magnitude in an editorial, I am disinclined to trust anything they might have to say in any other editorial.

But have you seen Stephen Hawking? He looks terrible. The British NHS should be ashamed of themselves, ruining that poor young man's health like that...

 

[Walter Wayne]

Even more accurate than that -- he not only argued about the need for another bubble, but even correctly identified where it would need to come from (housing prices).

I say that at best this showed others agreed with him. Namely those that help produce this bubble. While a bubble happened, and it cam from housing prices, it has not been shown that it prevented (much less was needed to prevent) a double dip.

Those who say he was inaccurate are, of course, not reading the entire prediction.

Walt

 

[Random]

... While a bubble happened, and it cam from housing prices, it has not been shown that it prevented (much less was needed to prevent) a double dip...

You could say this about any financial prediction ever made really. When someone does X, there are three things that can happen:

1- Things get better
2- Things stay the same
3- Things get worse

To which the responses are:

1- X worked
2- X kept things from getting worse
3- Things are worse than we feared, we should do X more!

There is no way to know if the housing bubble prevented a double dip recession and there never will be.

 

[ServiceSoon]

How many of those 23 Doomsayers have been regularly predicting doom and gloom since the mid 1990s?

There's a lot of money to be made in jeremiads. Idiots read them and believe them.

Krugman is in that list. "It's not hard to see Japan style deflation emerging if the economy stays week," Paul Krugman. What happens if another stimulus does as much good (read: bad) as the first?

A Second Stimulus Package? Yikes!

I will simply note two things:

First, Krugman did not say, as the editorial claims, that the U.S. is in the "early stages of a third Great Depression." Rather, he said, as quoted in the OP (relevant portion bolded): "We are now, I fear, in the early stages of a third depression." Those two little words make an important difference in the context of the statement. I fear the Toronto Blue Jays will lose their game in Cleveland tonight. That does not mean I am saying that they will definitely lose, only that I fear that might be the outcome.

I'd call that being vague.

Second, the site you linked to is the same site which, in an editorial last year railing against the U.S. health care reform bill, made the statement that Stephen Hawking would surely have died had he been under the care of the British NHS rather than under the care of the American health care system. They were apparently unaware of the fact that Hawking is British and has lived under the care of the NHS his whole life. When a site makes a factual error of that magnitude in an editorial, I am disinclined to trust anything they might have to say in any other editorial.

Duly noted. Even a broken clock is accurate...and all that. You may choose to completly ignore anything they say from that point, but recall that an eye for an eye leaves the whole world blind. BTW your doing a great job trying to vilify the source.