Quoth Saint Cad:
It seems rather disingenuous to blame this on nebulously-defined “neo-Keynesians”. It looks to me like Democrats get it just fine: Obama has hard financial times, and runs deficits, just as he should, while Clinton had prosperity, and ran surpluses, just as he should. Call a spade a spade, and blame it on the don’t-tax-but-still-spend Republicans.
This is typical of the way Krugman distorts things. The liquidity trap may be part of the ‘broader construct’ of Keynesian economics in the sense that Keynes recognized that it could happen and is a problem, but then so does pretty much every other mainstream economic discipline. The difference between Keynes and others is in the prescription for how to get out of it.
Krugman is always smart enough to place himself in a position where his rhetoric cannot be falsified. He called for a Keynesian stimulus so large it was not remotely poltically feasible, nor was it something that would have been practical to implement. That means that if the smaller one had worked, he could declare he was right, and if it didn’t work, he could declare that it just wasn’t big enough, and therefore he was right.
In the meantime, he totally rejects the findings and analysis of other economists (some of them also with Nobel Prizes) by simply hand-waving them away or claiming that he has spotted flaws in their work which he will detail some time in the future.
It seems to me that the evidence is that Krugman was wrong. If the stimulus wasn’t big enough, we still should have seen the kinds of multipliers he was talking about, but their effect wouldn’t have been large enough to turn the ship around. But not a single paper I know of examining the actual empirical data from the stimulus has found those multipliers. If Krugman was right, we should have seen a larger net gain from Cash for Clunkers, the home mortgage rebate, and other specific attempts to stimulate sectors of the economy. But it now looks like all those programs simply pushed demand around in time and didn’t multiply it at all.
Krugman’s formula never accounted for money going to the states displacing the state’s own money. It never accounted for stimulus money being used to raise the salaries of government workers rather than putting idle resources to work. It never accounted for there not being enough ‘shovel ready’ jobs for even the under-100 billion amount the government tried to spend on infrastructure, let alone the trillions Krugman wanted. It never accounted for the growth-killing effect of the uncertainty caused by the rapid rise of the debt. It never accounted for a lot of real-world effects that don’t show up in nice curves of aggregate values in a computer model.
One specific point about the chart that he shows ‘proving’ that his opponents were wrong because they were saying that injecting money into the economy would cause inflation, and he said it wouldn’t, so therefore he’s right.
First, inflation has gone up, and he acknowledged that and admitted it’s counter to his own prediction, but that he’s still much closer to right than his opponents. Fine.
But he completely ignored the elephant in the room: Inflation hasn’t gone up because the money isn’t moving. The money supply equals quantity of money X velocity. You would expect inflation if the money supply grows faster than the growth of real goods chasing it.
The real argument was more like this: If you do a big monetary stimulus and a lot of quantitative easing, you’ll make money available, and this will cause an increase in demand, which will get the economy out of a liquidity trap and get it moving again.
The opponents said, “If you do that, then once the economy starts taking off, inflation will simply grow and choke off the growth. There are no free lunches.”
So now Krugman is arguing that he was right because there was no inflation, while ignoring the fact that the growth never happened. All that money that got injected into the economy is sitting in bank vaults and not moving. Velocity has fallen as the quantity increased, leaving the money supply where it was.
Now, Krugman could still be right - it’s possible that velocity would have fallen even more, and all that injection of money prevented deflation. But that’s an argument about monetary theory, not an argument in defense of fiscal stimulus. Yet he uses it to attack someone else’s argument about the folly of fiscal stimulus.
Also, Krugman tends to pick easy targets, and ignore substantial criticisms from heavyweight economists. I’ve never read Stephen Moore, and I can believe that Krugman knows more about economics than him and can pick apart his simplified arguments.
However, John Taylor is a much more formidable opponent - one of the most respected economists around. And he even uses fancy graphs and charts just like Krugman! No Republican anti-science here.
For example, read this blog entry of his, which explains why inflation hasn’t appeared so far. The chart he shows is startling: As the monetary base was increased through QE1 and QE2, the M2 money multiplier went in pretty much exactly the opposite direction. You could flip the bottom curve over and it would overlay almost perfectly with the top one. So there was no inflationary pressure at all.
However, that relationship seems to have broken in the last few months, and we don’t really know why. There’s a lot of mystery still in the behavior of the macro economy, and a lot of things serious economists admit are beyond our current ability to understand. Except for Paul Krugman, the sage of Keynes who is never wrong and always knows everything there is to know and has enough certainty about it that he’s willing to spend a few trillion dollars of other people’s money to prove it.
I’m guessing Krugman knows all about this relationship between M2 and the monetary base. But he’s not going to go toe to toe with Taylor about it. He’d rather wait for a non-economist to come along and say something that he can attack to prove how stupid his opponents are and how correct he always is.
A key characteristic of a good economist is humility - the ability to admit that perhaps the economy is too complex and there are too many unknowns to be able to tune it like a violin. Krugman has none.
I do think people are talking past each other, yes. I was originally responding to the oft-repeated notion that SS is in the black (it is not, not when we compare current expenses to current revenue) and the just-as-often repeated sentiment that, “not only that, it has a surplus.” Yes, a surplus of IOU’s. That doesn’t mean the IOU’s are valueless, or that default is imminent, or anything other than what it factually means: there is not some “surplus vault” packed with stacks of greenbacks that Uncle Sam can tap whenever he wants. It is the promise to raise money, and barring a miraculous surplus, that money will be raised by issuing additional debt.
Why is the promise to raise cash different than actual cash on hand? Why doesn’t the power to print greenbacks make the IOU’s equivalent to cash on hand? Seriously, is there anyone in this thread who truly needs that explained? Okay. Cash on hand will require no additional expense to raise that amount of cash. No additional debt is required, for example. Printing greenbacks devalues the existing money supply. As someone wisely stated earlier, if that weren’t the case, we should just print $14 trillion, entire problem solved.
This does not mean that I am recommending we stash our tax revenues in a mattress or that we should just default on our obligations. But invariably there are hysterics by some (not saying you) in response to simple factual statements. The trust fund is what it is. SS spends more than it takes in. If we want to honor the instruments in the trust fund, we will likely need to issue more debt, because the “surplus” is merely a promise to raise cash that has already been spent. Period.
And to bring it full circle, that’s why IMO any solution to address the debt crisis that doesn’t encompass Medicare, Medicaid, SS and defense is delusional. This is normally the cue, again, for someone to chime in that SS has nothing whatsoever to do with our level of debt, we have a surplus for goodness sake, etc., etc.
I agree. the SS trust fund is like the morgage on your house. You have promised to pay it back, but doing so must come out of your current income stream. We have recently seen that morgages may or may not be paid back. it is the old blood out of a turnip.
Republicans have decided spending cuts are not enough, so now they want to raise taxes.
Sam, you seem to infer more than you actually say. Let me put this baldly: are you stating as a fact that the greater body of mainstream economists hoid Mr. Krugman in disdain? But, by comparison, this fellow Taylor is held in the highest regard and esteem?
Would it then be fair to say that your own views are most closely in accord with mainstream, standard academic economics?
Fair comment.
Economists of varying stripes are well known to argue vehemently against each other and for us on the sidelines it is hard to follow. Each may have excellent credentials and Nobel Prizes to boot. Who do you listen to?
For my money you look at what has happened and then figure which guy/gal was more correct.
We had a surplus when Clinton left office. Ten years of conservatives running the economy has been an unmitigated disaster. It amazes me that people still want more of it. It has been a colossal failure.
Considering I know I am not qualified to argue economics with the likes of Krugman (or any other Nobel winning economist of any stripe) I opt for the actual track record. How has the economy responded? When I look at the facts on the ground Krugman has it more right than your unnamed Nobel economists who disagree with him.
There are two Paul Krugmans: One is the careful trade theory economist who won the Nobel prize. When Krugman is doing non-political economics in his field of specialty, he’s very good and I don’t think you’ll find an economist who would dispute that.
Then there’s Krugman the political polemicist and ideologue. This Krugman has an awful lot of faults. His ideology blinds him to his opponent’s arguments and causes him to make sweeping claims that are increasingly disconnected from his own specialty.
As for John Taylor, here’s some info about him from Wikipedia:
So he holds a chaired professorship at Stanford, and taught at Columbia and Princeton. Is that mainstream enough for you?
Further:
Not only is he firmly in the mainstream, he’s one of the guys who helped build the modern mainstream of academic thought. He’s even contributed to the development of Keynesian theory.
Taylor was even in favor of a fiscal stimulus at the start of the recession, and critical of Alan Greenspan’s low interest policy, despite being a friend of Greenspan’s.
Unlike Krugman, Taylor is capable of revisiting his own assumptions. He’s looked at the data and at the results of stimlus, rounds of quantitative easing, and other government interventions, and decided that they aren’t working and are actually now counter-productive. He’s shifted his position to believe that what’s important now is a return to sound money and stability.
If you want to really understand what he thinks, you could watch this short interview with him.
Of course, if you know nothing about any of this, but you were simply looking for a ‘gotcha’ you could throw out in this thread to catch me proposing the ideas of some fringe economist, then never mind. Go off and figure out how to try again.
Are my own beliefs more closely affiliated with the mainstream than Krugman’s? Probably not. But that doesn’t matter, because lots of mainstream economists flatly disagree with Krugman. Not just a fringe handful.
In fact, Here is 150 of them:
That list includes Taylor and Robert Mundell who won the Nobel Prize in economics in 1999, as well as a lot of other top economists.
To remind you, this is exactly opposite to what Krugman is recommending.
I’ll also remind you that at least six Nobel Laureates have come out against many of Krugman’s prescriptions. I say this because you have a habit of waving Krugman’s Nobel prize as if it is a talisman that automatically wards off all criticism of Krugman’s ideas.
Finally, I’ll point out that Krugman’s Nobel was for work in trade theory, not macroeconomics. Taylor is an actual macroeconomist, and Mundell won his Nobel in monetary theory.
If your mention of “greenbacks” was a purely rhetorical device which I misinterpreted, I apologize. I certainly get annoyed when others misconstrue my posts and argue against a strawman; I don’t want to start doing that to others.
Since some do seem confused by these issues, I’ll make four points to give the correct answers (
) and then exit the thread.
It is a fallacy to pretend that SocSec buying T-bonds is some financial gimmick. It is OK to treat SocSec and the rest of government as two separate entities; and it is OK to treat them as a common entity. An apparent “gimmick” arises only when Americans duped by right-wing propaganda treat the entities as first common and then separate in the clauses of a single sentence.
If you treat SocSec and FedGov as separate entities, then Treasury is simply borrowing the money it needs to borrow, while SocSec stores it surplus in the “world’s safest security.” One might argue that FedGov should spend or borrow less, but that debate has no relation to the question of how SocSec invests its surplus. One might argue that SocSec faces future deficits, but that debate has no relation to the question of how SocSec invests its surplus.
If you treat SocSec and FedGov as a single entity, it is best to treat funds as fungible. We use rental income from our houses to buy tires for our cars, after all. It’s silly to claim, as some do, that SocSec should invest in Korean bonds and FedGov should then borrow from Korea instead of from SocSec.
The Fed Res Banks can and do print “greenbacks” to buy U.S. T-bonds, and they do this without any Congressional authorization. Rhetoric devices are fine, but to imagine that “greenback” paper has a special significance different from “T-bond” paper is confused.
Hope this helps.
On a separate matter, it’s rather fatuous for the average Doper here to deprecate an Economics Nobel Prize winner because the Prize wasn’t given for macroeconomics. That would be like turning down help from a Fields Medal winner on a statistics question, because his Medal was for algebraic topology.
[quote=“Whack-a-Mole, post:108, topic:593333”]
Ten years of conservatives running the economy has been an unmitigated disaster. It amazes me that people still want more of it. It has been a colossal failure.
/QUOTE]
Correction, the economy was in good shape when the Democrats took over the house on 2006. I don’t label Barney Frank a conservative and he alone pushed Fannie and Freddie into the lending excess that lead to cratering the economy.
[QUOTE=Der Trihs ]
If they could, they’d totally eliminate all of those except for Defense, which they’d increase regardless of what that did to the deficit. Along with all funding for non-military research, the FDA, the EPA and everything else that doesn’t relate to the military, surveillance, law enforcement, and handouts to large corporations & the wealthy. They want a Third World kleptocracy, basically.
[/quote]
Any ideas yet?
[quote=“thelabdude, post:111, topic:593333”]
And what distinctly liberal economic policies came as a result of liberals controlling 1/3 of the government that were a failure?
Do you really think the Fannie/Freddie thing started in 2006? Do you really think Fannie/Freddie are the appropriate scapegoat here? As in it is all their fault and if only liberals had not enabled Fannie/Freddie then all would be right with the economy?
Reactionaries sanctify their economic cruelty by calling it “liberty.”
The enduring evil of Ronald Reagan was in convincing most whites that they could have the government they wanted without paying for it. During the campaign of 1980 Reagan said it was possible to cut taxes, raise defense spending, and balance the budget without cutting popular middle class entitlements.
This was obviously not true. It has been proven false again and again. Unfortunately, most whites continue to believe in this silly fairy tale.
I think plenty of people, white or otherwise, are aware that we cannot afford the government we have (as in the whole budget).
Thing is people are, perhaps unsurprisingly, blind when it comes to things that need to be cut.
Jobs bill to repair/build infrastructure? Commie socialist program!
Subsidy to build corporate jets? Needed jobs program!
As always the devil is in the details.
Finland, Denmark, Sweden, and Norway spend much more in social services, and have less public debt as a percentage of gross domestic product.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html?countryName=United States&countryCode=us®ionCode=noa&rank=32#us
[quote=“thelabdude, post:111, topic:593333”]
Fannie and Freddie made zero loans. They made no loans whatsoever. None.
Which has no relevancy whatsoever. None. No one has ever claimed that Fannie and Freddie were in the business of handing out mortgages to consumers. What they did was to buy mortgages from the banks, then package them into bundles called mortgage-backed securities and resell them. This freed up the bank’s capital so it could lend the money out again, and it removed default risk from the banks, which caused them to be more cavalier about lending standards.
Before the crisis hit, Fannie Mae and Freddie Mac held 1.4 trillion dollars in mortgages - over 40% of all U.s. Mortgages. That includes 168 billion dollars in ‘sub-prime’ mortgages. But their effect is even larger than that, because many times that amount in mortgages were purchased from banks by F&F, securitized into MBS’s, and re-sold on the secondary mortgage market with the risk hidden away.
Fannie and Freddie were essentially buying risky mortgages, which encouraged the banks to lend even more money to risky buyers, then F&F profited by trading on the implicit guarantee of the U.S. government given to them by their status as regulated entities. This means they could buy low and sell high, and pocket the difference, which they did. Their CEOS and other executives were among the highest paid around.
That secondary mortgage market, which caused all the trouble with sub-prime loans, was created by the government as part of the legislation that created Fannie and Freddie.
What you miss with all that is the banks were gleefully consuming these investment products.
Do you think they were hoodwinked and innocently got taken in by Fannie/Freddie?
Nonsense. They went in eyes wide open.
In fact they encouraged the process. It was hugely lucrative.
Fannie/Freddie were not selling loans to high risk consumers wanting to buy a house. The impetus came from the banks and Wall Street. This was easy money. Make your millions today, to hell with what happens tomorrow.