Archive for October 2009


Krugman on fast recoveries from big recessions

Paul Krugman has a very important post showing fast recoveries from previous big recessions.  The 1983-4 recovery was particularly fast.  But lest anyone think Reagan might have done any good he points out that a rapid recovery also occurred in 1976.  So how did they do it? 


I decided to go back and look at the data on fiscal stimulus, and was quite surprised by what I found.  In both earlier recessions the budget deficit rose by just over 3% of GDP; from a bit under 1% to 4% of GDP between 1973 and 1975, and then from 3% to just over 6% between 1980 and 1982.  I’m no expert on Keynesian economics, but isn’t that mostly the effect of the recession?  I don’t see a lot of room for discretionary stimulus.  And if we look at the especially fast 1983-84 recovery, we find that the discretionary stimulus that did occur was exactly the kind that Krugman says doesn’t do much good—tax cuts for the rich (who have a lower marginal propensity to consume.)
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Inequality, dinosaurs, trains, and gold

I’m not sure what more I can say about monetary policy.  The 3rd quarter was another huge disappointment.  NGDP grew at a 4.2% pace.  Not only was it too slow to return us to trend, but we fell even further behind.  So AD continues to fall relative to trend, despite a monetary policy that many continue to wrongly call “expansionary,” not to mention a fiscal stimulus that doesn’t seem to even be able to get NGDP up to its normal rate of growth.  Yes, we got some real growth for a change, but only because wage cuts are shifting SRAS to the right.  You econ teachers out there might want to think about this fact:  You know when you teach the options for recovering from a recession?  One option is for the government to do nothing, just wait for SRAS to shift right.  The self-correcting mechanism.  Well that is what is happening now (and probably in the 4th quarter as well.)  So today let’s take a break from the dreary subject of demand stimulus, or the lack thereof.
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Reply to A theory of non-relativity

Yesterday’s online version of The Economist, also known as known as Free Exchange, did a nice piece on my recent China post.  They contrasted my views with those of Paul Krugman, and also asked a few questions.  Here I’ll try to respond to those questions, but first I’ll clarify exactly where Krugman and I differ.
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Balls of Steal (Aka Proud to be human)

Check out this link that I found in John Taylor’s blog.  The best 3:53 clip in game show history:

A few reactions (watch the clip first.)  As Taylor says, this is a great example to use when teaching the Prisoner’s Dilemma.
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12 Krugmans could have saved the world economy

I have some recent posts bashing Krugman and his pal DeLong.  So maybe it’s time to show that I can be just as “fair and balanced” as Fox News, er, I mean NPR and the BBC.  This won’t be entirely positive, but I think Krugman fans will be very pleased by the ending.  (Bob Murphy may want to skip this one.)  Let’s start with three recent posts by Krugman that show him fighting the good fight against the forces of reaction:
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