Archive for May 2010


The zombies keep coming . . .

I feel like a character in Invasion of the Body Snatchers.  No sooner do I knock one critic down, then here’s another.  This will teach me that I have no business criticizing Paul Krugman. 
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Angry at the Angry Bear

It annoys me when someone claims I made a mistake that I didn’t make, and then forces me to waste lots of time showing that I am right. 
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What does Krugman think of the neoliberal policy revolution?

Paul Krugman replied to my critique of his comments on neoliberal reforms after 1980.  First a couple quick points:

1.  Krugman’s right that I didn’t really refute his specific point—that these reforms were associated with a slowdown in real income growth.  Indeed I agree with that observation.  I thought it would be more interesting to explore an implication that I believe 99.9% of his readers drew from the post—which is that the reforms did not boost growth in real incomes relative to the alternative of maintaining the 1945-80 economic model.  I strongly disagree with that view.  It would be interesting for Krugman to indicate whether or not that is his view.

2.  It seems to me that he also changed the subject a bit with his discussion of hourly wages.  His initial post looked at annual incomes, which is how I responded.  In addition, I did concede at the end of my post that increasing leisure time in Europe explains part of the differences.  I would point out, however, that part of that “leisure” is a much higher natural rate of unemployment among the young and immigrants than in America.  And I seem to recall that liberals don’t like it when conservatives call unemployment “leisure.”  In addition, if the leisure is triggered by tax distortions, it may simply encourage more inefficient home production, and less efficient market production.  But yes, the extra leisure does have some bearing on the comparisons, as I conceded.  And to be fair, Krugman refers to the working hours and retirement age differences, not the unemployment gap.
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Why did growth slow after 1973?

My grandmother died at age 79 on the very week they landed on the moon.  I believe that when she was young she lived in a small town or farm in Wisconsin.  There was probably no indoor plumbing, car, home appliances, TV, radio, electric lights, telephone, etc.  Her life saw more change than any other generation in world history, before or since.  I’m already almost 55, and by comparison have seen only trivial changes during my life.   That’s not to say I haven’t seen significant changes, but relative to my grandma, my life has been fairly static.  Even when I was a small boy we had a car, indoor plumbing, appliances, telephone, TV, modern medicine, and occasional trips in airplanes.
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America’s amazing success since 1980: Why Krugman is wrong*

(*But not in the post I link to; rather in the dozens of other posts where he ridicules the idea that tax cuts for the rich, deregulation and privatization produce prosperity.)

Suppose you had gotten a room full of economists together in 1980, and made the following predictions:

1.  Over the next 28 years the US would grow as fast as Japan, and faster than Europe (in GDP per capita, PPP.)

2.  Over the next 28 years Britain would overtake Germany and France in GDP per capita.

And you said you were making these predictions because you thought Thatcher and Reagan’s policies would be a success.  Your predictions (and the rationale) would have been met with laughter.  Indeed around that time most of the top British economists signed a petition asserting that Thatcher’s policies would fail. For those of you not old enough to remember 1980, let me explain why.  Labour rule of Britain had reduced their economy to a shambles.  The government ran the big manufacturing corporations and labor unions were running wild.  They had 83% MTRs, 98% on capital.  There was garbage piling up in the streets of London.  Britain had been the sick man of Europe for decades, growing far more slowly than Germany, France and Italy.  The US wasn’t doing as badly, but certainly wasn’t doing that well either.  We had also been growing much more slowly than Europe and Japan.  Unlike Britain, we were still richer than most other developed countries, so this convergence was viewed as partly inevitable (the catch-up from WWII), and partly reflecting the superior economic model of the Germans and Japanese.
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