It’s not austerity vs. big government
Steve sent me a video of Paul Krugman debating a couple British conservatives. A few observations:
1. It makes no sense to have this sort of debate. Krugman is far ahead of the other two in his understanding of macroeconomics. The BBC should have found a highly knowledgeable conservative economist to debate Krugman.
2. During the second half of the debate it degenerated into a “austerity vs. big government debate” with the conservatives insisting austerity was needed to reduce the size of government. This is of course wrong, but oddly Krugman never called them on it. He never pointed out that the austerity can be done either through spending increases or lower taxes. It would have been game, set and match. He won the debate anyway, but it was “winning ugly.”
Update: I meant stimulus, can be done through more G or less T, not austerity.
3. Some might argue that Krugman doesn’t talk about tax cuts because he favors big government. That might be true for the US, but in Britain the government sector is almost 50% of GDP, so I doubt even Krugman would argue that there’s a pressing need to expand that percentage even higher. Furthermore, the British austerity that he criticizes largely consisted of tax increases, particularly the VAT, but also the personal income tax.
4. Some might argue that spending increases pack more bang for the buck. In fact, just the opposite is true. A VAT cut shifts the SRAS to the right, lowering the British rate of inflation. This forces (or “allows,” depending on your perspective) the BOE to ease monetary policy and shift AD to the right. You end up with an increase in both SRAS and AD, with no rise in inflation. It’s a win-win. In contrast more government spending shifts AD to the right, forcing the BOE to contract AD. So it’s not even close, a VAT or an employer-side payroll tax cut are by far the most effective fiscal stimulus, indeed most likely the only effective fiscal stimulus.
Funny that you rarely hear Keynesians promoting them.
PS. In fairness, I do recall Christy Romer promoting an employer-side payroll tax cut in the US.
PPS. Obviously I favor monetary stimulus, not fiscal stimulus. I’m just saying that if you are going to do fiscal stimulus in the UK, tax cuts are clearly the way to go.
PPPS. I suppose one could defend Krugman’s support for fiscal stimulus in the US on the grounds that Obama doesn’t control the Fed (despite picking 6 of the 7 members of the Board.) But in Britain it’s the Cameron government that chooses the inflation target, and thus it would be absurd to do fiscal stimulus while not raising the inflation target. BTW, guess which part of this statement by Martin Wolf was quoted by Krugman:
It may be humiliating for the government to offer such a speech now. But there is no reason why the people of the UK should suffer for its mistake, indefinitely.
There is, however, one interesting alternative to reconsidering fiscal policy. It would be to change the remit for the Bank of England, to focus on nominal GDP, instead of inflation. I intend to examine the advantages and disadvantages of that possibility in a future post.
PPPPS. Marcus Nunes has a fascinating post where he quotes Paul Krugman from 2003:
Lehman Brothers has a mathematical model . . .
The crisis won’t come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.
But at a certain point we’ll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.
What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government’s access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.
A few comments:
1. Whenever someone mentions “a mathematical model” run for the hills. Especially when it’s prefaced with “Lehman Brothers.”
2. I don’t see any inconsistency in Krugman now calling for far bigger budget deficits. The macro environment is different.
3. I do see an inconsistency in Krugman dismissing concerns about the trajectory of our national debt on the basis that markets are currently willing to lend to the US at low rates. The same was true in 2003, when the trajectory was far less scary.
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1. June 2012 at 03:04
Bob Murphy is going to love that Krugman Kontradiction. It is absolutely unbelievable that he would dismiss people concerned with a spike in U.S. interest rates now when he was using the same scare tactics 10 years ago. It seems that his recent refrain over the last few years that the government should spend more because rates are low has been pure political hackery this whole time.
It’s unbelievable how his views flip 180 under a Democratic administration. It’s truly shameful for the economics profession and I think that the profession should take back his Nobel Prize and shun him forever. It’s too bad more people don’t realize how much his views change. If they did, he’d lose whatever credibility he has left among the general public.
1. June 2012 at 03:15
I’m not sure about this. You’re probably correct that is what the BoE would actually do, but it doesn’t seem logical under flexible IT. The BoE are supposed to ignore SRAS shocks and “target the [medium term] forecast”, why should the reaction be different to a positive shock than a negative shock? They “allowed” 4% CPI from a 2% VAT hike in 2011, after all; they did not offset it to get it back to 2%.
Krugman is supposed to be debating Tim Congdon on BBC radio some time, which should be more interesting.
1. June 2012 at 03:15
Scott: “The BBC should have found a highly knowledgeable conservative economist to debate Krugman.”
dsquared: “it’s like the parade of bums that fought Calzaghe – anyone who is any good knows enough to avoid him.”
I don’t follow boxing, but I gather Calzaghe was pretty fearsome. In fairness, Jeremy Paxman did try to start a fight between Krugman and Rogoff, but they were like soulmates.
1. June 2012 at 03:21
“He never pointed out that the austerity can be done either through spending increases or lower taxes. ”
I suspect you mean austerity can be done either through spending cuts or higher taxes.
1. June 2012 at 03:30
What we have is a Wile E. Coyote moment contest among the major players. The US is losing the race to be the first to notice. Currently it looks like the euro-zone is in the lead followed by China and the UK, then the US being overtaken by Brazil.
To complicate things the bank touts have doped horses and bribed jockeys so you can expect surprises.
BTW, don’t you think that the fact that all the banks are either insolvent, crooked (there’s a voluminous public record of this that is mind boggling) or both has to have some major economic effects. After all, that isn’t a free market economy.
You might look at commodity speculation. The story has always been that speculation can’t effect price, because speculators don’t take delivery and can’t store. Well, now they do and can. Warehouses are filled with tons of copper, aluminum and who knows what else.
Our old friend from sub-prime days, structured financing is at work. Second verse, same as the first.
1. June 2012 at 03:33
Oh, he did it already – Congdon vs Krugman is in here, but it’s disappointingly short, Congdon does “we should maintain quantity of money growth”, Krugman does “ha ha ha Friedman was so wrong, monetary policy has been very aggressive, monetarism has failed, etc etc”
http://downloads.bbc.co.uk/podcasts/worldservice/newshour/newshour_20120530-2210a.mp3
16 minutes onwards
1. June 2012 at 03:56
“He never pointed out that the austerity can be done either through spending increases or lower taxes.”
The latter isn’t what people are referring to with the word austerity. The term isn’t referring to the idea of “depriving the government of revenue”, it’s used to describe the putting the population on an austerity regime under the misguided notion that lower government debt will somehow magically inspire confidence on the part of businesses and investors and thus create economic recovery. It of course has done exactly the opposite.
Tax cuts, that depends on who you’re giving them to. The very rich are sitting on loads of cash, as are corporations, and allowing them to keep a little more cash won’t change a thing. Krugman did lay out the facts surrounding that, describing how studies and surveys reveal that businesses aren’t spending money to expand simply because they have no demand for their products or services, not because of the mythical ideas that they lack confidence because of tax fears 30 years from now. Tax cuts for those who aren’t spending money, for example the working class people who have had their hours cut back or have been fired, that’s proven to be a little better at actually creating economic flow, but tax cuts are far less effective than direct positive stimulus.
You could actually just hand everyone in the country below a certain income level tens of thousands of dollars, and it would have done far more to reverse the depression than anything else. It of course is seen as a moral problem by those on the right, who will let the entire economy sink, as they have, rather than risk learning that their morality-based myths are foolish and dangerous.
1. June 2012 at 04:00
By the way I realize you’re in the UK but just speaking in terms of US dollars and etc, however it all applies for you there as well. Also just to add that not only has the austerity campaign not created recovery, it’s actually increased the debt, which was supposedly the opposite of the reason for implementing it.
I think you should watch the debate again, though I agree with you that the conservative venture capitalist and Tory former MP were comically out of their league.
1. June 2012 at 04:23
ssumner:
The BBC should have found a highly knowledgeable conservative economist to debate Krugman.
“I recommend that Dr. Krugman discuss economics in a light and friendly way, to promote his book. As such, the BBC should put two chit chat friendly slightly opposite to Krugman interlocutors. We do not think it would be wise to turn an opportunity for promoting a book, into a deep intellectual debate.” – Krugman’s publicist.
That’s codespeak for Krugman not wanting anyone of intellectual rigor to challenge him. He doesn’t want his conscience smashed.
1. June 2012 at 04:26
There are really three ways to do fiscal austerity:
1) raise taxes, this increases the tax wedge, shifts SRAS and forces the CB to tighten to constrain inflation.
2) cut government output, this can be offset by the CB as it is disinflationary but a large sudden cut in G is an AS shock.
3) cut government transfers, again this can be offset y the CB and it has no AS shock effects.
#3 is clearly the best policy, but old keynesians seeme obsessed with transfers being good spending–particularly the so called automatic stabilizers. There could be a case for these if they were short lived but somehow we got stuck with 99 weeks of unemployment payments.
1. June 2012 at 04:26
ssumner:
Whenever someone mentions “a mathematical model” run for the hills.
NGDP = RGDP + inflation
Should we all pack now or later?
1. June 2012 at 04:33
ssumner:
I do see an inconsistency in Krugman dismissing concerns about the trajectory of our national debt on the basis that markets are currently willing to lend to the US at low rates. The same was true in 2003, when the trajectory was far less scary.
This can’t be repeated enough.
Never reason from an aggregate spending…, oops, I mean, never reason from an interest rate change.
The debt is, at this point, the biggest fiscal problem.
If you want a truly Earth shattering number, I direct your attention to this report:
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2012.pdf
Table V.F2
Medicare and Social Security’s combined cashflow deficit has a present discounted value of $38.6 trillion.
That means just to be able to break even on these programs for the next 75 years, the government has to have $38.6 trillion NOW, and invest it at 4.3% annually. That much money doesn’t even EXIST! It’s like the Treasury is the lair of Dr. Evil, and they say “We demand $38.6 trillion dollars!”
(H/T Bob Murphy)
1. June 2012 at 04:40
John,
Partisans are partisan. So the Krugman-equivalent conservative economists were sanguine about high deficits during the Bush years and worried during the Obama years. Insofar as Krugman’s position is counter-cyclical, it’s somewhat less stupid. The really great economists don’t switch around to suit party politics: Friedman wanted tax cuts in the 1980s and in the late 1990s as well, on the basis that (1) any surplus would be used up by more public spending and (2) interest-rate payments are some of the least damaging kinds of public spending.
The interesting thing about the UK non-financial public’s demand for money recently has been just how predictable it’s been over the crisis: rising going into the recession and then falling as we come out of the recession. The double-dip recession of Q4 2011/Q1 2012 was preceded by a clear slowdown in the growth of household and corporate money balances i.e. the UK model at this point is consistent with even a very mechanical monetarist model and very consistent with one that takes into account the cyclicality of the demand for money. Not only is the Tim Congdon of 2012 in a better position than Krugman, but the Tim Congdon of 1976 is in a better position than Krugman.
Even if narrow money growth was a reliable guide to the stance of monetary policy, there is no evidence that the UK is or has been in a liquidity trap-
http://www.bankofengland.co.uk/statistics/PublishingImages/fnc/2009/dec/nc.gif
(That figure makes me suspect that, given the similarities of UK/US conditions in late 2008 and the dissimilarities in their narrow money growth, the introduction of IOR in the US and a major international flight to safety were the primary factor behind the terrific explosion in the US monetary base during that period.)
(Also, in fairness to the BBC, Calzaghe’s treading-water years were with Sky and (briefly) ITV, and TV companies are limited to vetoing decisions by boxing promoters rather than controlling the quality of their competition exactly.)
1. June 2012 at 05:21
Firs, as for the Nunes – Krugman thing this was already discussed back in January: http://marginalrevolution.com/marginalrevolution/2012/01/krugman-v-krugman.html
Then there seems to be an error in article: “He never pointed out that the austerity can be done either through spending increases or lower taxes”. I believe it should state “stimulus” instead of “austerity”.
1. June 2012 at 05:26
http://www.bloomberg.com/quote/GDBR2:IND
German 2-year bonds are now yielding -0.01%
Unless you have lots of money, that’s still cheaper than buying a vault for stacks of Euro banknotes.
1. June 2012 at 05:29
“I doubt even Krugman would argue that there’s a pressing need to expand that percentage even higher.” He was all over the airwaves here in the UK and at his LSE lecture telling our government to throw caution to the wind and spend, spend, spend. Possibly with bit more unconventional monetary policy thrown in just for good measure. It wasn’t very impressive, and showed him in his true socialist colours.
1. June 2012 at 05:32
Peter N wrote: “You might look at commodity speculation. The story has always been that speculation can’t effect price, because speculators don’t take delivery and can’t store. Well, now they do and can. Warehouses are filled with tons of copper, aluminum and who knows what else.”
Yes, metals can be subject to speculation, gold being the most speculative. However, I don’t put copper in my gas tank, and I don’t eat aluminum except when I do a bad job removing the foil.
Food and energy commodities can’t be stored readily and therefore can’t be delivered readily. The volatility is a symptom of a world with highly competitive markets (free-traded commodity after all!), no spare capacity, unstable supply, and unstable demand. That is another disease apart from our monetary policy disease.
BTW, the EPA is making oil companies pay fines for failing to blend in mandated levels of cellulosic ethanol. Why are the oil companies not doing this? Because no commercial production exists.
1. June 2012 at 05:32
here’s a good summary, and a link to the slides
http://www.tutor2u.net/blog/index.php/economics/comments/end-depression-now-paul-krugman-at-the-lse
1. June 2012 at 06:18
@Major_Freedom
These estimates are completely worthless. They are extremely sensitive to a number of assumptions. The most important is the rate of increase in medical costs, which assumes no fundamental changes over the next 75 years in the science and delivery of healthcare.
Considering that the growth rate of medical knowledge and ability is increasing, the expected changes would be considerably greater than those between 1937 and now.
Also important is the immigration rate. If we increased this to 1.5 million a year, the effect would be huge. Then there are changes in reimbursement formulas, projected growth in real and nominal gdp, consumer price index and formulas for calculating it, life expectancy, cost of end of life care, need for nursing homes (no Alzheimer’s, no rheumatoid arthritis, no COPD, no congestive heart failure, reduced rate of stroke…).
The second point is that such liabilities are unfunded because they are unfundable. The social security trust fund is a fiction. Even if payroll taxes were somehow invested in stocks and (non-government) bonds, the economic distortions would be huge. We already see this with pension funds like Calpers. They have more money than they have good places to invest it or means to analyze.
The risk is creating a huge pool of funds on which an already obscenely bloated financial sector could gorge itself. This would then inevitably lead to even more regulatory capture by that sector and a decrease in what democracy we have left.
Moreover, investment is not time travel for goods. When time comes to cash out, the prices of goods will be determined by the supply and demand. Any mass sale of financial assets for the purchase of goods and services will affect the relative prices. If you save twice as much, you won’t get twice the quantity of goods. It would be like everyone in New England deciding all at once to sell their homes and buy condos in Florida.
The most useful things we could do would be to invest in infrastructure of unquestionable utility and dynamite the financial-government-educational complex. There is absolutely no reason that someone should have to borrow $40,000 to go to colleges which use the money for everything but education. If you want research, let the government pay for it, or industry, depending on who benefits.
The model of college as a summer camp – research institute with lectures and textbooks doesn’t scale to accommodate %40 of high-school graduates, which is what the current economy requires.
1. June 2012 at 06:22
MF,
“That means just to be able to break even on these programs for the next 75 years, the government has to have $38.6 trillion NOW, and invest it at 4.3% annually. That much money doesn’t even EXIST! It’s like the Treasury is the lair of Dr. Evil, and they say “We demand $38.6 trillion dollars!”
There’s another way to look at it…
Imagine we printed $38.T today and earned 4.3%, whatever that $1 is worth, that’s our real commitment to the SS recipients.
—–
Take comfort in the fact that if push ever comes to shove, we’ll just cull the herd of everyone over the age of 80.
Thats push comes to shove. Ice floe.
I prefer to just think about how inexpensive it is to live once you provide healthcare to handout recipients using only technology 15 year old or more.
That does it. Once old people ONLY get Xrays and not MRIs and out or patent medicine – that deficit goes away.
1. June 2012 at 06:38
John, Yes, Bob will love that.
Britmouse, Yes, I do realize that, but it seems like they actually pay some attention to headline inflation. In the US they certainly do.
Kevin, As soon as I wrote “knowledgeable conservative” I anticipated Krugmanites would start using terms like ‘oxymoron.’
Oneeyedman, Thanks, I corrected it.
Peter, Then story is that speculators tend to stabilize prices by buying low and selling high, not that they have no effect on prices.
Bottom line is we need more NGDP.
Britmouse, I like Congdon, but he really needs to move on from the monetary aggregates, that’s so 20th century.
J Foster, I meant “stimulus,” not “austerity” I’ve corrected it now.
And no, I’m not in the UK.
MF, Source?
Jon, Good point, although they are finally cutting back on the 99 week UI.
MF, You said:
“Whenever someone mentions “a mathematical model” run for the hills.
NGDP = RGDP + inflation”
Should we all pack now or later?”
Whenever MF confuses a definition with a model we should all run for the hills.
JV, Thanks, I corrected it.
Steve, We’ll also be there soon the way things are going.
James, Funny he didn’t mention tax cuts.
1. June 2012 at 06:58
“Food and energy commodities can’t be stored readily and therefore can’t be delivered readily. The volatility is a symptom of a world with highly competitive markets (free-traded commodity after all!), no spare capacity, unstable supply, and unstable demand”
You might think so, but that just proves you aren’t as creative as the wall street rocket scientists (or just maybe it’s the incentives). Think structured finance and derivatives. If there’s any possible way to do it, they will.
“A little more than a year ago we picked up on a trend that we termed the “sub-priming” of commodities. Wall Street has been increasingly been doing structured finance deals wrapped around commodities, and this has added a bid for them while also making them vulnerable to downdrafts.
We know that many equity investors think (or at least hoped) that, after the disastrous record of wrapping pipeline and telecom assets in the 1990’s and sub-prime housing in the last decade, financial market reforms such as Dodd-Frank would have eliminated structured finance as a macro driver. When Dodd-Frank was proposed it envisioned standardized derivatives being placed on exchanges and clearinghouse. We felt it would encourage more non-standardized, exotic, and opaque structures to be created, and in the two years since it was enacted that’s what seems to have happened.”
In any case food is quite easy to store, and enormous quantities have been stored in the past. It’s just that there’s no profit in a glut. Oil can be stored, too. In old oil tankers for one. Or you can buy the oil still in the ground.
1. June 2012 at 07:11
“…despite picking 6 of the 7 members of the Board” — I’m certainly not going to mount a vigorous defense of Obama’s record on Fed nominations, which has been poor, but let’s remember a couple of things. The Board of Governors does not set monetary policy; the FOMC does. And while the governors can always out-vote the regional presidents, their voices are outnumbered at the meetings because of the presence of non-voting members (who will later become voting members). Even if the 7 governors were to say “screw it” and do whatever they want without regard for the regional presidents, how would a 7-5 decision look to the press and public? Not good, that’s for sure. (This is perhaps where Ryan Avent’s argument about the Fed trying to protect its independence makes sense.) And to the extent that Bernanke is trying to lay the groundwork for consistency in policy, snubbing a large fraction of the regional presidents, many of whom may still be on the FOMC after Bernanke and the governors depart, is a bad way to proceed. Lastly, if it’s really true that the failure of Fed policy over the last several years is a failure of the economics profession (since the Fed tends to follow the median economist), is it really reasonable to put so much blame on the president for not being more clear-headed than the vast majority of the profession? I think the best you could have asked for out the administration was greater urgency in getting those seats filled. But it’s questionable how much of a difference that would have made. A little? Sure. A lot? I doubt it, as much as I’d like to believe otherwise. I think the institutional constraints at the Fed and the intellectual constraints in the profession have been too great to expect that.
1. June 2012 at 07:56
West Texas near 83 – and still 19 days to go till June 20!
US 10 year at 1.46… That means 10 year inflation projections are probably somewhere around 1.2% by the Cleveland Fed methodology.
Brent is decisively under 100, which is needs to be, though Euro is lower.
The only bad news for the Fed is that gold spiked a bit, but that doesn’t directly drive headline inflation.
I’d now guess they’re going to be able to get WTI to 75, and Brent to 90 before the Fed meeting.
Man, I should have moved more than 60% into cash – heck, I should have bought long US bonds. I’m far too tentative. Anyway, the ‘good’ side is that the employment number came in low enough to defend easing, and headline inflation is going to be well controlled. The commodity index, GSG, is going to hit last year’s october lows soon (very close today), and the Fed is still going to drive it down further. By the time of the meeting, we should have slightly more clarity on Greece.
So, I’ll just wait and see if we get further proof that the Fed is targeting headline inflation, and implicitly the commodity complex… On the plus side, cost of rolling US debt gets “cheaper” by the day, unless you measure it in % of future GDP.
1. June 2012 at 08:34
Scott wrote:
“So it’s not even close, a VAT or an employer-side payroll tax cut are by far the most effective fiscal stimulus, indeed most likely the only effective fiscal stimulus.
Funny that you rarely hear Keynesians promoting them.
PS. In fairness, I do recall Christy Romer promoting an employer-side payroll tax cut in the US.”
Britmouse already addressed the UK side of this and I totally agree. If the BOE isn’t adjusting for tax changes then they should. There’s even a HICP at constant tax rates so there’s really no excuse not to. (But I often wonder about a country where endogenous money is taught in textbooks.)
As for the US it depends on what you mean by “Keynesians.” Lots of ordinary Democrats who can’t distinguish between the statutory burden and the effective burden of a tax favor cuts on the employee half but not the employer half on the principle that a cut on the employer half would not help workers. (Bangs head on keyboard.)
Keynesian economists who dare bring up the proposal get shouted down by the left-wingers with pitchforks and get accused of being fraudulent Neo-Liberal Rubinesque swine.
As for Christina Romer one should be careful calling her a “Keynesian.” Although she was the architect of ARRA she also has done some very good work showing the effectiveness of monetary policy, even in liquidity type conditions. In particular (in “What Ended the Great Depression?” Journal of Economic History, December, 1992) she pointed out that nearly all of the recovery from the Great Depression through 1942 was due to monetary policy, not fiscal policy (she also points out that US RGDP had recovered to trend by 1942).
And I shouldn’t have to remind you that she has more or less endorsed NGDPLT:
http://www.nytimes.com/2011/10/30/business/economy/ben-bernanke-needs-a-volcker-moment.html?_r=1
The final clue is that calling Romer a “Keynesian” is simplistic is that the mere mention of her name among old-school Keynesians, Post Keynesians and MMTers turns them into frothing hateful lunatics.
1. June 2012 at 09:57
“In fact, just the opposite is true. A VAT cut shifts the SRAS to the right, lowering the British rate of inflation. This forces (or “allows,” depending on your perspective) the BOE to ease monetary policy and shift AD to the right.”
Scott, this is only true if you believe the BOE target is symmetric.
1. June 2012 at 12:37
I think the reason you never hear Keynesians-other than Romer who’s a Newy Keynesian-is the concept of the marginal utility of income.
1. June 2012 at 14:09
“A VAT cut shifts the SRAS to the right, lowering the British rate of inflation. This forces (or “allows,” depending on your perspective) the BOE to ease monetary policy”.
As Britmouse says, the MPC did tolerate above-target inflation on the grounds that it was due to, among other temporary factors beyond their control, the VAT hike. No doubt the MPC were loath to hike and impose the logic of inflation targeting on the British public though, and in the event that a VAT hike drove inflation below the target they probably would ease. Actually, in my view, to the extent that taxes reflect the cost – as opposed to the amount – of government, the MPC should react. The VAT rise owed something to the transmission of inflation through asset prices in that it was required partly to meet the increased cost of hiring government employees in the face of rising house prices.
I do agree that the set up debate between Krugman and the conservatives flopped, partly because both sides had different (and incorrect) ideas of the purpose of austerity, and partly because the discussion was rushed as a result of being left until too close to the end of the programme. I admit that it is hard to think of any thoughtful celebrity economist outside Germany who would generally disagree with Krugman – Ken Rogoff has called for higher inflation targets, for example. I’d have a go myself, but I am hardly a celebrity!
1. June 2012 at 14:13
The above should have read “…..in the event that a VAT CUT drove inflation below the target…..”
1. June 2012 at 17:30
Alexander, That’s a defensible argument, but it actually applies to almost everything our presidents do. I recall that in 2003 the vast majority of foreign policy “experts” favored the War with Iraq. (Krugman now complains he was a lonely voice crying in the wilderness on that issue.) The President usually does what the vast majority of foreign policy experts want. Ergo?
The reality is that Americans blame the President for the economy doing poorly, whatever the reason. I certainly agree that one should not personalize it around Obama. I don’t have anything against him as a person, he’s just a figurehead for a dysfunctional party, as is Romney.
I would have given Obama some credit if I saw even a hint that he was trying to do something to fix the Fed, no matter how tiny the effect. Especially when he had 60 Senate votes.
Statsguy, I hope you are being sarcastic, if not see my new post on the circularity problem.
Mark, I mostly agree. By ‘Keynesian’ I mean someone with an IS-LM view of the world. When I presented my Great Depression research at Berkeley she criticized it from a Keynesian direction.
Statsguy, Why wouldn’t it be symmetric?
RebelEconomist, I am aware of Britmouse’s point, but I think headline inflation does play into the political constraints that the BOE must deal with.
1. June 2012 at 20:34
ssumner:
“Whenever someone mentions “a mathematical model” run for the hills.
NGDP = RGDP + inflation”
Should we all pack now or later?”
Whenever MF confuses a definition with a model we should all run for the hills.
Haha, except in this case the definition IS the model.
2. June 2012 at 04:07
There’s a good reason Dr. Big Gov’t Gloom doesn’t mention tax cuts — Krugman basically hates tax cuts.
And when times are good, he wants more gov’t (to do good things! with tax collecting force). See what he wanted while he, like most Dems, were VERY strongly personalizing their critique of Rep gov’t as Bush (whom they hated).
And when times are bad, he wants more gov’t (we need it!)
The good (dictator type) end, justifies the increases in taxes.
This is the moral mistake of Dems and socialists.
2. June 2012 at 11:34
MF, Model of what? Do you ever admit what an idiot you are? Or do you just keep charging ahead?
2. June 2012 at 11:48
Tom Id guess there are tax cuts Krugman would like but they might not please you as they wouldn’t be supplyside.
2. June 2012 at 11:50
For example Krugman and I probably agree on quite a bit and I’d certianly support cutting the payroll tax if not ending it for people beneath a certain level of income.
21. June 2012 at 00:26
ssumner:
MF, Model of what? Do you ever admit what an idiot you are? Or do you just keep charging ahead?
Excellent. Devolved into name calling. I know I am right when you do that you know.
It is a model. It is a model you are using to calculate a value of 5% NGDPLT, as opposed to 4375623% NGDPLT, or any other NGDP. It is derived from long term status quo data under central banking.
22. July 2012 at 20:26
Neither austerity not stimulus will solve the problem of debt that is mathematically impossible to repay…
http://www.goldstockbull.com/articles/worldwide-debt-default-jubilee-is-the-only-solution/