How does it feel?
Some of my liberal friends have trouble understanding why Paul Krugman is such a lightening rod for criticism from the right. Everything he says seems so reasonable. If you are in this group, I strongly suggest reading Niall Ferguson. Here’s a small excerpt:
The final piece of Krugman’s analysis was that Cameron and Osborne were “so deeply identified with the austerity doctrine that they can’t change course without effectively destroying themselves politically.” They had “to stick it out until something turns up, no matter how many lives it [austerity] destroys.” Cameron was “the English prisoner”of his own “austerity crusade.” In fact, the government did change course, significantly easing the fiscal tightening in late 2012. Krugman was at first dismissive of these changes as “a set of basically minor twiddles involving credit and planning authorizations, which seem highly unlikely to make any significant difference.” When these “twiddles” turned out to make quite a lot of difference, he cried foul. Why, Cameron and Osborne had stopped doing austerity after two years! How dare they not fulfil Krugman’s apocalyptic predictions!
Krugman has spent much of the last two years trying to dismiss the UK recovery – not surprisingly, as it makes nonsense of nearly everything he has written in recent years. It was, he insisted in September 2013, a “dead-cat-bounce.” The government’s claims of success were “deeply stupid.” The economy’s growth was merely the effect of stopping “banging Britain’s head against the wall.” Comically, in January 2014 Krugman sought to argue that France was the role model Britain should have sought to emulate. By April, however, he had thrown in the towel, but in a typically dishonest way. “The fact that the [UK] economy has perked up,” he argued shamelessly, “is actually a vindication of Keynesian claims, whatever the government’s intentions.” The return to growth – the one he had wholly failed to predict – was “not at all surprising.” There was “nothing here that warranted a major revision of framework.” Perish the thought!
. . .
In the words of Jeffrey Sachs – hardly a conservative on economic issues – UK economic performance has in fact been “broadly similar” to that of the United States, “with the UK outperforming the United States on certain indicators,” such as the employment rate (now at a record high of 73.3 percent compared with 59.2 percent in the United States). As Sachs notes, “both the U.S. and UK economies have cast considerable doubt on Krugman’s oft-repeated view that a robust recovery would require further fiscal stimulus.” Amen.
Of course, Krugman was not alone. Martin Wolf of the Financial Times made much the same arguments. So did Simon Wren-Lewis, Jonathan Portes and others. However, none of these Keynesian authors could match Krugman’s unique combination of over-confidence and toxic rudeness. It was not enough to sneer at George Osborne’s policies; he had to be compared gratuitously to one of Monty Python’s “upper class twits.” Osborne’s consistency – a trait Krugman greatly prizes in himself – was “the hobgoblin of little minds, adored by little statesmen.” His policy was “a complete conceptual muddle.” Osborne was “the Rt. Honorable Saboteur.” The government was like “the Three Stooges.” Osborne’s 2014 budget was “ludicrous.”
Krugman is of course in thrall to an Englishman who cannot be credibly described as anything but upper class: John Maynard Keynes. In his vainglorious dreams, Krugman is the Keynes of our time – brilliant, caustic, influential. In his journalism, Krugman frequently alludes to his hero’s work – hence “The Economic Consequences of Mr. Osborne.” But to be Keynes you need ultimately to be credible – credible enough for policymakers to pay heed to what you say. In this regard, Krugman’s career is a story of catastrophic failure – a failure only partly explicable by the fact that, unlike Keynes, he is personally obnoxious.
Amongst many offensive traits, Krugman’s chronic inability to acknowledge error is the most troubling to policymakers, who are subjected to far more rigorous scrutiny than he is. Accusing other economists and the Financial Times of “perceptual sleaze,”Krugman recently had the gall to write: “What’s not OK is blurring the distinction between … political analysis and a real analysis of how policy worked. … When people do that kind of blurring to make the case for policies they prefer, it’s deeply sleazy, no matter who they are.” Lack of self-knowledge on this scale borders on the pathological.
It is easy to forget how seriously the British Left once took Krugman. In a speech forBloomberg in August 2010, Ed Balls named him as one of the few intellectuals who were prepared “to stand up now and challenge the current consensus that – however painful – there is no alternative to the Coalition’s austerity and cuts.” Less than a year later, in a speech at the London School of Economics, Balls again made his debt to Krugman clear. And in his 2012 party conference speech, he went the whole way,parroting Krugman’s prediction of a double-dip recession. This was the peak of Krugmania in the UK. In a gushing editorial in January 2013, the Guardian even urged Ed Miliband to appoint Krugman as Shadow Chancellor. Krugman lectures were now attracting throngs of credulous devotees – though Balls was no longer among them. He had belatedly – but too late – woken up to the fact Krugman’s predictions had been worthless.
But you should really force yourself to read the whole thing. And don’t focus on the content, rather focus on how it makes you feel. That’s how right-wingers feel when they read Krugman.
For contrast, read Matt Yglesias describing the same set of events:
For Americans who have followed British politics primarily through the lens of American Keynesians complaining that Cameron’s austerity policies destroyed the British economy, the results may come as a bit of a shock. Is the UK economy actually doing great? Was Paul Krugman wrong about everything?
The truth is more complicated than that. Team Austerity didn’t do as well as a superficial read of the returns would suggest “” the UK economy is in some ways struggling, the austerity question itself was considerably more complicated than the US media debate about it suggested, and fundamentally the biggest issue in the UK economy has nothing at all to do with austerity or overspending.
Matt mostly agrees with Krugman on fiscal stimulus, although he’s a bit less confident about the net effect. He’s more aware of the uncertainties involved in any counterfactual:
The real debate concerns the past. Cameron and his coalition partner Nick Clegg say that had they not moved to swift fiscal consolidation in the past, the United Kingdom would have been at risk of a Greek-style financial market panic and total meltdown.
It is difficult, in practice, to see how this would have happened. A loss of investor confidence in the fiscal position of the government would have resulted in a falling value of the pound and an expansion/inflationary monetary environment. A falling pound and an expansionary/inflationary monetary environment are exactly what the UK got under austerity. On the other hand, the success of the Bank of England in achieving an expansionary monetary environment in the context of fiscal austerity suggests that fears of austerity crushing the economy were also somewhat misplaced.
Austerity was neither necessary to avoid a meltdown nor sufficient to wreck the labor market. It was simply a policy choice to emphasize small government, less spending, and more employment in the private service sector rather than a more expansive welfare state with more public sector employment.
But the biggest difference is not content, it’s tone. Yglesias’s post is 180 degrees different from the Ferguson piece, or from a typical Krugman post. There’s no name-calling.
Inevitably commenters will want to get into the content of Krugman, Ferguson, and Yglesias. Unless you have something new to say, I’m not really interested. That’s not what this post is about.
I also recommend this excellent Evan Soltas post on the next big crisis, student loans.
PS. In a way I sympathize with Krugman. I can’t understand how anyone could think a fiat money central bank would be unable to debase its currency at zero rates. I can’t imagine how anyone could think money was not obviously way too tight in 2008 (recall that interest rates were not at the zero bound.) So I get the frustration he must feel about his views being ignored by the VSPs. But I also understand that the part of my brain that tells me that the conventional narrative is stupid, is itself unreliable.
Indeed it’s more than unreliable, it’s a logical contradiction. The conventional narrative can never, ever be stupid, as ‘stupidity’ is defined as reasoning that falls short of the conventional wisdom.
HT: Marcus Nunes
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11. May 2015 at 20:16
Reminds me of when they swept the Hugo noms, and George RR Martin was mystified as to why the Sad Puppies might not find John Scalzi to be a swell guy, even though he spent the last three years trolling them.
The blind spot exists because people who want to believe Krugman generally aren’t aware of the criticisms, which is a pervasive phenomenon. When the news and entertainment media goes about 5:1 progressive (and leans heavily on academia which is around 10:1), it creates an informational asymmetry, and fosters irrationalities on the left while suppressing them on the right. Of course, this doesn’t mean anyone is correct on any particular issue, but even the choice of what to cover with limited resources obviously has enormous implications.
11. May 2015 at 20:33
I can’t believe people still take Niall Ferguson seriously; they may as well cite Ron Paul, they have equally insane views regarding monetary policy after-all, and both make inane agenda driven attacks against Keynesians.
11. May 2015 at 20:39
“I also recommend this excellent Evan Soltas post on the next big crisis, student loans.”
Austrians were talking about this already in 2010:
https://mises.org/library/education-bubble
11. May 2015 at 20:44
And here:
https://mises.org/library/higher-education-bubble-has-popped
11. May 2015 at 20:47
I can’t believe people still take the Ferguson haters seriously; they may as well cite the advocates on this blog, they have equally insane views on monetary policy after-all, and both make inane agenda driven attacks against Austrians.
11. May 2015 at 20:54
I have said all along, literally since i have spoken online about Matty, Ygelsias’ life curve is to become a Libertarian.
I say this bc I have spent tens of thousands of hours with the worlds smartest most gifted debaters, and you can TELL by the way they argue, who they really are, even if the arguments they make differ from the person.
The method of thinking is the person, bc after all logic is not relative, so she/he with superior method WILL get there. I’ll give you an example from my background: If you forced Cruz / Goolsbee to run a thing, and their personal futures depended on it, they would find common ground, bc the real win for a serious debater is NOT in how the audience votes, the real win comes in actually finding the policy that works.
Nothing is more fun than beating on a kid growing into a great debater, so I will continue to beat on the Bruenig’s of the world, but Yglesias no longer needs or deserves it, bc he now forces himself to confront the best of his opponents argument, even if the opponent fails to make it.
11. May 2015 at 20:57
what gets lost is all the people that think that austerity automatically means a negative , but austerity can be offset by the private sector taking on debt, and central banks can be a part of that process.
11. May 2015 at 22:26
Wonderful, two favourite writers working in tandem 🙂
11. May 2015 at 22:47
I don’t generally see what is wrong with a little mud-slinging. Policy debates are generally so boring that mud-slinging livens things up. People can sift through the rhetoric if they want, they can enjoy the “smackdowns” if they want.
Not to mention that the rhetoric is indeed an effective tool for getting your point across. Sometimes famous people do take ridiculous positions, and the correct response to them is ridicule. This increases as the individual in question gets more influential. As you have demonstrated many times on your blog towards Krugman. This applies even more strongly for powerful individuals like Obama.
Krugman and Ferguson are not writing for other economists, they are writing for the general public. They don’t have to add “to be sure” caveats to every statement they write. Really, who cares that Krugman (or Ferguson for that matter) is a meanie?
I would add more specific comments, but that would require going into content.
11. May 2015 at 22:47
Yup, Krugman is a character. I learned so much from his writing, but ultimately he has disappointed me by failing to address market monetarism with intellectual honesty. He will write all day long how market monetarists “have no home”, never addressing the substance of prediction-market-guided NGDP targeting, while simultaneously arguing that central banks, even though “out of ammunition”, should nevertheless pursue “extraordinary monetary policy”, but that it might take a “regime change” to have any significant effect — come on! You’ve laid out all the dots, why don’t you connect them already? The guy is obviously as sharp as a tack. Why won’t he draw the obvious conclusion? It’s not like he draws the inverse conclusion either, he never comes out and says “MM will never work because of X.” He just won’t say. The coyness is so annoying.
One might wonder if he’s shy because of the possibility that MM could provide monetary offset at the ZLB, eliminating the need for his beloved fiscal stimulus. No, couldn’t be. Motivated reasoning? That’s what the other guys do.
*sigh*
-Ken
11. May 2015 at 23:53
Sumner: “I can’t understand how anyone could think a fiat money central bank would be unable to debase its currency at zero rates. ” – but the central banks *have* been unable to debase its currency–have you not seen the inflation numbers Scotty? Beam us up, there’s no intelligent life down here… When will you ever learn: money is neutral, until such time hyperinflation or default strikes. The risk in an economy is in growing debt, of the kind the Fed keeps taking on its books.
11. May 2015 at 23:55
I see little difference between Krugman and Limbaugh. Different media, different parties, both relentless cheerleaders for their respective teams. Willfully blind, but sufficiently articulate to spin all new information to fit their respective world views.
12. May 2015 at 00:25
Must say, it makes me feel good!
12. May 2015 at 04:21
On Student Debt being “next big crisis”
Well, it is a 1 Trillion market, vrs Mortgages which was a 10 Trillion market (with subprime alone worth 1 Trillion)
It could end up costing Government a lot to settle. It could cause many students to regret taking out the loans
It wont cause a huge recession, or anything close.
Smaller in size. Banks don’t have it filling balance sheets, isn’t used in leveraged products.
Just a very different beast.
Sadly everyone in the media thinks, hey, it looks like the same crisis.
12. May 2015 at 04:37
Apparently, one is left with emotional arguments for fiscal policy, once the actual perspectives for fiscal policy become skewed. When the objective becomes fulfilling pension obligations for the public service providers instead of balanced supply, everyone ends up with “fiscal policy” such as this:
http://bigcitysparkplug.com/2015/05/11/tax-increment-financing-is-the-new-urban-renewal/
12. May 2015 at 04:47
If Krugman’s ONLY lever for Fiscal stimulus was tax cuts, he would not even be Keynesian.
12. May 2015 at 05:08
Well…remember, in 2002 Bernanke said the way to do it is tax cuts plus QE. In other words there is a fiscal element in Bernanke’s vision of QE done right.
Krugman can be brought on board.
12. May 2015 at 05:25
“In fact, the government did change course, significantly easing the fiscal tightening in late 2012. Krugman was at first dismissive of these changes as “a set of basically minor twiddles involving credit and planning authorizations, which seem highly unlikely to make any significant difference.” When these “twiddles” turned out to make quite a lot of difference, he cried foul. Why, Cameron and Osborne had stopped doing austerity after two years! How dare they not fulfil Krugman’s apocalyptic predictions!”
So supposedly, Cameron eased up on austerity and the recovery continued…
And this is embarrassing for Krugman? That’s what Keynesianism says should happen-it’s a good thing if you ease up on austerity.
I also find it ironic that Niall Ferguson-who’s certainly got some egg on his own face based on all his wrong predictions he made in 2009 and 2010 about galloping inflation but he isn’t offering any ‘mea culpa’ for like he wants Krugman to do-claims that unlike Keynes, Krugman is personally obnoxious.
Every conservative piece on Keynes I’ve ever seen goes on and on about how obnoxious he was, starting with Hayek’s essay on Keynes.
12. May 2015 at 05:42
Basically, it’s not surprising to know that conservatives like liberals that say mea culpa.
Liberals see it differently, which is also not surprising.
12. May 2015 at 05:43
Morgan, I don’t think Yglesias will ever be a libertarian.
Ken, You said:
“Motivated reasoning? That’s what the other guys do.”
I thought Ferguson’s “zinger” was the “Lack of self-awareness . . .” comment.
Chris, You said:
“It wont cause a huge recession, or anything close.”
Nor did the mortgage crisis. If it costs the government a lot to settle, then does the government intend to just forgive these loans?
Mike, You are dense in so many ways that one hardly knows where to begin.
12. May 2015 at 05:53
I am using the writers suggestion that we need to “prevent either another debt-driven economic downturn”
I do think the mortgage implosion was a huge factor in the last financial crisis, and the resulting recession.
The Student loans working, or not imploding, are not as predicated on absurd requirements like the mortgages where. (Needed housing prices to grow without a hiccup.)
Still, the cost, assuming 30% write offs (order of magnitude) is 300 Billion, which is a lot, but not a lot lot lot.
I suspect write offs will be much lower, as response if there is an issue will be to extend maturities, and play games with accounting.
It is something that needs to be watched, and ain’t cool, but it really really doesn’t look like “next big crisis”
12. May 2015 at 06:00
As far as name calling goes I will say this. Even when I try to keep that out of it, conservatives don’t allow it. At least when I speak to them they seem determined to descend into name calling.
12. May 2015 at 06:07
If your point is Paul Krugman is a dick, who often is nasty online, well, yes he is.
So.
I worked in trading for 20 years, on the trading floor. You are allowed to be as nasty as you are right.
Is he right? Hard to say. I would love every one who writes economic opinion articles to have to put on trades, and track them.
Or really put money on their views.
Then we would see.
12. May 2015 at 06:35
Interesting timing on this post professor, as I just removed Krugman from the list of blogs I read yesterday. I try as best I can to keep balanced in my sources of economic thought and analysis, but I couldn’t take Krugman’s “toxic rudeness” anymore.
12. May 2015 at 06:49
Chris,
http://www.hamilton.edu/documents/An-Analysis-of-the-Accuracy-of-Forecasts-in-the-Political-Media.pdf
More generally, I do not care about commentator bias or civility. The question is the content. This is why I read this blog. And this is why I don’t read Niall Ferguson, though that could be just laziness 😛
12. May 2015 at 06:52
“but the central banks *have* been unable to debase its currency-have you not seen the inflation numbers Scotty?”
Ray..South American central bankers seem to be having no problems creating inflation…despite falling commodity prices and contracting real GDP in Brazil and Argentina…how are they doing it?
12. May 2015 at 06:54
Scott,
On a different topis there is an interesting oped in the WSJ this morning. I think you will strongly disagree with this. Sharma basically says three things: 1) the Fed has caused asset bubbles in equities, homes, and bonds 2) deflationary pressures recently are not caused by too little AD or tight money but rather from AS shifting rightward globally 3) the Fed is focused only on CPI and unemployment and ignoring financial markets
On #1:
“In the past 50 years, valuations of U.S. stock prices have been higher than they are now for less than 10% of the time, and similar figures hold for bonds and houses. This kind of synchronized boom has never happened, not even before the last two major meltdowns. My research team’s composite valuation for the three major financial assets in America””stocks, bonds and houses””is currently well above levels reached during the bubbles of 2000 and 2007.”
#2:
“The upshot: Consumer price deflation is not necessarily bad for growth.
One problem is that the world changed faster than the Fed. Trade has jumped to 60% of global GDP from 40% in 1980, and increasing competition puts downward pressure on consumer prices. The forces of expanding supply from China to Mexico are pushing the global average inflation rate down to a level that looks scary low only when compared with the 1970s highs. In fact, consumer price inflation is still above the long-term average, dating to the year 1200,[seriously???] which is 1%.”
#3:
“The Fed now leads a culture of central bankers who see their job as reducing unemployment and stabilizing prices for consumer goods only, come what may in the markets. This needs to change. In a world in which high trade and money flows tend to restrain consumer prices but magnify asset prices, central banks need to take responsibility for both. After all, asset price inflation is as dangerous as consumer price inflation.”
http://www.wsj.com/articles/the-federal-reserve-asset-bubble-machine-1431386994
12. May 2015 at 07:01
Everything he says seems so reasonable.
Oh, Jeebus, no it doesn’t. Only to his choir.
I put together a partial list of his true howlers once. “The Bush tax cuts cost enough to run Medicare and Social Security solvently for 75 years” … “The army gives soldiers in the 100+ degree Iraq desert only one bottle of water per day” (not mentioning the additional unlimited water from tankers), etc.
Do these really sound so reasonable? There are a lot more just as screeching.
12. May 2015 at 07:05
Anand
As a trader I read whoever helped me trade, and make money
Krugman helped (I ignore the petty interpersonal stuff he gets into)
Niall Ferguson, best as I can make out, is an algorithm designed to minimize the perceived value of Harvard Profs. (He is an ideological and silly person who is mostly wrong and adds little value to the discussion. Traders ignore him, as they should)
12. May 2015 at 07:06
[…] In a post that I mostly agreed with, but am also mostly not that interested in, Scott Sumner concludes with the following note: […]
12. May 2015 at 07:23
Krugman is brilliant but biased. I prefer Krugman to Niall Ferguson.
Ashok Rao wrote a couple posts on Ferguson’s worldview:
http://ashokarao.com/2013/10/06/the-three-contradictions-of-niall-ferguson
http://ashokarao.com/2013/06/30/the-great-degeneration-by-niall-ferguson
12. May 2015 at 07:25
I see the heart of the internet’s “Krugman Derangement Syndrome” is pumping as strong as ever….
Anyway…. I am sure you will all be interested in this, via Mark Thoma. ‘A Note on Nominal GDP Targeting and the Zero Lower Bound’
http://economistsview.typepad.com/economistsview/2015/05/a-note-on-nominal-gdp-targeting-and-the-zero-lower-bound.html
Basically Roberto M. Billi says that NGDP targeting might be the best approach when the economy is “normal” , but not so much when we are around “the zero lower bound”. … Just like I said over and over around here.
12. May 2015 at 07:50
PK and Ferguson should never be compared, one is a historian and the other a top notch economist. I agree with TravivV, Krugman is brilliant but biased. In this online controversy I tend to favor Ferguson, not because of the ideas, but because I reject Krugman’s ad hominem attacks. I think it tarnishes his reputation. A man with his academic record should inlfuence people by his ideas, not by rhetoric and style. But his style actually shows his pride, after all. He just can’t help it.
@Anthony
#2 seems reasonable to me, after all, the US is growing.
As for #3, it calls for a different thermometer, NGDP would fit his bill maybe ?
12. May 2015 at 08:02
Keep in mind that Krugman is writing for an audience. If he wrote like (say) Cowen does, he would lose much of the approbation of that audience. Everyone responds to incentives.
Chris — all the great so-called “debt bubbles” have the same core issue, which is that a given investment is not returning sufficient value to justify the investment. There’s no way to avoid the fact that malinvestment reduces overall economic growth, you can only push the inefficiencies around or smooth their impact.
Of course, if any other industry were saddling teenagers with taxpayer-subsidized six-figure nondischargeable(!) debt in exchange for products of dubious value, there would be talk of jail time.
12. May 2015 at 08:17
TallDave
Yes, on the debt bubble. (I traded a few in my career)
Student Debt just isn’t big enough right now to be toooooo worried about
How much ancillary damage is done is a function of how levered bubble is, how distributed, and who is damaged.
By those measures I worry less about Student loan issue.
It will end badly, at some point, I just doubt it will end that badly.
(Maybe one point of GDP for one year?)
12. May 2015 at 08:20
Niall Ferguson is a good historian but is a product of his times, as he once argued in one of his books around 1999 that the USA suffered from imperial *under* stretch, which is in retrospect a stretch. His second wife is I believe an Arab.
@Anthony McNease -good WSJ link, thanks. #1 is irrelevant (Fed is impotent) as is #3, but #2 harkens to the theme of a “good deflation” of the kind the USA had in the late 19th C.
12. May 2015 at 08:53
The two most lucrative areas for purchasing future votes and voters are immigration “reform” and student loan easing/forgiveness. The Dems currently lead in both areas, but the Republicans won’t be left empty handed. Student loan defaults likely won’t lead to a financial crisis, but the inevitable student loan bailouts will exacerbate an already slow-moving fiscal disaster.
12. May 2015 at 08:59
Jose,
“#2 seems reasonable to me, after all, the US is growing.
As for #3, it calls for a different thermometer, NGDP would fit his bill maybe ?”
Well I disagree with #1, so I can get that one out of the way first. As for #3 I think the complaint is a bit weird since controlling CPI and employment is exactly what the Fed is prescribed to do by law. However I also think #3 is false. Bill Dudley has been rather plainspoken lately about when the Fed does raise rates they will absolutely monitor how the markets react. He basically said “If we raise rates, and the markets don’t like it then we’ll stop.”
#2 is, to me, more complex. Globally I think there is definitely a causal relationship to low inflation and the world opening up to more free trade and better supply side economics over the last few decades. However right above this oped in today’s Journal was another about the very real lack of capital investment in the US. So while I agree that globally the AS has shifted rightward the last few decades in the US there is a serious problem with AS and productivity that causes us to not reach potential output.
12. May 2015 at 09:08
Sachs is narrowly right that it is debateble whether a robust recovery require additional fiscal “stimulus.” The claim to be refuted is that a monetary policy suffient to get NGDPL back on its pre 2008 track would nevertheless not produce a “robust” (defined in real variablres) recovery unless governments abandoned austerity and started investing in prove via with positive npvs. Since no monetary is likely to have such a policy, the hypothesis will be untested.
12. May 2015 at 09:27
Matt Yglesias’s newest should please you Scott:
http://www.vox.com/2015/5/12/8592689/income-class
12. May 2015 at 09:32
Scott,
this is Yglesias regurgitating a point you have now DILLED into his head:
http://www.vox.com/2015/5/12/8592689/income-class
this is the money sentence, the one where Ygelsias has no fight left:
“But because of “human capital” “” the value of fancy sheepskin, the value of computer skills, the value of social connections, etc. “” it’s the first guy who ranks highest in the class pecking order and the third guy who ranks third.”
The last bit of anger here, and the tonal acceptance, is that class structures will not ever go away.
Once you get there, what’s left is Uber for Welfare, and I bet that Ygelsias will come around to it, bc a system of performance tracking that begins for 14 yr olds full time all summer, and part tim all year is the most fair and righteous opportunity we have for mobility for the CVS low class guy vs. status quo.
This isn’t bullshit.
Parents are NEVER going to stop giving their kid premier access to the Clinton campaign intern path after college.
But U4W allows determined poor youth to start to master SKILLS THAT PAY, even in political campings, at 14!
U4W is BEST chance poor kid in ghetto has to become master carpenter, or any other kind of skilled labor, at 24.
This is one of the things that I think peeps noodling U4W miss – being truly skilled labor, is very much like being an athlete. A poor kid getting into plumbing, or excavation, or framing homes 20-50 hours a week for 5 years – is MIDDLE CLASS at 19. There’ no way around it.
—-
So here’s my point Scott…
We agree Matty REALLY believe what he says, we agree he’s practical about what doable and not…. what’s really bothering him is the “immobility” of the CVS guy –
How long does it really take Matty, considering how far he’s come, to see U4W for what it is – a status / class game that poor can actually compete in?
Thats it I’ve convinced myself, I’m going to forgive matt his terrible bad taste on Breitbart and let go of his mom’s domain.
12. May 2015 at 09:39
‘Basically Roberto M. Billi says that NGDP targeting might be the best approach when the economy is “normal” , but not so much when we are around “the zero lower bound”.’
But successful NGDP targeting would never get us to a ZLB, so the latter point is moot.
12. May 2015 at 10:01
So apparently the fast track bill is being held up because the Senate Democrats unanimously want to fold in a law directing the Department of Commerce to go after “currency manipulators” like China. That includes even the normally pro-trade members. They will filibuster it otherwise. Krugman will no doubt find a way to explain why this is all the GOP’s fault.
12. May 2015 at 10:04
Chris — The loss to the economy is in the malinvestment more so than a change in expectations regarding the repayment of the debt that we might call the “end” of a “debt bubble.” Maybe in the range of .1% to .25% of GDP growth per year over the last 20 years? So with an idealized higher ed cost structure we might have 2-5% higher GDP today. Of course, few systems are ideal, and there’s a lot of ruin in every nation.
12. May 2015 at 10:27
The Senate Republicans had already agreed to separate votes on the currency manipulation bill along with TAA and other demands, so the demand increased to insisting on incorporating them into the main bill rather than separate votes.
GOP remains more pro trade.
12. May 2015 at 10:32
“But successful NGDP targeting would never get us to a ZLB, so the latter point is moot.”
Could I say the same about a “successful” 2 percent inflation target? We seem to have that already and, despite very serious efforts, we don’t seem to have much “success” lately. So, what makes NGDP targeting automatically successful so the point is “moot” any more than an inflation target? Or, does simply adding the word “successful” to the formula make the issue moot?
12. May 2015 at 10:39
Anand, I browsed through that study about forecasts, but I don’t see an actual list of the predictions they were judging anywhere. The fact that they rank people like Newt Gingrich and Mike Huckabee as being further to the right than Nancy Pelosi is to the left makes me a little skeptical of this study.
12. May 2015 at 10:56
Vivian — the problem in that formulation is with “very serious efforts.” The Fed made it pretty clear they were content to miss low, even when NDGP fell well below a healthy trend as in 2008-9 (remember those Fed notes worrying about inflation?). That wouldn’t happen under NGDPLT, markets would know to expect higher inflation in response to shocks so the ZLB should be more resilient, at least for long-term interest rates. Of course ZLB doesn’t really matter anyway, since the Fed can bid on every asset in existence until they run out of ink.
The Billi paper is not that interesting, as it assumes interest rates are the only tool available to CBs — “in this basic model the nominal interest rate is the only available policy instrument” — and therefore finds that NGDP targeting leads to less NGDP, which is a nonsense result in the real world of expectations and CBs that can always inflate.
12. May 2015 at 11:31
@Ray, Between January 14 and May 6, the Fed’s balance sheet shrank by $43 billion.
12. May 2015 at 11:32
Some more:
http://www.nationalreview.com/article/418234/paul-krugmans-pretense-economic-knowledge-kevin-d-williamson
12. May 2015 at 11:34
Tall Dave,
OK, so we can express the Fed’s past efforts in any way you want. That doesn’t support the idea that under “successful” NGDP targeting, the ZLB issue is suddenly “moot” any more (or less) than it would be for “successful” inflation targeting. If inflation targeting would be “successful” wouldn’t the markets equally “know to expect higher inflation”?
If ZLB is irrelevant because the Fed has other tools, then would it not be irrelevant for an inflation (or other) target for the same reason?
I have not read the Billi paper, but that’s not relevant to the point I made to Patrick about his claim (nor is the fact that the ZLB is irrelevant for the reason you state). I’ll take your word that the article is not that interesting.
12. May 2015 at 12:40
Well you proved my point again Scott-all you have is name calling.
12. May 2015 at 12:42
Anyone can hide behind nonresponsive insults. You can call someone dense but unless you actually show it talk is cheap.
12. May 2015 at 13:14
Vivian, here’s the conclusion to the Billi paper;
‘Shedding light on recent proposals directed at major central banks to adopt a nominal GDP level target, this article compares nominal GDP level targeting to strict price level targeting in a standard model often used for monetary policy analysis. In the model, the central bank operates under optimal discretion and faces a ZLB constraint, and the economy is buffeted by supply and demand shocks. The stylized model is calibrated to recent U.S. data and offers a
clear illustration of the tradeoffs faced by the central bank. The two targeting frameworks are ranked in terms of performance, based on the model’s social welfare function.
‘The analysis suggests that, if the economy is only buffeted by purely temporary shocks to inflation, nominal GDP level targeting may be preferable because it requires the burden of
the shocks to be shared by prices and output, while strict price level targeting causes costly fluctuations in output. But in the presence of persistent supply and demand shocks, strict price level targeting may be superior because it induces greater policy inertia and improves the tradeoffs faced by the central bank. During ZLB episodes, ironically, nominal GDP level targeting leads to larger falls in nominal GDP. Such results are shown to be robust to a wide range of alternate calibrations. Still, as the analysis is conducted in a stylized model, further study is needed to extend the results to a broader class of models.’
12. May 2015 at 13:29
Thanks, Patrick. But, how does this support your statement that the ZLB is “moot”? And, again, why should we simply assume “successful” for NGDP targeting and not for, say, inflation targeting?
12. May 2015 at 14:50
In the context of focusing on feelings… I don’t want to sound like a Krugman defender here, but, though wrong in the past about issues of importance, I think Krugman gets more than his fair share of criticism. From my point of view, equitable share of criticism is about who has the dirtiest shirt in the mainstream of the debate over economic policy where unrepentant fiscalism at a high level is full of comparatively benign ambiguity while the vehemently anti-inflation facet of the austerists’ side of the debate is flat out disastrous. I care about whether average people have access to a means of survival in the post-industrial age world and prioritize policies for criticism that are most destructive to that end, with the misguided anti-inflation/austerity policies winning the top spot with very little contest. The suggestion that the combination of ever tighter monetary policy and tight fiscal policy results in economic nirvana deserves relentless ridicule for the calamitous policy effects it produces. Thus, it seems that focused criticism on Krugman is mildly pointless; win the battle but lose the war and then some.
12. May 2015 at 14:59
Scott,
This is not related to this post, but I do not know how else to ask you a question.
What would be the effect if India’s temple gold was monetized? see attached post by Tyler Cowen.
http://marginalrevolution.com/marginalrevolution/2015/05/india-gold-fact-of-the-day.html
12. May 2015 at 17:20
@Brian Donohue – between Jan 2008 and today the Fed balance sheet grew by $3500 B, so a shrinking of 43B is about 1%. A step in the right direction but just noise.
12. May 2015 at 18:00
[…] Source […]
12. May 2015 at 20:26
Vivian — If inflation targeting would be “successful” wouldn’t the markets equally “know to expect higher inflation”?
Just the opposite — under IT, the Fed is promising not to inflate, especially when they clearly consider missing low to be a “win.” Consider’s Scott’s classic example of an oil shock — do you want price stability at the cost of a much deeper recession? Of course not, but that’s what IT promises to try to do.
If ZLB is irrelevant because the Fed has other tools, then would it not be irrelevant for an inflation (or other) target for the same reason? Yes. ZLB only matters if the CB is incompetent enough to believe they’re wearing the invisible handcuffs of a liquidity trap. But you’re more likely to run into the illusory problem of ZLB under IT, because the promise not to inflate drives expectations.
12. May 2015 at 20:44
My first thought was the same as many seeing Ferguson quoted. Reading what Sumner quoted, it seems to merely reflect the same bombastic qualities as Krugman, but from a conservative.
The other issue is Krugman battles with people often with truly wrong views of how economies contract or expand. That includes Sachs, who he has criticized for recommending against fiscal stimulus to Obama.
You have economists like Sachs and Ferguson who clash with Krugman, but also Reinhart/Rogoff. I still can’t see how logic 90+% of debt/GDP leads causally to less growth. Who are these businesses not hiring because their government has too much debt?
Despite the name-calling, it’s hard to feel TOO sympathetic with many of the people he name-calls. They could be right that fiscal austerity won’t contract the economy, but they often would support increasing interest rates and no more QE as well. Truly adhering to their world-views will lead to much greater unemployment.
Unfortunately Krugman has engaged somewhat less with MM, name-calling or otherwise. Most of the posts he does engage with MM are relegated to “wonkish” posts, when he then uses Keynesian models like IS/LM to say monetarism doesn’t work. So he is bombastic with people truly wrong about unemployment, but he also cannot sharpen his own views because he has allegiance to models like Paul Samuelson had. Models are fine, but ultimately one needs to act on empirical evidence models are wrong and use the empirical evidence instead.
12. May 2015 at 21:31
@ Tall Dave
“Just the opposite “” under IT, the Fed is promising not to inflate, especially when they clearly consider missing low to be a “win.” ”
No. I don’t agree that that is the proper way to look at a level target—any level target.
If the Fed were to follow a level inflation target, they would be promising to inflate and not to inflate *too much* at the same time. I don’t see why “the opposite” (that is, no dual promise) holds for a level inflation target but not a level NGDP target.
12. May 2015 at 22:04
“when they clearly consider it to be a win”.
I don’t think that is the case, either. And, if it were, then it is not a problem with the inflation target, per se, but a problem with the Fed and/ or individual FOMC members not adhering to their target. That’s a potential problem with any (level) target. Here’s what the official Fed line is:
“On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.”
That clearly views sub-2 percent inflation as *not* “a win”. If you would want a more clearly stated policy, then one would remove “to help” with “ensure” or something like that, but that is not a deficiency of a (level) inflation target per se. It seems slightly unfair to compare one method of targeting as automatically “successful” in theory, as Patrick seems to have done (because it has never been implemented) and therefore automatically superior to other methods (because *in practice* those tried methods may have been susceptible to human failings at the Fed).
Again, my point is that the original claim (NGDP targeting makes the ZLB issue moot) was not (and still has not been) substantiated, at least as something theoretically unique to that sort of targeting. NGDP targeting may certainly have its advantages, but I think the case here regarding the ZLB is being overstated, at best. Getting back to the title of this blog post, it is perhaps an example of using one’s “feelings” to substantiate one’s priors.
13. May 2015 at 02:02
That doesn’t support the idea that under “successful” NGDP targeting, the ZLB issue is suddenly “moot” any more (or less) than it would be for “successful” inflation targeting. If inflation targeting would be “successful” wouldn’t the markets equally “know to expect higher inflation”?
In answer to that question I think the NGDPers might well say “no”….
Imagine a major supply shock hits the economy — say, the price of oil triples in short order and is widely predicted to keep rising sharply into the future.
The result is rising prices, inflation going up above target, while NGDP falls to below target, due to declining real output. Thus…
The ‘successful’ NGDP targeting regime adopts stimulative policy and increases NGDP.
The ‘successful’ inflation-targeting regime adopts contractionary policy and reduces inflation to its former level, the target. However, contractionary monetary policy amid a contractionary supply shock does not produce a stable outcome. The decline in output is now compounded and accelerates, a plunge results, with sharply disinflationary impact. The ‘successful’ inflation-targeting regime now must sharply reverse its policy to get back up to its target.
Best case for the inflation-targeting regime is that it ‘succeeds’ by so reversing itself dramatically and very quickly. However, a policy regime that relies upon such a sudden piroutte of self-reversal to produce success hardly seems desirable. More real-world likely, due to the nature of institutions and the people in them, is that the reversal will come only after a significant lag and period of disinflation. And if at that point the ZLB is anywhere near…
So the answer is “no”. An inflation-targeting regime that ‘succeeds’ in reducing inflation amid a supply shock would not convince the markets to expect future inflation — as per the example of 2007 … is what I imagine the NGDP targeters would say.
13. May 2015 at 03:24
Jim,
Thanks, that explanation makes a certain amount of sense—in theory. But, I don’t think it explains how NGDP targeting would eliminate the ZLB issue or make it “moot”
As to your specific example of a “tripling of the oil price in short order:
If we humans know that the tripling in price is a “shock”, then that seems to call for some sort of human judgement and intervention–not a hard and fast rule.
“The result is rising prices, inflation going up above target, while NGDP falls to below target, due to declining real output. Thus…”
That’s a rather conveniently style-ized example. Are you sure that NGDP would not come in *above* target due to the fact that inflation has increased more than real output has decreased as a result of that shock? As far as lag times are concerned, what kind of lag time could we expect between the time 1) that the markets realise there is a shock (rather than a permanent price level increase) and react to it; and 2) the monetary response is implemented and has its (desired) effect? I can perhaps imagine that a market-based model might be quicker do the “pirouette” than a non-market systems, but your comment suggests that such a rapid reaction “hardly seems desirable”. So, what is supposedly a desirable feature of NGDPLT is not desirable for inflation targeting? Or, that the market.e.g., the bond market, could not provide the same sort of signal? Or, should we woman the FOMC with prima ballerina’s?
Perhaps an NGDP target is better equipped to deal with shocks (I’m an agnostic on nearly everything), but I’m still not convinced it would make the ZLB “moot”.
13. May 2015 at 04:41
@Patrick Sullivan
you quoted “During ZLB episodes, ironically, nominal GDP level targeting leads to larger falls in nominal GDP” from the paper. If you read the paper, what is the mechanism by which this output is produced. it is counterintuitive. How come target NGDP cretes larger variatiions in NGDP ?
13. May 2015 at 05:12
@ Patrick Sullivan
“The result is rising prices, inflation going up above target, while NGDP falls to below target, due to declining real output. Thus…
The ‘successful’ NGDP targeting regime adopts stimulative policy and increases NGDP.”
Well, NGDP might increase.. You’re just assuming that it won’t.
Same with your assumption of deflationay pressures with inflation targeting. If there is a permanent supply shock, AD has to be permanently reduced. No reasons to expect delation.
@ Tall Dave
” Of course ZLB doesn’t really matter anyway, since the Fed can bid on every asset in existence until they run out of ink.”
The FED exchange one asset with another. As the liquidity premium is 0 (ZLB), people are indifferent between the various types of assets. Why the hell would monetary policy be effective?
If QE and unconventional monetary policy is to be effective, it has to induce some relative (not absolute) asset prices movements and redistribution of wealth.
http://www.columbia.edu/~mw2230/JHole2012final.pdf
https://research.stlouisfed.org/wp/2013/2013-028.pdf
Things don’t look that simple as markets monetarists believe if you really want to model and explain what is QE and how it works.
13. May 2015 at 06:01
‘@ Patrick Sullivan
‘”The result is rising prices, inflation going up above target, while NGDP falls to below target, due to declining real output. Thus… ….’
Jim and I can guffaw…and remember the good ol’ days.
13. May 2015 at 06:09
Vivian said;
‘ Are you sure that NGDP would not come in *above* target due to the fact that inflation has increased more than real output has decreased as a result of that shock?’
If it did. that would boost interest rates away from the ZLB.
Jose asked;
‘If you read the paper, what is the mechanism by which this output is produced. it is counterintuitive. How come target NGDP cretes larger variatiions in NGDP ?’
Interest rates. That’s Billi’s problem, he’s working through them, which Market Monetarists know is fallacious.
13. May 2015 at 06:15
Patrick said:
“If it did, that would boost interest rates away from the ZLB”.
And, the same thing wouldn’t happen under an inflation target?
13. May 2015 at 06:46
Didn’t Jim Glass already answer that question, Vivian.
13. May 2015 at 07:26
Chris, You said:
“the last financial crisis, and the resulting recession.”
Haven’t you reversed causation?
Garrett, I feel I have to read him, as he is the smartest guy on the left.
Engineer, Yes, I’ve seen that inflation has averaged 2% since 1990. What’s your point? Are you saying that the recent sub-2% inflation shows that central banks are trying and failing to boost AD? That’s not even slightly plausible; the Fed’s planning to raise interest rates soon. They assume it’s temporary oil price declines, and that inflation will bounce back (I think they are a bit too complacent.)
Anthony, A positive global supply shock? What will they think of next? There’s absolutely no data to support the claim that AS is doing well–just the opposite.
Bill, You said:
“I see the heart of the internet’s “Krugman Derangement Syndrome” is pumping as strong as ever….”
I wonder if Krugman supporters even realize how ironic that claim is.
Yes, I’ve seen the Billi piece. So he comes up with the opposite conclusion from Woodford. So what’s the intuition on why Woodford is wrong and Billi is correct. I’d give you about a 1 in 1000 chance of being able to answer my question.
You said:
“PK and Ferguson should never be compared, one is a historian and the other a top notch economist.”
Yes, but this has no bearing on my post, as I wasn’t comparing their skills as economists.
Vivian, You said:
“Could I say the same about a “successful” 2 percent inflation target?”
I’d say a NGDPLT policy with a 5% trend rate of growth would keep us above the zero bound, even if done somewhat incompetently. Obviously an extremely incompetent attempt might not work. In contrast, a 2% inflation target might not keep us above the zero bound, even if done well, although it would be a close call. The two policies are radically different.
Mike, You said:
“You can call someone dense but unless you actually show it talk is cheap.”
I don’t need to do so, you do all my work for me.
D’Andrade, I don’t see how the gold could be “monetized” with all the snakes guarding it. Seriously, I don’t really believe that story. But if true it is rather interesting, partly for what it says about India.
Whenever someone tosses around numbers like “one trillion dollars,” referring to money hidden in rooms in India guarded by snakes, my BS detector goes off.
Sorry to be “that guy,” I like Indiana Jones movies as much as the next guy. I very much hope I’m wrong.
13. May 2015 at 09:54
@Patrick Sullivan
Yes, I got that, and also, his evaluation of “performance” is one sided, under price level targeting NGDP goes above the target in the second period, which reduces output loss, but increases output volatility. Should he penalize performance with output volatility, results would be more even.
13. May 2015 at 10:38
A question do All, all this interesting conversation about NGDP LT and the ZLB, etc, makes me think: Does it matter if we are or not at the ZLB ? I keep getting “interest rates don’t matter” all the time, if that is true, at leat to me it follows that we should not care if we are at the ZLB… If not, what Am I missing here ?
13. May 2015 at 19:21
@Jose Romeu Robazzi: Yes, Market Monetarists believe that the Zero Lower Bound on interest rates, is not a significant restriction on the effectiveness of monetary policy. The transmission mechanism for monetary stimulus is the Hot Potato Effect from enlarging the monetary base, not some kind of increased investment due to lower interest rates.
To be fair, there are economists (like Krugman) who disagree, and think the ZLB is very important, when discussing monetary policy.
15. May 2015 at 06:53
@Anthony McNease
‘ . . . This needs to change. In a world in which high trade and money flows tend to restrain consumer prices but magnify asset prices, central banks need to take responsibility for both. After all, asset price inflation is as dangerous as consumer price inflation.” ‘
This what R. Werner has been saying for years?
“Importantly for our disaggregated quantity equation, credit creation can be disaggregated, as we can obtain and analyse information about who obtains loans and what use they are put to. Sectoral loan data provide us with information about the direction of purchasing power – something deposit aggregates cannot tell us. By institutional analysis and the use of such disaggregated credit data it can be determined, at least approximately, what share of purchasing power is primarily spent on ‘real’ transactions that are part of GDP and which part is primarily used for financial transactions. Further, transactions contributing to GDP can be divided into ‘productive’ ones that have a lower risk, as they generate income streams to service them (they can thus be referred to as sustainable or productive), and those that do not increase productivity or the stock of goods and services. Data availability is dependent on central bank publication of such data. The identification of transactions that are part of GDP and those that are not is more straight-forward, simply following the NIA rules.”
http://eprints.soton.ac.uk/339271/1/Werner_IRFA_QTC_2012.pdf
15. May 2015 at 06:58
Re recovery in the UK economy.
“Even Britain has now abandoned austerity
And while Osborne will never publicly admit this, the big surprise of his budget is its implicit acceptance of this Keynesian view.
Instead of trying to reduce borrowing any further or aiming for a balanced budget, as it originally promised, the British government has now accepted that deficits will keep rising in absolute terms and will still be worth 6% of GDP by the next election in 2015. That would leave Britain with by far the highest deficit ratio among the major economies after five years of unprecedented austerity. Meanwhile the U.S., with comparatively little fiscal effort, is projected to reduce its deficit to just 2.4% by 2015.
We are still looking at borrowing of £108 billion this year – nearly £50 billion more than planned back in 2010.”
http://blogs.reuters.com/anatole-kaletsky/2013/03/21/even-britain-has-now-abandoned-austerity/
And a little luck?
“One economist, Alan Clarke at Scotiabank, says the compensation payments have been more successful at stimulating the U.K. economy than quantitative easing. U.K. lenders have already paid £11.5 billion ($18.7 billion) to millions of customers, and have set aside another £7.3 billion for future payments.
But the payments are not just creating one-off windfalls: the PPI industry is also creating much-needed employment.
As we report over on WSJ.com, claims have been coming in at such a clip that it’s created tens of thousands of new jobs to handle them.”
{the PPI payments are being used as a down payment for new cars?}.
http://blogs.wsj.com/moneybeat/2013/10/04/how-a-banking-scandal-is-bolstering-britains-economy/
15. May 2015 at 09:19
“Britain has now abandoned austerity”
“five years of unprecedented austerity”
Hmmm…
15. May 2015 at 14:55
Jose, It doesn’t matter in a technical sense; with a sound monetary regime you can keep hitting your targets. It does matter for real world central banks that foolishly rely on interest rate targeting.
W. Peden, Good catch, that’s hilarious.