How many more populist “victories” can we survive?

Here’s Salon on the Greece government’s “victory” last February:

One week after Greece’s leftist government reached a new debt deal with its creditors, Paul Krugman argues in his New York Times column today that left-wing criticism of the deal is misguided, obscuring larger victories secured by Greek negotiators.

And here’s Paul Krugman in 2012 on Argentina’s “remarkable success.”

Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar “convertibility law”. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.

I’d just add something else: press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right. We keep getting stories about Ireland’s recovery when there is, in fact, no recovery “” but there should be, darn it, because they’ve done the “right” thing, so that’s what we’ll report.

And conversely, articles about Argentina are almost always very negative in tone “” they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly.

In fairness, they did have a very strong cyclical rebound after easing monetary policy (an issue on which I agree with Krugman.)  Where I disagree is his tendency to sort of wave away supply-side concerns—which are what matters in the long run.  It looks like the long run has arrived, as the Argentine economy has sputtered over the three years since he wrote this post, and 2015 will be downright ugly.

From the same post, Krugman has good things to say about Brazil’s slightly more moderate, but still hopelessly statist policy regime:

Just to be clear, I think Brazil is going pretty well, and has had good leadership. But why exactly is Brazil an impressive “BRIC” while Argentina is always disparaged? Actually, we know why “” but it doesn’t speak well for the state of economics reporting.

Why was Argentina disparaged?  Perhaps because some of us don’t have a “in the long run we are all dead” Keynesian obsession with the demand-side.  We saw problems down the road. BTW, the Argentine president who created the disaster died in 2010, leaving his wife to inherit the mess “in the long run.” Brazil has also done very poorly in the three years since Krugman praised its (incompetent) leadership, and the forecasts reported in the next link call the outlook for Brazil’s economy in 2015 “grim.”  Nor will boosting AD perform miracles, Brazil and Argentina already have lots of inflation.

Here’s the outlook for the key economies in Latin America next year:

Many Latin American economies will continue to face increasing growth divergence this year, which is neatly defined by the two oceans that envelop the region. The Atlantic-facing economies of Argentina, Brazil and Venezuela””the largest members of the Mercosur bloc””will contract 0.2%, 0.9%, 5.5%, respectively, according to LatinFocus Consensus Forecasts panelists. On the other side of the continent, Chile, Colombia, Mexico and Peru””which make up the Pacific Alliance””will expand 2.9%, 3.4%, 2.9% and 3.5%, respectively.

Let’s see, I’m trying to remember which side had the more statist policy regimes, the Atlantic or the Pacific bloc?  The next paragraph answers the question:

This division has little to do with the western countries’ orientation toward a more dynamic Asia and the eastern countries’ exposure to the European economies, which are still weak. In fact, the growth divergence is mainly the result of the substantial differences in each country’s economic policy during a decade-long economic boom, which was fuelled by high commodities prices and strong inflows of foreign direct investment. Throughout the boom years, Atlantic countries spent more and saved less, while the Pacific-facing countries invested more. Moreover, many governments in the Atlantic-facing countries implemented more interventionist economic policies, which put a dent in businesses’ profits and discouraged investment. Conversely, countries bordering the Pacific undertook agendas of economic reforms, which investors welcomed.

But that doesn’t make any sense. How could the Pacific countries be doing better, when they relied more on the brain dead supply-side approach of the GOP?  Of course Krugman told us that Chile’s supposed free market success is just “Fantasies of the Chicago Boys.

But there’s another point: the economics of Chile under Pinochet are a lot more ambiguous than legend has it. The way the story is told now, the free-market guys moved in, liberalized, and then there was a boom.

Actually, as you can see from the chart above, what happened was this: Chile had a huge economic crisis in the early 70s, which was, yes, partly due to Allende and the accompanying turmoil. Then the country experienced a recovery driven in large part by massive capital inflows, which mostly consisted of making up the lost ground. Then there was a huge crisis again in the early 1980s “” part of the broader Latin debt crisis, but Chile was hit much worse than other major players. It wasn’t until the late 1980s, by which time the hard-line free-market policies had been considerably softened, that Chile finally moved definitively ahead of where it had been in the early 70s.

There’s no question the Chicago Boys screwed up in the early 1980s, by ignoring Milton Friedman’s (and Paul Krugman’s) advice to float your currency.  But what about that supposed “softening” of free market policies?  Here’s the Fraser Institute rankings of economic freedom in Chile (index number out of 10, and then global ranking), since the Chicago-style reforms began in 1975:

1975:    3.60  (71)

1980:   5.38  (48)

1990:    6.78  (27)

2000:   7.41  (33)

2010:   7.94   (7)

If there are “fantasies,” it’s the idea that Chile became less market-oriented after the late 1970s.

Perhaps Brazil could try some Paul Romerstyle charter cities on its poverty-stricken northeast coast.  You know, the kind of free trade zone that was adopted by another country advised by Friedman at about the same time he advised the brutal Pinochet regime. This regime was far more brutal, and yet oddly Friedman got no criticism from the left for his advice, perhaps because the left was embarrassed by the fact that so many of their famous intellectuals had praised the regime over the previous decades, as they killed tens of millions of people.  Have you guessed which one?  Hint, it’s right after Chile in alphabetical order.  And the main street in its biggest free trade zone went from looking like this in 1981:

Screen Shot 2015-04-29 at 6.21.04 PM

To this in 2013:

Screen Shot 2015-04-29 at 6.21.24 PM

Brazil might want to contact Mr. Romer.



46 Responses to “How many more populist “victories” can we survive?”

  1. Gravatar of DanC DanC
    5. May 2015 at 06:15

    Why is Ireland projected to be the fastest growing economy in the EU

  2. Gravatar of policy_wank policy_wank
    5. May 2015 at 06:42

    Cuz it’s capital is always Dublin! Thanks for the setup.

  3. Gravatar of benjamin cole benjamin cole
    5. May 2015 at 06:54

    The China story can be used to any purpose. State planning works, look at China, or China liberalized, look at China.
    In fact, every large company in China it is controlled by the CCP, through board seats and voting stock. One worry about China is that the People’s Bank of China appears to have lost its resolve to promote growth. Inflation now is below target in China.
    I like FTZs btw. Bring them on. Everywhere.

  4. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    5. May 2015 at 07:11

    Krugman (2010) said;

    ‘… the economics of Chile under Pinochet are a lot more ambiguous than legend has it. The way the story is told now, the free-market guys moved in, liberalized, and then there was a boom.’

    To which, the antidote is (from James Rolph Edwards); Painful Birth: How Chile Became a Free and Prosperous Society.

    From my review;

    ‘As the Chilean novelist Alberto Fuguet put it in an interview, ‘the dirty secret’ of his country is that Augusto Pinochet was like, ‘A gift from our elders who tried to change the country [into a Castro-ite Marxist state]. They didn’t change it, he did.’ According to Fuguet, he made it into a ‘modern, open, liberal…very liberal’ society. Whether that was his intention or not, he was led (almost as if by an invisible hand?) to do so by the economic policies he instituted.

    ‘James Rolph Edwards’ short book, Painful Birth: How Chile Became a Free and Prosperous Society, explains what those economic policies actually were. As befitting an economist, the Montana State University academic does so with great efficiency, but without much technical jargon. The reader will learn how the elimination of Allende’s price controls restored goods to the stores (and their customers) of Chile, how the restoration of nationalized businesses to private ownership put proper incentives back into the economy, how reduced government spending eliminated the need for central bank money creation to pay for it. Also, about the mistakes and missteps along the way that hindered economic recovery. It’s an honest book.’

  5. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    5. May 2015 at 07:35

    I hope Paul Krugman never changes;

    ‘Chile had a huge economic crisis in the early 70s, which was, yes, partly due to Allende and the accompanying turmoil.’

    ‘Partly’? Maybe Paul is crediting the other part to Fidel Castro, who gave far, far more advice to Allende than Milton Friedman ever did to Pinochet–Friedman met once, for 45 minutes, with Pinochet, and they discussed how Chile could end the several hundred percentages inflation.

    Castro spent a month in Chile in 1971, stirring up a lot of ordinary Chileans (culminating in ‘the empty pot demonstration’ against him). He later told a French diplomat that (in the words of Chilean diplomat, and Pablo Neruda protege, Jorge Edwards); ‘Allende could not carry out his experiment unless he broke out of the too-tight bounds of bourgeois respect for constitutional processes.’

  6. Gravatar of Kevin Erdmann Kevin Erdmann
    5. May 2015 at 07:46

    +1 Policy wank. Awful.

  7. Gravatar of collin collin
    5. May 2015 at 08:00

    Well democracy populism has it failures, it does appear that the best way to grow is to have a dictator forcing free market solutions on the poor people. (Let us hope they are not mass murdering types.) That has success of China and Chile the last generation. The guide to economic growth is limit democracy, free markets, control family formation and children, and focus on a few products you can produce the cheapest.

    Otherwise, I still think one of the reasons for the improvements of South and Latin America is the US and Russians are not meddling in their affairs. However, I do wonder how the US will react when Valenzuela defaults on their Chinese debts. (Of course depends on the 2016 winner.)

  8. Gravatar of Ray Lopez Ray Lopez
    5. May 2015 at 08:03

    Sigh, our small-time pundit Sumner waxing on countries he has never visited nor knows much about. First Greece, then Argentina, then Brazil then Chile. I have visited one of these three, Greece, was as close to the others as Peru is, and suffice to say Sumner knows nothing about Greece and not much about the others. From what I can gleam, Argentina suffers from isolation (a huge country scarcely populated), and a city/countryside divide, but as Krugman says, default did not matter much. Brazil has come a long way but shows that protectionism and high inflation does not really matter (as Sumner on the latter point conceded the other day). Chile is clearly a case of Dr. Copper dictating the fortunes of the economy. If you graph the price of copper to Chile’s GDP, it’s a nearly perfect correlation. In fact, when Cu prices fell, Pinochet started having problems, and shortly thereafter he fell from grace. Why the Chicago boys insist on rehabilitating a fascist monster is beyond me.

  9. Gravatar of Anand Anand
    5. May 2015 at 08:18

    I’m a bit puzzled by this post. Why does Greece have to carry out drastic supply side reforms in the middle of a depression? Can’t it get out of the depression first, and then do it? Why this urgency? Also, it seems to me that the problem in Greece does have a lot to do with low AD (because Eurozone).

    This is probably why people like Naomi Klein accuse other people of “disaster capitalism”. Let the economy stabilize a bit, and then carry out the reforms. There will perhaps be more social consensus for such moves then.

  10. Gravatar of Ray Lopez Ray Lopez
    5. May 2015 at 08:28

    OT: Bernanke’s “Ten Principles of a Central Bank” given in a speech to New York Chapter of the National Association for Business Economists (October 2002). #5 – ‘Trying to stabilize asset prices per se is problematic – not least because it is nearly impossible to know for sure whether a given change in asset values results from fundamental factors, non-fundamental factors or both.’

    Question for the readers: how is Summer’s NGDLT scheme any different than trying to stabilize asset prices? Not much different, except maybe you throw services into the mix, which would suffer from the Balassa-Samuelson effect. Thus, how does Sumner know whether a drop in GDP is due to fundamental factors or non-fundamental factors? He doesn’t.

  11. Gravatar of Matt McOsker Matt McOsker
    5. May 2015 at 08:35

    Anand – because Greece gave up their sovereign currency – so they gave up control over their future. Argentina less so, but their dollar denominated debt has caused major problems.

  12. Gravatar of Colin Docherty Colin Docherty
    5. May 2015 at 10:31

    You wouldn’t classify Manaus in Brazil’s amazon as a free trade experiment?

  13. Gravatar of Shaun Peterson Shaun Peterson
    5. May 2015 at 10:45

    Prof Sumner, in about the first paragraph you said this:

    “Where I disagree is his tendency to sort of wave away supply-side concerns””which are what matters in the long run.”

    Mainly I’m curious what evidence there is that only supply side concerns are what matter in the long run. Why wouldn’t demand side concerns matter just as equally? Could you elaborate more on that, maybe in another post.

  14. Gravatar of Libertarian Conservative Libertarian Conservative
    5. May 2015 at 10:49

    I’ve heard people claim those Economic Freedom Indexes are rigged to produce the best results for free markets. Are there other ways to show that the best performing economies are indeed the least regulated, and the most regulated are the worst performing?

  15. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    5. May 2015 at 11:19

    Just in time for Hillary’s run for President, the former, temporary, leader of Honduras, Roberto Micheletti, reminisces about the 2009 crisis. Sec’y of State Clinton sent him an emissary (Dan Restrepo);

    They asked me to hand power to Zelaya, but fortunately a Venezuelan national called Alejandro Peña Esclusa told me: “President, do not hand power to Zelaya, because the gringos have tricked us before; they told us to hand power back to Hugo Chávez, and see how it turned out.” I was always remembering this when the gringos arrived to ask me that.

    I believe that millions of Hondurans are frustrated. The gringos did this to benefit who knows who, to curry favor with Chávez, to flatter the left. But in the end we see how the country [Venezuela] that kicked off this farce of 21st-century socialism is currently in its direst hour, even when it’s the richest country of the Americas “” materially speaking “” with tons of crude oil, and in both poor and rich neighborhoods they don’t have enough to eat.

    It must be remembered that Venezuela, Ecuador, Bolivia, Brazil, Argentina, Uruguay, Paraguay, Nicaragua, El Salvador, and Guatemala were under left-wing governments, leaving Mexico and Honduras. Chávez’s plan was to obtain 500,000 Central American votes to elect the leftist leader in Mexico, Manuel López Obrador, but after the failure of his plot in Honduras, it wasn’t possible.

    Happy Cinco de Mayo!

  16. Gravatar of Chris Arnade Chris Arnade
    5. May 2015 at 11:46

    I worked in Argentina/Brazil, trading and building banks, from 93-2012.

    It isn’t primarily a left vrs right issue.

    Both parties use politics to enrich themselves and their friends, and as a platform to extract revenge on the parties and groups in power before.

    It is a sickening game of political retribution and corruption.

    Compromise is not a trait in supply in the region.

    On the economic side they struggle with how to deal with hot money, and investments.

    Given that their economies are small, and don’t have depth to absorb huge inflows, the ones who have had some success combine soft restrictions on foreign money (Chile does this) yet have a strong rule of law that respects the money once it is there.

  17. Gravatar of ssumner ssumner
    5. May 2015 at 13:45

    Dan, Maybe because they didn’t listen to Krugman?

    Ben, Given the performance of China under Mao, I wouldn’t think anyone would want to use it as an example of “state planning works.”

    Patrick, I’m not an expert on Chile, but from what I’ve read Pinochet knew nothing about economics. It was the Chicago Boys who changed the economy.

    collin, You said:

    “it does appear that the best way to grow is to have a dictator forcing free market solutions on the poor people.”

    I have no idea where you got that idea, the correlation is overwhelmingly in the other direction. On average democracies are far richer than dictatorships. It’s not even close. Of course that doesn’t prove causation, but I’ve never seen a good argument for causation running from dictatorship to wealth.

    Ray, The expected lunacy from you, especially this idiotic statement:

    “Sigh, our small-time pundit Sumner waxing on countries he has never visited”

    Anand, Greece doesn’t “have to” do anything. It’s up to them. But beggars can’t be choosers. If they want lots more money from the other European countries, then they need to take steps to assure it doesn’t get wasted. If the Europeans give them a blank check, I see zero chance the socialists in charge will adopt capitalism.

    Again, it’s fine if the Greeks want socialism. But don’t expect someone else to pay for it.

    At this point Greece’s problems are mostly supply-side. They are under exactly the same monetary policy as the rest of the eurozone.

    And don’t mention Naomi Klein if you expect to be taken seriously. Anyway, isn’t it Obama who is the fan of never letting a crisis go to waste? Shock Socialism?

    Colin, They need to do far more than that–set up mini-Hong Kongs–on the coast.

    Shaun, Once wages and prices adjust demand shocks no longer have an impact on employment. They might have a lagged impact on output via investment, but I doubt that would be very significant.

    Libertarian Conservative. If they are “rigged” then why do welfare states like Denmark often score higher than the US? Are the free market think tanks trying to promote government spending at 56% of GDP? But I would never argue they don’t have flaws, economic “freedom” is certainly quite subjective.

    Chris, Good points, although I wouldn’t describe Brazil as “small.”

  18. Gravatar of TravisV TravisV
    5. May 2015 at 13:53

    Does anyone know what Scott Grannis’s primary disagreements are with Market Monetarism?

  19. Gravatar of Chris Arnade Chris Arnade
    5. May 2015 at 14:03

    Brazil is small in terms of depth of capital markets.

    For me, EM is by definition, a country that often cannot run fiscal/monetary policy without concern about inflows/outflows.

    So Brazil (less now than before) if forced to raise rates when it should cut, for fear of big drop in FX

    Yet yes, Brazil is large by many measures.

  20. Gravatar of Doug M Doug M
    5. May 2015 at 14:17

    “At this point Greece’s problems are mostly supply-side. They are under exactly the same monetary policy as the rest of the euro-zone.”

    I am not sure that is entirely true. Yes, there is one ECB controlling monetary policy for the whole block. But I see no reason why one region cannot have “a shortfall of aggregate demand” and another have a surplus, and both be under the same monetary policy regime

    If persistent unemployment exists because of sticky wages, the prevailing Greek wage needs to get unstuck. For a country that controls their own monetary policy, they can print money and create inflation that allows the real wage to fall while the nominal wage holds steady. Or at a greater extreme, devalue. Greece doesn’t have that option. If they are going to be competitive, they need to cut wages and pensions. But, that just doesn’t look like it is going to happen.

    So, is this a supply-side problem or a demand-side problem? I guess it is a supply side problem for Greece that could have a monetary policy solution in other circumstances.

  21. Gravatar of collin collin
    5. May 2015 at 14:31

    Why did get the idea you need dictators to force free markets on people? Well what the two biggest turn arounds in free markets over the last 40 years? Chile early moves in the 1970s and 1980s did not occur in a democracy while China has not been democratic for a long while. And didn’t a lot of the Asian tigers, Korea, Japan, and Singapore have a strong single party or leader during the early stages of development from 1960 – 1980? (They were ‘elected’ but power was very solidified.) For a economic struggling yet growing country, they need a reasonable strong head of government to control the populism and protect the capitalist. On the other hand a dictator, think Chavez, can just as easily wreck things very quickly.

    The rules for development before WW2 were different.

  22. Gravatar of Anand Anand
    5. May 2015 at 15:14

    I don’t see anything of a blank check in Greece. If they want slightly less austerity (less of a primary surplus, still a primary surplus), is it a blank check? Hardly.

    It seems implausible to me that Greece’s problems are mostly supply side. Can supply side problems really explain > 20% unemployment for years? I can understand, at most 10% unemployment because of supply-side factors (that is a lot). This means at least half of the unemployment is due to demand-side factors. All that they’re asking is to not do *some* of the supply-side measures till the economy stabilizes. They are hardly expropriating the capitalists and declaring revolution.

    And were the (however meager) supply-side policies of the previous governments in Greece a great success? The party that implemented those policies (PASOK) has crashed and burned, probably never to recover.

    I mentioned Naomi Klein because on this, she has a point. I do not believe her wider thesis, but anyone can be right sometimes. If unpopular reforms are imposed at a time of crisis, it gives the reforms a bad name. Chile under Pinochet is a good example.

    To borrow a phrase from Tyler Cowen, I think this is just some “mood affiliation” going on. You don’t like socialism, that is fine. But it is silly to blame the crisis on that.

  23. Gravatar of Matt McOsker Matt McOsker
    5. May 2015 at 16:32

    Doug M, how will they lower wages with 20+ percent unemployment. So a wage earner comes hime and tells their unempliyed spouse their one salray was cut? Never mind lowering wages, lowers tax revenues making their situation more dire. Death spiral. They have no central bank, and no fiscal autonomy. Yeah they need reform, but won’t work without the backstop of their own monetary system.

  24. Gravatar of Engineer Engineer
    5. May 2015 at 16:50

    I think it is always good to have a mix of different economic and political regimes operating around the world so that the contrast can be so easily seen. It puts the choices we face here in the US in greater focus. Most of Latin America has never discovered the type of Jeffersonian democracy that the US is founded on. They went right from a European class system to popularly elected left wing governments more concerned about destroying the class system and enforcing “equality” at the point of a gun (except for the ruling class of course) rather than creating a climate for self advancement. It is exciting to see part of the continent moving in the right direction.

  25. Gravatar of CMA CMA
    5. May 2015 at 17:18

    “CMA, I have many many posts explaining why bond purchases don’t cause bond prices to rise. That’s a myth. Check out bond prices in the 1960s and 1970s.”

    Thats becuase of the income effect. If you generate the same income effect through hel-e’s you get a higher interest rate because under hel-e’s the fed wont buy bonds to expand money and expansions of funds to emoney accounts dont expand loanable funds.

    “And why is it costly to give away money? Because there is no free lunch. I have many posts discussing the extra tax burden imposed on the economy by giving away money. Why would anyone think giving away money is costless? I don’t get it. If it’s costless lets give everyone a billion dollars.”

    There is a free lunch to asset owners when they are gifted increased asset prices due to higher demand for assets from central bank purchases. Just make the free lunch even to all.

    Neither AP’s or hel-e’s are costless. Giving away money is productive if done within limits such as under an ngdplt.

    AP’s incur a greater cost than hel-e’s becuase they generate more credit, portfolio rebalancing, financialization and instaility.

  26. Gravatar of Bonnie Bonnie
    5. May 2015 at 17:49

    Perhaps the word “populist” in the title should be included in quotes as there are many stripes of populism, not all of them leaning left.

    Otherwise, great post! 🙂

  27. Gravatar of Major.Freedom Major.Freedom
    5. May 2015 at 17:53


    “Neither AP’s or hel-e’s are costless. Giving away money is productive if done within limits such as under an ngdplt.”

    No, giving away money is never productive. Productive activity consists in producing real goods and services.

    Money that is given away results in those who spend to take wealth out of the economy without putting any wealth back in.

    This truth does not change suddenly and arbitrarily when the Fed prints more or less frequently because of a different arbitrary rule.

  28. Gravatar of Major.Freedom Major.Freedom
    5. May 2015 at 17:54


    Credit is not inherently evil.

    All productive activity is “destabilizing”.

  29. Gravatar of Major.Freedom Major.Freedom
    5. May 2015 at 17:55

    There is no such thing as a free lunch.

  30. Gravatar of Edward Edward
    5. May 2015 at 18:04

    Perhaps a better term for it would be a “high value lunch”

  31. Gravatar of Don Geddis Don Geddis
    5. May 2015 at 19:19

    @MF: “giving away money is never productive.

    Is that a definitive conclusion, derived only from the lone axiom of “humans act”, and using only pure logic? Can you run me through the derivation? Because it seems I am unable to connect the steps myself, using nothing but logic. So your assistance would be appreciated.

  32. Gravatar of Major.Freedom Major.Freedom
    6. May 2015 at 03:32


    Money is a means, not an end. A person who accepts money does so in order to eventually acquire real goods and services.

    You are not producing any goods or services by spending money. Spending money on goods presupposes a prior productive act of making the very goods or services you are buying.

    When you buy a car with money that you earned in the production of goods or services, you are taking wealth out of the market after already putting wealth in to the market.

    What the counterfeiters do is they use money to take out wealth out of the market but without having first put any in. The gain they experience has a corresponding loss experienced by others.

    Money is not sought after to consume. If a person sought what you thought was money, in order to consume it, that object is no longer money.

    Where you become confused is by taking the urge to acquire money for its own sake, as some sort of end in itself that has to have a corresponding entity that or who issues money so as to satisfy this alleged urge for money for its own sake.

    This is why you believe there is value being given or exchanged by central banks. You perceive a nonexistent desire for more money for its own sake, and you perceive an existing institution that only issues money, so you cannot but help perceive value being created in the act of inflation.

    It is because your theory of money is warped, that you believe in the myths that you do.

  33. Gravatar of Major.Freedom Major.Freedom
    6. May 2015 at 03:41

    MM is a doctrine that takes the above flaws in perception and treats them as some sort of hidden message in the cosmos, under which we all suffer an illusion (except for MMs of course, for they are the gatekeepers of their own doctrine).

    A main flaw in perception occurs when people wait a little longer after earning money, before spending it again. These choices are fallaciously treated as secret hidden codes in the fabric of society that a higher supply of money is desired. All this without a single reference to market forces in the production of money! The central bankers are allegedly informed of market forces concerning supply of money, by way of these waiting times in holding money, I.e. “spending” falls from a previous quantity in the past.

    MMs suffer from delusions of grandeur.

  34. Gravatar of Chuck E Chuck E
    6. May 2015 at 05:31


    Doesn’t the supply of money need to expand to account for the growth in wealth? If I cut a tree down on my property and turn it into lumber, how does the increased value of the lumber supply get registered in the economy? Also if the population is growing, doesn’t it need to have an increased amount of money for those “new” people to use?

  35. Gravatar of ssumner ssumner
    6. May 2015 at 06:32

    Chris, Brazil should not be called an “emerging” market, as it is not emerging, it is stagnating.

    Doug, I don’t think it’s useful to talk about AD shocks at the level of individual American cities or states, or individual countries in the eurozone. Obviously one could do so, it just doesn’t seem useful to me. On the other hand the overall eurozone has an AD shortfall, it’s just that Greece’s especially bad situation is due to supply-side problems.

    Collin, Why is Japan not considered a democracy? I have no idea what you mean by “power is solidified.” The same party almost always wins? That was equally true in Italy.

    In any case, citing 2 success against many dozens’ of basket cases run by dictators, including China under Mao and North Korea, is not going to convince the South Koreans to shift back to dictatorship. BTW, at least China is now run by a set of committees, not one person as under Mao. Even with an authoritarian government it’s better not to rely on a single individual.

    Anand, I’ve never blamed the crisis on just socialism, indeed more than almost any other blogger in the world I’ve blamed the ECB’s tight money policy for the eurozone’s recession. Perhaps you are new to my blog. In any case, the relatively poor performance of Greece does reflect it’s lousy statist policies. it faces the same monetary policy as the others, but has done even worse.

    I worry much more about moral hazard than you do. Greece has repeated shown it cannot be trusted with other people’s money, that’s why the ECB must drive a hard bargain, and get firm commitments. I am not just asking Greece to sacrifice, economic reforms would actually help the Greek people. The people that would be hurt would be the elites that earn rents under the current corrupt system. As far as “austerity,” is it fair to ask people in even poorer eastern European countries to subsidize much more lavish pensions in Greece? Why shouldn’t the Greeks have to work as long as the northern Europeans before retiring? If you are going to give aid to the Greek government, it’s reasonable to ask them to first clean up their act.

    I notice the Klein fans use that argument to trash people like Pinochet (which is fine, he had a poor human rights record) but then celebrate people like FDR, who intentionally made the Great Depression worse in early 1933 just so he’d have a free hand to do any reforms he wished after the inauguration.

    Engineer, You said:

    “I think it is always good to have a mix of different economic and political regimes operating around the world so that the contrast can be so easily seen.”

    Good for us, but the North Koreans? Seriously, you have a good point, and arguable we should have many more systems, lots of experimental Romer cities on the coast of developing countries. Let 1000 flowers bloom.

    CMA, You wrong on those points, asset purchases have a trivial cost and heli-drops are incredibly wasteful. Fortunately, no government will follow your advice.

    Bonnie, Yes, and right wing populism is just as bad, maybe worse.

  36. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    6. May 2015 at 07:01

    ‘If unpopular reforms are imposed at a time of crisis, it gives the reforms a bad name. Chile under Pinochet is a good example.’

    No, Chile under Pinochet is not a good example, as Pinochet was wildly popular in the wake of the coup against Allende (talk about unpopular). The Chilean Supreme Court ruled that Allende was acting unconstitutionally, in the summer of 73. The Chilean legislature voted 81-47 to remove Allende from office in August of that year.

    Five years after the coup Pinochet allowed a plebiscite on his rule. He won over 3/4 of the votes. Even the virulently anti-Pinochet NY Times reporter on the scene admitted that the vote accurately represented Chilean sentiment at the time.

    Whether Pinochet could have gone about his business in a ‘nicer’ way, is possibly open to argument, but he WAS fighting a well armed and organized (by Fidel’s henchman Manuel Pinero) enemy. As late as 1986 that enemy managed to almost kill Pinochet in a rocket attack on his motorcade.

  37. Gravatar of LK Beland LK Beland
    6. May 2015 at 07:23

    Another bad ADP employment report. How many in a row before the Fed launches QE4?

  38. Gravatar of collin collin
    6. May 2015 at 07:32

    In reality, there are very few nations at a single point that have had enormous growth rates (US 1865- 1929, Japan 1950 – 1990, China 1978 -2015+, Chile 1973 – 2015, there are others) and these nations share a lot but not all attributes:

    1) Most of these nations have trade surpluses to increase investment. (In the case of the US this becomes increasingly true after 1896 and accelerated during WW1.)

    2) The nations tended to peaceful internally and foreign wars.

    3) All nations had falling birth rates.

    4) Nations had the spirit of being different this time. (Chile is not as much but the relative size was smaller here.)

    5) All nations had stable governments. Japan was a single party democracy and China Communist Party has been fairly well run the last 35 years. Just because you have an authority type government does not mean you growth. Authority types can screw up a lot here as well. (I tend to think of the US of Post Civil War closer to a local theology. The Federal Government did little but the local community had strong power of the people.)

    To put it simple, just because you have an authority government does not mean huge economic growth. But at the right time and the right leaders it does promote growth.

  39. Gravatar of Don Geddis Don Geddis
    6. May 2015 at 07:55

    @MF: “you cannot but help perceive value being created in the act of inflation” You again commit the fallacy of the excluded middle. You only consider that printing money either always creates value, or never creates value. The truth is neither of your extremes. Instead, printing money can sometimes create value, under certain economic conditions; but not, under others.

    You are not producing any goods or services by spending money.” This claim of yours can be false. If there is an idle unemployed worker in the economy, and you print money in order to pay him a wage and put him to work, then there is more money in the economy — but also more real value. The national wealth grows by the productive output of his work, which otherwise would have been lost to his undesired idleness.

    So, you’re wrong. Printing money can (at times) cause new goods and services to be produced.

  40. Gravatar of Doug M Doug M
    6. May 2015 at 11:56

    “Brazil should not be called an “emerging” market, as it is not emerging, it is stagnating.”

    Now you are on the euphemistic treadmill…the term used to be “Less developed” but that was determined to sound less optimistic than “emerging.”

    Or, as JP Morgan defines it… in the bottom 2 tiers of the World Bank Per capita income tables..

  41. Gravatar of ssumner ssumner
    7. May 2015 at 05:20

    Collin, That’s an odd list. Neither Chile nor the US had enormous growth rates. Some who did (like South Korea) ran trade deficits during their high growth period.

    Japan was not a single party democracy.

    China has not been well run the past 35 years, just less awfully run than before 1980. It has catch-up growth from dumping Maoism. That’s hardly impressive. If you hold a balloon under water and let go it pops to the surface. Big deal.

    Doug, I was just being a jerk.

  42. Gravatar of Thomas Thomas
    8. May 2015 at 13:01

    I believe Krugman was making the point that a clean default an abandoning the peg to the usd would impose lower cost on the argentine economy than the policy chosen for Greece. Indeed one of Argentinas problem has arisen from not allowing the currency to depreciate enough. You really should not blame that on Krugman.

  43. Gravatar of Thomas Thomas
    8. May 2015 at 13:13

    The monetary policy in Greece has most definitely not been the same as the rest of the Euro. In Greece NGDP has been reduced!

  44. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    8. May 2015 at 14:17

    @Collin, @Sumner
    Manaus is indeed a free-trade zone, but the thing is that is was created literally in the middle of the jungle, it has energy and transportation infrastructure very serious problems. And given a series of details, it became an area for tax arbitrage, helping mostly some companies that produce stuff that is sold into Brazil, and not the overseas clients, to pay less taxes …

  45. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    8. May 2015 at 14:26

    @Chris Arnade
    I agree with you in almost everything you wrote, except the capital markets item. Brazil has huge potential for and large deep capital markes structure, the thing is our government does not let us. Equity capital markets are always strong and with reasonable volumes whenever political risks are perceived as low and there are good projects. BNDES, the huge development bank, despite the rhetoric, creates barriers for a strong debt capital markets, instead of incentivizing it. Regulatory barriers make it very difficult for medium size companies issue debt, although the demand for it is there. Large banks, retrenched behind Anbima (banks association) and its incestuous relationship with the central bank and the securities comission, makes everything they can to slow financial innovation… I could go on and on, but yes, Brazil’s problems are much more supply side than anything else.

  46. Gravatar of ssumner ssumner
    9. May 2015 at 07:09

    Thomas, You said:

    “Indeed one of Argentinas problem has arisen from not allowing the currency to depreciate enough. You really should not blame that on Krugman.”

    I’m speechless. Whatever problems Argentina has, not enough currency depreciation is not one of them. Hasn’t their peso lost something like 90% of its value since 2000?

    My point is that Krugman seemed to think they were pursuing sensible policies (or at least criticized those who said they weren’t.)

    You can define monetary policy in any way you wish, but in my view all countries within a currency zone face the same monetary policy. To argue otherwise would imply that each city block has a different monetary policy–not a useful distinction.

    Jose, Good points.

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