An important story continues: In this morning’s column, Paul Krugman continues a very important story—an important story which won’t gain traction, except in his own persistent reports.
Krugman continues to tell a meta-story—a story which can’t be folded within the existing frameworks of the establishment press. Krugman is telling a very big story.
Trust us. No one else will:
KRUGMAN (1/30/12): Haven’t we learned a lot about economic management over the last 80 years? Yes, we have—but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.Krugman has told this story again and again. Trust us—it won’t gain traction.
What is Krugman’s meta-story? The gods don’t know what they’re doing! More simply put, the planet’s elites are ignoring the most elementary, hard-won knowledge about the way economies work.
This story flies in the face of our most basic ideas. Within mainstream frameworks, it can’t be true that our elites could be so deluded. And because Krugman’s story can’t be true, Krugman’s story won’t be discussed. Denial moves it off the stage. It’s a version of a jutifiably famous tale: The emperor’s new clothes.
The emperor’s new clothes may be the most insightful tale in the western arsenal. It defines the way the human mind refuses to see what stands right before it, if the obvious truth doesn’t comport with basic essential belief. In Anderson’s tale, it couldn’t be true that the emperor was so foolish as to parade around without clothes.
In the modern equivalent, it can’t be true that the Aspen crowd has walked away from the most elementary knowledge.
Krugman keeps writing this meta-report. It won’t be mentioned anywhere else. Everyone will glance away.
Darlings! This just isn’t said!
And even Krugman won't say *why* they "decided to throw that hard-won knowledge out the window."
ReplyDeleteHe just wrings his hands and sadly wonders how they could be so foolish.
That they -- "the policy elite" -- might simply have a different agenda, that they might not be at all concerned with "the economy," that far from being foolish, they might simply be doing their work as the court intellectuals of the kleptocrat class is considered unmentionable.
Even by Krugman.
Even by The Howler?
If you want to read a reasonably accessible account of just how bad the economics profession has become, I highly recommend "Debunking Economics: The Naked Emperor of the Social Sciences (2nd Ed.)" by Steve Keen. I'm getting toward the end of the book now and his arguments against mainstream (neoclassical) economics are devastating. He presents it all at a level that many readers will be able to grasp, without going into depth with the math.
ReplyDeleteFor those who want the math, it's available through the lectures he's posted online at his website: http://www.debtdeflation.com/blogs/
Interestingly, he calls out Krugman for being terribly blind as well, just not quite as blind as the rest of the profession.
Naked Capitalism has been discussing Krugman's so-so treatment of these issues for awhile.
ReplyDeleteI remember that time Krugman went off the reservation and the Obama campaign went after him. He understands full well just how far he can actually go before they turn on him.
Krugman himself has pointed out that this economy is actually very good for the "rentiers", so it's not really clear whether his puzzlement is genuine. And it's a simple fact that the Important People are doing just fine in this economy.
ReplyDeleteHe also ignores the "Disaster Capitalism" model -- taking advantage of crises *created* by capitalism to effect the long-sought destruction of the welfare state. Of course, it doesn't help much when the Democratic president embraces that very model (remember what a great "opportunity" Obama thought the debt-ceiling "crisis" was?).
An interesting critique of the "Disaster Capitalism" model proposed by Naomi Klein can be read below, authored by a Marxist economics reporter:
Deletehttp://www.leftbusinessobserver.com/Shock.html
Wouldn't the resistance of the 1%, the already wealthy, be because stimulus means either printing money to create government jobs (infrastructure spending, or floating states so they don't have to lay off people) which would cause some inflation, or else taxing the wealthy? Inflation or taxation means they lose some of their wealth! The 1% got theirs! Takes some statesmanlike motivation, enlightened patriotism, to sacrifice for the common good, which attitudes we don't breed in our "aristocracy" anymore.
ReplyDeleteAs Clinton famously complained, American economic policy is wholly determined by the "goddamn bond traders", whose deepest aversions is the prospect of inflation. Far better that tens of millions are out of work, then their portfolios lose some value, due to the falling bond prices thanks to higher inflation.
DeleteIt wouldn't be the first time these people have wrecked the economy through short-sighted self-interest, but that's hardly going to deter them.
Even worse, all the predictions that huge increases in the money supply were going to cause runaway inflation have proven to be wrong, as Krugman never tires of pointing out. Of course, the whole notion of "printing money" is misleading. Al the Fed is doing is increasing bank reserves, by buying Treasury securities from the bank themselves. If and when the economy starts growing again, the Fed simply buys the bonds back from the banks and "disappears" the money. This is not inflationary.
Ooops! I meant to say "sells the bonds back to the banks"!
DeleteYes! Dean Baker spells that out often in his blogs (http://www.cepr.net/index.php/op-eds-columns/). His colleague Mark Weisbrot wrote in early December:
DeleteJust as the U.S. Federal Reserve has created $2.3 trillion since 2008 and used it to buy securities in the United States, the ECB could do the same in Europe where such buying is much more desperately needed. And just as there was no measurable effect on inflation in the United States, we would not expect any problem with inflation in Europe. Inflation in the eurozone is currently projected to fall to just 1.6 percent for next year.
The problem is that the ECB, and other European authorities led by the German government, are still playing the same game of brinkmanship that they have been playing for the past two years. They are more worried about forcing austerity policies on the weaker eurozone countries than they are about tanking the European and global economy. They continue to see the crisis as an opportunity to force through unpopular "reforms" – such as cutting jobs and pensions, raising the retirement age, privatizations, and reducing the size and scope of the welfare state. They have already caused a recession in the eurozone and seem more than willing to let it deepen in order to get what they want. The big question now is whether their recklessness will bring on a financial crisis that triggers a world recession.
Some of us have called for the Federal Reserve to intervene before this happens and do the ECB's job for them. It has the capacity to do so, and like its prior quantitative easing in the U.S., would be costless to the taxpayers. It might cause a bit of a political storm, but that would be a small price to pay to avoid a recession that would throw millions more people out of work – in the United States, Europe, and much of the world.
It's a fact that the economies of Britain and other European countries all suck. This fact is being widely reported. It's also a fact that these countries are trying to balance their budgets via some sort of austerity. This fact is also being widely reported.
ReplyDeleteOTOH, what Krugman calls "hard won knowledge" is merely a theory -- that these countries would do better if their governments continued to spend far more than they take in. The current levels of European governmental debt and deficit are unparalleled. We've seen the devastation in Greece, Portugal, etc. due to ongoing deficits. How long could a Britain avoid that sort of fate if they continue to run large deficits? Nobody really knows, not even Dr. Krugman.
Put another way, just because Britain is follwing austerity and their economy is bad, that doesn't prove that the economy would be better without the austerity. Krugman believes that's the case, but that's merely his opinion.
IMHO his phrase "hard-won knowledge" is hand-waving, rather than evidence. I mean, Krugman can't point to lots of examples of countries that were deeply in debt and running enormous deficits which got their economy fixed by running even larger deficits.
Um...the United States, dic.
DeleteDavid, what will it take to get you to stop spewing Fox News talking points? We're not stupid over here! The situation in Greece is quite different from the problems Spain, Italy, Ireland, etc. are facing. It's a FACT, David. They are different. Greece ran up huge deficits before the collapse, but Spain did not. Spain in fact suffered because of the collapse of its housing market and the bad debts the banks racked up. Ireland was even more severely affected, as was Iceland. Italy was not running massive budget deficits like Greece. David, you have got to use your brain, man. Seriously. Stop just repeating the right-wing talking points.
DeleteHere are many charts, from Krugman's blog post today, "Eurozone Problems." Study them, David. They are valid in a way Fox News talking points are not. European austerity is proving to be a disaster, David. It is. In the UK. In Greece. In Portugal. In Belgium. In Italy. Everywhere, David. It is.
Weak. This is how reactionaries seek to protect the status quo: evolution is just a theory, AGW is just a hypothesis, homosexuality is a choice, Iraq/Iran pose a military threat, and on and on. The world is a scary place. It's best for us to hide under our beds.
Deletei assume what youre on about is why the democratic party is no longer all over keynesian economics like it used to be even though it has a proven track record of creating economic growth in america?
ReplyDeletetheres two factors which have made the model used in the thirties less useful to some extent than it used to be. first the removal of the dollar from the gold standard in 1971 by the nixon administration made dollars held abroad unconvertible to gold. this removed a natural discipline on the politicians to maintain higher federal income taxes. prior to the 1971 they couldnt just print money at will as foreign countries could demand gold for the dollars they held if they thought the usa was over expanding its money supply. so basically to stimulate america had to tax back in the thirties.
but after 1971 the usa no longer had to tax more when it expanded the money supply. this new capacity to print money without constraint was taken advantage of politically by administrations since then . . . allowing them to lower federal income tax rates and then maintain them through deficit spending. . . . and people became used to these lower tax rates which makes them much harder to raise now.
the second factor has been the outsourcing of the manufacturing base out of the country to china etc. making stimulus spending in america very leaky unintentionally greatly stimulating the world as well as this country.
A World Bank report blames Europe's lack of growth on demographic strain and bloated governments, rather than on austerity. I'm not arguing that the World Bank Report is correct. However, their analysis illustrates the point that Krugman's focus on austerity as the problem isn't big news. Rather, it's just one possible economic theory.
ReplyDeleteYou're right: intelligent design is just as good.
DeleteThis blog post gives yet another economic analysis. This person's view is that continued deficits (i.e., stimulus) will at some unknown point become bad for the economy rather than good.
ReplyDeleteCentral banks are ruling markets to a degree this generation has not seen. Collectively they are printing money to a degree never seen in human history.
So how does this process get reversed? How do central banks pull back trillions of dollars of money printing without throwing markets into a tailspin? Frankly, no one knows, least of all central banks as they continue to make new money printing records.
Until a worldwide exit strategy can be articulated and understood, risk markets will rise and fall based on the perceptions and realities of central bank balance sheets. As long as this is perceived to be a good thing, like perpetually rising home prices were perceived to be a good thing, risk markets will rise.
When/If these central banks go too far, as was eventually the case with home prices, expanding balance sheets will no longer be looked upon in a positive light. Instead they will be viewed in the same light as CDOs backed by sub-prime mortgages were when home prices were falling. The heads of these central banks will no longer be put on a pedestal but looked upon as eight Alan Greenspans that caused a financial crisis.
The tipping point between balance sheet expansion being bullish for risk assets versus bearish is impossible to know. Given the growth rate of central bank balance sheets around the world over the past few years, we might not have to wait too long to find out. Enjoy it while it is still bullish.
I think anyone would agree that as sovereign debt becomes bigger and bigger, at some point that debt will become a big problem for the economy. I wish Krugman's would deal with this aspect when he recommends stimulus. That is, how much debt does he think various countries can run without doing damage to their eonomies? And, what is his basis for those predictions?
"I think anyone would agree that as sovereign debt becomes bigger and bigger, at some point that debt will become a big problem for the economy"
DeleteHow so?
And if sovereign debt is a big deal, the sovereign could simply stop issuing debt while maintaining necessary spending. The two are not inherently linked, unless we decide to make them that way (as we do today).
Please note that I don't consider Italy, Spain, Greece, and other countries on the Euro to be "sovereign" in this sense, as they don't issue their own currency. They're more analogous to the states of the US, and they have to balance their budgets in the long run. However, the situation of England, the US, Japan, etc. allows these countries to run continual deficits as necessary.