I don’t think Krugman’s descriptive work on global trade patterns is bad. I don’t even think he has been completely wrong about the post-2008 economic depression. He certainly hasn’t been wronger than the people who are in charge in Europe, or the people running the Fed; he did, after all warn in 2005 that the Fed was “running out of bubbles” to reinflate, while Bernanke was still claiming in 2007 that subprime was contained.
I do think his defence of broken windows is facile, and I think the notion he has advanced that World War 2 ended the Great Depression is not just wrong but dangerous.
He’s a good polemicist; he defines himself through big, bold, wildly partisan claims. But if he’s going to claim that he’s been right about everything — as he just did — he might want to make sure he’s not directly contradicting statements he made just a week previous.
On June 18th Krugman posited:
I (and those of like mind) have been right about everything.
However on June 11th Krugman wrote:
People like me may not have been right about everything, but have accumulated a pretty darn good track record over the past 5 years.
So, um, which is it?
Nobody can be right about everything. Claiming that you have been is just silly hyperbole which will end up making you look bad especially when your record is, in reality, quite mixed. And if his goal is to convince policy-makers to ditch austerity (a goal that I share, at least for the time-being), he’s not going to do it by sticking his foot in his mouth.
azizonomics 
Clearly, his lunacy is heightened to sell his new book with anticipated blow-back from this statement. I will not contribute to his legacy.
Yeah it’s clever sensationalism. I am disappointed none of the major media outlets successfully picked up on the contradiction (a few of them picked up on the claim, but not the contradiction).
John F*cking Galt indeed. Your heroine was a drug addicted welfare scrounger who despised Christianity, for the same reason s Hitler did.
Anyway, the point is Krugman has been proven right, at least more right than anyone else. He may be immodest, but not without reason..
He said that expansionary austerity wouldn’t work, and wouldn’t lead to the private sector spending more.
He said we didn’t need to worry about high inflation during a demand crash.
He said QE wouldn’t cause hyper-inflation.
He said the stimulus wasn’t big enough, and Washington gridlock would prevent them coming back for a second bite.
He said large government deficits wouldn’t drive up interest rates and govt bond prices, as long as countries had their own currencies.
Krugman’s highly partisan, but then he’s constantly battling Chicago school bullshitters who keep coming up with demonstrably false claims, and having them accepted by other Chicago trained, pro-rich quasi economists. The Tyler Cowens and Eugene Famas, who have failed to change their minds when the facts change,and have clung to their dogmas and agendas despite being proven wrong on those very questions Krugman’s beenh right about.
Well a lot of it is interpretation — my view is no stimulus would have in itself solved the underlying problems causing the depression, and we have no real evidence whether Krugman or I am right (it’s the same thing as all the different interpretations of quantum mechanics, the interpretations are all wildly different and there is no real way to differentiate which one is right because they are all consistent with the limited empirical data). All stimulus does is buy more time, and the underlying problems we are dealing with are huge and multi-dimensional and poorly understood.
Another issue is that while he’s correct we shouldn’t worry about traditional inflation, he uses that an excuse to not consider the issue of biflation. There are real inflationary worries for poor people who spend most of their money on food and fuel. Just because private sector deleveraging is offsetting food and fuel inflation in the official statistics, doesn’t mean that food and fuel aren’t through-the-nose expensive, and that has been at least partially the result of helicopter drops to speculators.
Yeah, he’s (much) smarter than Cowen and Fama, and yeah he did kind-of call the housing bubble . I don’t think he’s been completely wrong, but he’s nothing like been completely right.
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May be he is.
Everyone usually thinks one’s right. You are no exception too, Sir. And so are most of the commentators here.
There are people who believe that there is no, “right,” that, right, like all things intellectual, is in constant flux.
This is the problem with people like Krugman, he fails to comprehend the limits of the intellect. Anybody who believes that they, “get it,” doesn’t, by definition.
It’s not what you know that’s important, but instead, what you know that you can not know.
Answers lies in the continuum, and manifest well before the questions arise.
When the Politicians realise that perhaps the only way to get the economy moving again is to spend massive amounts of co-ordinated money, building energy capture and storage systems, that bypass the need to use oil as a fuel. We don’t need to build bridges to nowhere, or spend on building military hardware, but we do need to think strategically on an interconnected global trading level.
We all know that the oil will run out one day, so why not use this time to set up humanity with a system of renewable energy. Could you imagine we burn all our oil and gas, find out we don’t have the electrical capacity to smelt steel, make concrete to build said energy capture and storage devices. That is a recipe for a Stone Age 2.0
We blew all our money building houses, that nobody can repay. So what. We all need housing. Reset and wipe the slate clean. Let Banks wear their losses and learn to be conservative lenders again. House our homeless, allow immigration of the best and brightest, and use the resources that we have today to build our sustainable future.
We know private business is the most efficient in producing goods and services. What we need is the Government to direct these businesses to produce in return for future income or royalties/tax concessions.
Then we might just see the private sector spending again, and diverting us from an oncoming depression.
It’s been raining all day here in Wiltshire, Buddy. Pretty standard for an English june.
You guys can make solar work down there, i’m not sure we can ever get passed needing carbon.
However, building houses is something that can get the UK out of our depression. It worked in the thirties. Unlike the US etc, we dont have any oversupply of homes, there’s no inventory of unsold units. Outside of INSANE London, (thank you, non taxpaying Greeks, Chinese party officials, Russian gangsters etc etc),prices are round about historically normal levels.
Hi,
Not just solar, but wind and tidal power. In my early days I did work experience at a concrete plant. That plant used so much energy to make concrete. If we don’t get the infrastructure in place, whilst energy is relatively cheap we are doomed.
Oil has dropped, with the impending deflationary threat, so it is a good time to use these cheap energy and idle workforce to develop coordinated nation building projects.
I agree with Krugman in that non energy inflation is not a risk. There is too much spare capacity.
But I disagree with the Broken window theory. He should have more sense.
I proved broken window theory wrong.
https://azizonomics.com/2011/08/24/the-problem-with-military-keynesianism/
BR, given the chance, people will make the correct over-all choices and life will move forward. Economics [at best] is an absurdity because people believe that can understand and control mass behavior [infinite decisions].
In the worst cases, you end up with formalized economic theory and centralization, ALWAYS the most efficient way to steal the most from the most.
All of these bureaucrats are simply state and corporate sponsored thieves employed to come up with more innovative methods foist the newest rendition of the shell game on yet another generation of gullible human beings.
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Krugman also said:
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
How did that turn out? So what, we inflate again? That’ll bail out the people who SHOULD have gone under after the housing bubble, but what do we do for the people who lose in the next crisis?
When a 400 pound guy gets to 500 pounds, he obviously needs more calories. His body is screaming for them. He can keep eating (toward a certain death) or he can decide that enough is enough, time to take some personal responsibility.
The economy and government spending is not just a fat guy who can choose to eat more or choose to eat less. That is a very, very bad analogy.
I personally want smaller government and less debt. But if we persist with the failed austerity-in-a-depression policies more countries will just swing toward big government and socialism because they will come to associate budget discipline with what is happening in Greece, i.e. massive unemployment and massive economic contraction. We need to cut barriers to entry and excessive regulation, not spending. Cut spending once we have a recovery.
Aziz – but if we continue with the failed bubbles-in-a-depression, more countries will just swing toward crony capitalism, kind of like we’ve had for the last decade. Sure, lots of people make out like bandits, the elite, the speculators, but it doesn’t turn out so well for the average guy. Of course the elite and the speculators want more stimulus and spending; they want to see the party continue.
What we had during the last decade was not real growth. It was an artificial bubble. And as Karl Denninger said, we really are not deflating, we’re just reverting back to where we were before make-believe, all-you-can-eat leverage-land hit us.
You’ve got too many people with too few jobs (as most of them have been off-shored). You’ve got people getting loans who should not be getting them at rates that do not reflect an appropriate risk, and a 3% (wow) down payment (which the government is guaranteeing). Talk about being worried about socialism!
Let’s rip off the band-aid. Let’s let the people REALLY see what has been done to their country. Let’s let them suffer some. Let’s let everyone who SHOULD have gone bankrupt, go bankrupt.
I do not say this out of a sense of meanness, but out of a sense of trying to jolt the people into seeing the truth. It’s all a Ponzi, all of it. How soon do you think the people would be up in arms? How long would it take them to find out what’s really been going on?
Suffering (as long as it doesn’t go on too long) is never a bad thing. It helps to concentrate the mind.
This is quite pie-in-the-sky. We needed a liquidation when the crash naturally happened, not a government-directed austerity program. The state will keep on propping up the corporations whatever happens, through both monetary and fiscal programs. Austerity just burns ordinary people on welfare who haven’t really done anything wrong, and who have been denied economic opportunity all along by the corporatist insider system.
We need deregulation and competition and economic opportunity for everyone. Right now the big crony corporations are uncompetitive, and the best way to liquidate the junk is to rip up the barriers to entry and allow new companies and systems to outcompete the uncompetitive zombie junk.
You have good points. You are right about us reverting to the mean and that interest is too low. People do need a jolt to ask why they are in this situation. Perhaps this is why the elite need the stimulus so badly. It stops people asking questions.
I think the only role of Government is to direct large scale nation building projects that have long term non partisan benefits. And public security and rule of contract law.
Australia was one of the first highly organised union countries, and the first Labour Party, which did a great job at ruining our world class economy (We were the richest in the world). The Labour Party only looks after the elite in highly protectd Government jobs and Unionised workplaces. Cronyism is rife. We virtually have no industrial base now and rely on mining finite resources (Highly Unionised) to pay our way.
Keynesian economics and Krugman’s ideas only protect the Bureaucrats and Union Leaders.
The irony is the Labour Government wants to balance the budget, because they gave everybody a $900 payment at the height of the GFC (Real Helicopter cash) This pushed up inflation which then prompted the Central bank to raise rates, causing housing prices to decline and now consumer confidence is dropping like a stone . Now they are broke and want to balance the budget during a cyclical worldwide downturn?
Whoever is advising them should be sacked!
If for the time being austerity is not the answer and stimulus is, how is that going to solve the underlying problems? And stimulus would only increase unpayable debt, how would it boost the the economy.
I am not for stimulus, rob, or certainly not the kind of stimulus Krugman wants. It is a handout to cronies. I am for cutting regulation and barriers to entry, which hurts the insider corporations and promotes opportunity for all. The only kind of stimulus I would be semi-happy with is some direct government or central bank lending to the unemployed. Everything else is just freebies for the corporations.
Can you give examples of the type of barriers to entry and regulations you might remove? I agree with you, but some of the libertarians talk about for instance de-regulation of medicine and medical proffessionals (Doctors) allowing people to find their own good doctors and disallowing the state to regulate the supply of doctors and or drugs. However this sounds like it may cause quacks to arise and kill people?
I’ve written a few articles on the subject:
https://azizonomics.com/2012/03/27/chart-of-the-decade/
https://azizonomics.com/2012/04/01/why-regulation-is-good-for-growth/
https://azizonomics.com/2012/01/29/whos-the-communist-now/
Yeah I am all for deregulation. $10 investment “Lemonade Stands” run by impoverished children of recent migrants, selling to thirsty crowds going to a sporting event on a hot day.
CAPITALISM BABY
Message to myself. You need permits, and health certificates. Only educated well connected cronies of the sporting stadium owner need apply.
Aziz – “Austerity just burns ordinary people on welfare who haven’t really done anything wrong, and who have been denied economic opportunity all along by the corporatist insider system”
Agreed. The professional lenders (who knew better) were stupid enough to lend them the money.
“The state will keep on propping up the corporations whatever happens, through both monetary and fiscal programs.”
Disagree. If the people felt some pain (TPTB are smart enough to keep throwing them some bones), this practice would end very quickly. The people would rise up and demand it end.
Oh, no, let’s not have any austerity because that would mean the sheeple would start to ask questions, would start to look around. This is what the Krugmans of the world are really worried about. They like the status quo; they make their living off the status quo. By all means, he says, keep the people from rioting, or (horrors) the whole of Wall Street and my precious financial industry might collapse.
Let’s convince the people that with deregulation they’ll benefit, that the money won’t just trickle down, but flood down upon them. After all, they’ve really benefited from “trickle down” and “deregulation” so far. You say that the government will keep bailing out the corporations, whatever happens, and yet you expect me to believe that they’d allow competition, that they’d allow some lesser-knowns to invade their space? Come on! It’s never deregulation for the little guy.
If you really want this to end – really end – then let’s see what happens when the people start feeling some pain. Or would that end the gravy train?
If the pain did hit the ordinary folk, you would get riots and hostility between races and other inter-social conflict, it would not necessarily be good directed rebellion against The Powers That Be. Divide and Rule would come into play.
robc – divide and rule is already in effect; it always has been. MANY people do not want this to change, and they’re not rich. They’re getting benefits of some sort from the government, and they’re okay, they think.
But you are right, in the U.S. there are a lot of guns, something you don’t find elsewhere.
backwardsevolution,
I suppose that’s a reasonable argument. If you want a radically changed system, then it needs to be shaken up.
The thing is, as I’ve said all along, the places that the people will look to first under a very deep austerity program — at least in the UK and Europe — will be the statist extremes of left and right, the communists and the fascists which is precisely what has happened in Greece with the rise of SYRIZA and Golden Dawn.
The bigger problem is that nobody who ever gets power would ever implement such an austerity program with your rationale, simply because they are in power and they don’t want the gravy train to stop.
Don’t worry; the system will be radically shaken up eventually. We are on quite an unsustainable path. Excessive government spending cuts won’t be the thing that shakes it up. The status quo, I think we should remember, believes in bread and circuses to a great degree, even if they make hawkish noises. The only places where we have seen really deep austerity has been in small countries in eastern Europe, places like Latvia and Estonia, and huge numbers of people migrated out. Larger countries can’t afford to do that.
I see problems emerging from elsewhere.
Re SYRIZA – “The Greek election was between those parties that promised to stick to the bailout agreement (memorandum) with the troika, and those that refused to make that promise. In fact, Alexis Tsipras and his SYRIZA party said they would not honor the bailout terms, because Greece would not be able to meet the terms. Instead, they wanted to renegotiate, and come up with an agreement that would actually be affordable for Greece.
For this, Tsipras et al were vilified by their opponents, by EU and US politicians, and by western media, who consistently label him “extreme left”. The way they were phrasing it, Armageddon would be just around the corner if Greeks would dare elect such heresy, and the country would be thrown out of the eurozone and the EU, and for all intents and purposes, be thrown off the planet.
So what’s the first thing newly elected but old and trusted western henchman Samaras of “New” (sic) Democracy (sic again) said once his victory was announced?”
From The Telegraph:
“While Antonis Samaras, leader of Greece’s New Democracy party, scrambled to forge a coalition with Pasok, his officials admitted their first task would be to renegotiate the €130bn (£104.4bn) bail-out agreed in May.
Dimitrios Tsmocos, a senior economic adviser, said Mr Samaras intends to “honour Greece’s contractual obligations but will actively and aggressively renegotiate the memorandum”. Another senior aide warned of a “social explosion” in Greece if the bail-outs terms were not relaxed.”
http://www.telegraph.co.uk/finance/financialcrisis/9339904/Debt-crisis-Greek-government-will-be-forced-to-seek-third-bail-out.html
“Again, the only person who explained reality was Alexis Tsipras. But now that he lost, the others are all of a sudden going to start being honest? Ironically, one thing New Democracy and PASOK will do is renege on the bailout terms. Only they will do it WITH Merkel, Obama and Hollande’s consent.”
Yikes, we wouldn’t want to see a left-wing party come in, someone who would negotiate and ask for haircuts. Let’s get some of the J.R. Ew-wing types in there who will ask for cuts, but make sure the elites are benefited every step of the way.
We must stall for time until all bondholders (banks) are made whole (or almost). Then we shall let this sucker fall. Yes, I’d much rather have a party like that, an entity that really has the benefit of the people who elected them at heart. (Sarc off)
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Krugman is an idiot, plain and simple.
He’s not an idiot. The idea that war is a stimulus is taken very seriously. And that’s really dangerous.
Everything Krugman says smacks of maintaining the status quo. Why do you think he, of all people, received recognition from the Nobel Prize Association? Why him? Because he says what the elite want to hear, what they want the public to hear. He’s perfect.
Aziz, war is the penultimate manifestation of human social behavior.
As well, it will rightly re-gain its well deserved spot as the greatest profit making activity on Earth, [as this cycle of financialization abates].
See my post on Syria today.
Every Kruger claims… with great sin-searity: “verily I AM right”. Historically, if the Greek gods couldn’t get along, how will 6 billion plus amateur geek gods get alone? ;-{)}
why…fairly, of course.
and now let’s name call the Everbody who is Somebody who claims righteousness? If the greater knows the lesser, and the lesser is an “idiot” for example, then the greater must be a better expert at what he names the lesser.
just an example of how us humans reveal our selves, by what we try to pin on another.
This article tears Krugman to shreds
http://mises.org/daily/6069/An-Austrian-Defense-of-the-Euro
I am embarrassed to see an Austrian economist defending the Euro. The whole point of a limited currency is that you don’t get the malinvestment and money supply growth during the boom, lessening the size of any bubble, which is the opposite of what happened in “hawkish” Europe. The boom has already happened, the debt already exists, the bubble already burst, the people are already welfare-dependent. The reforms and austerity he praises will just hurt Europe more, at least in the short to medium term. Europe has two choices now — disintegrate, or print.
Aziz, I note the dissenters to the article following your logic, but as defenders note, the point of the article is that the Euro system has caused Political pain for the the politicians that did not act prudently or try to adjust structurally. This is similar to a Gold standard. In the USA and UK we see QE prolonging the status quo, i.e. welfare payments being maintained with printed money, excess Government programs. Tough Political decisions are not being made.
It’s not similar to the gold standard (or at least the gold coin standard) because the huge level of expansionary credit creation we saw from 2001-8 is not possible under such circumstances.
In the USA and UK we see the prolongation of fiscal excess, but the key difference is that under the gold coin standard if you cannot print the money in the first place you can’t create the dependency. The euro and pre-euro systems created so, so, so much dependency.
So it’s the bad part of the gold standard (monetary insensitivity to busts) without the good part of the gold standard (harder to create an expansionary bubble). The worst of both worlds.
The mechanisms were there, in the Maastricht treaty rules, only that they were not enforced and everyone chose to look in the other direction. He still has valid points; and if the euro survives and those rules are enforced I believe most people would prefer to have this enlightened post-crisis euro as their currency. I also believe there are other options besides disintegrate or print (though I’m not very hopeful the politicians will see that before it’s too late).
Only hold German serial numbered Euros. They will be convertible for Reich2.0Marks
Oh, I find funny such recommendations. Nobody knows exactly what will happen in case of EZ-breakup and this idea seems rather arbitrary. Most likely, they’ll impose border controls so whatever euros you’ve got in your country of residence will get stamped and converted to the new currency. The Greeks who pull money out of banks to put them under mattresses are obviously unaware of this. So are the people who bought Bunds as a call option on Germany leaving the EZ – until they realize that Germany would be quite stupid to redenominate the Bunds into DEMs (instead better leaving them redeemable in a ghost euro currency probably pegged to the dollar – that is, in case of full breakup, in the case of only Germany leaving, the idea of leaving those Bunds denominated in euros is even more straightforward). Related to this: I don’t believe the average guys are the causes for those TARGET 2 imbalances (at least not in the way it’s trumpeted in the media, money flowing to the core). You need proof of residence in Germany to open a bank account there, and few regular people can afford to produce that.
I know it sounds funny and extreme, but from understanding of the Euro Dollar, and why they are serial numbered according to the nation state issuing, Germany would be within its right to only convert the Euro’s issued to its new Mark.
http://www.french-news-online.com/money-matters/2010/july/worry-not.html
Lets hope that the Bankrupt nations Central Bank did not do a print run of their $5, $10 or whatever denomination they were responsible for!
Fraud test
http://www.wyae.de/docs/euroschein/