Wednesday, October 5, 2011

Catch of the Day

I don't think I've given a CotD to Paul Krugman before, but he very much earns it today by taking down Ezra Klein, of all people. Klein started today's Wonkbook (by the way -- you all do read Wonkbook, right?) with the headline "We know what to do. We just can't seem to do it." Krugman responds:
What Ezra is doing here is a minor version of the all too common sin of presenting what is, in political terms, a moderately left of center position and treating it as the obviously correct policy. There’s a reason for that: objectively, it is in fact the obviously correct policy. But you won’t get anyone on the right admitting that.
Krugman, of course, focuses on the fact that (contra Klein) "most every economist" doesn't actually support any policy consensus on the US deficit or Europe's debt problems. I'd add that whatever economists think, politicians really don't all agree, either. It's harder to know what pols "really" think, but I'd be shocked if Michele Bachmann, for example, really believes that increasing government deficits now and reducing them in the long term is good policy. Yes, Bachmann is an extreme example...but I don't really see any reason to believe that most GOP Members of Congress secretly support Klein's consensus. I mean, it's not exactly the most economically literate bunch, and if you think about partisan information flows -- I don't really see any reason not to think that most Republicans in Congress are sincerely pro-austerity. Then there are those columnists and newspaper editorial types who support austerity, not to mention ordinary citizens who poll pro-austerity (although to be sure they'll also support pro-growth policies).

In some ways, the story that everyone agrees on policy but good policy is thwarted by poor institutional arrangements and incentives is a optimistic one. But it really isn't true, and a very Nice catch! to Krugman for pointing that out.


  1. Some people are economically literate in Friedman and Hayek.

    Krugman mentions Volcker's monetary policy with what sounds like approval. Reagan supported that policy, and Hayek was his favorite economist.

    For a primer on an anti-Keynesian view, I recommend Monetary vs. Fiscal Policy, by Milton Friedman and Walter Heller. It's very short, as it's not a regular book, but a record of a debate between Friedman and a Keynesian economist.

  2. Krugman's mistake here (and yours) is that he misunderstands Ezra's use of the word "we" as in "We know what to do about the economy."

    "We" does not refer to "all American citizens" or "all members of Congress" or even "all economists". It means "every person who has the expertise necessary to properly understand our predicament and is able to put ideology aside in favor of a cold assessment of the available options."

    That sounds convoluted, but it's perfectly natural. When I say "We all know that global warming is man-made", I don't literally mean that everyone on the planet has come to this conclusion. What I mean is that there are people who have studied this, whose job it is to understand this, and they have reached a firm conclusion. Those who believe otherwise are simply wrong.

    Similarly, why should Ezra Klein pay any attention to what Michele Bachmann has to say about economic policy? Why should he include "economists" like John Taylor, who everyone knows is a GOP hack? (Note: There are some people who disagree with this statement. That doesn't make it any less true!)

    And when you exclude the hacks, and the know-nothings, you realize that stimulus-now-austerity-later is obviously the proper course of action for the government to take at this moment in time, under these circumstances. That much is beyond debate.

    I recognize that the point here is a political one - regardless of what it truly believes, the GOP will never agree to more stimulus spending (at least not until their own president stands to benefit). But I'll be damned if I'm going to criticize Klein for assuming that stimulate-now-austerity-later is the right policy. It is. It's that simple. To cast any doubt on that would be to employ the "he-said-she-said" relativistic style so common of gutless journalists and political scientists.

  3. Andrew: "And when you exclude the hacks, and the know-nothings, you realize that stimulus-now-austerity-later is obviously the proper course of action for the government to take at this moment in time, under these circumstances. That much is beyond debate."

    Certainly true - as long as you define anyone who disagrees as a hack or a know-nothing.

    Personally, I don't claim to know with certainty what's going to improve the economy. I don't think anyone does. However, I do think I understand why so many are so reluctant to take the stimulus-now-austerity-later route. They've been down that road before, and seen that the austerity-later part of it tends to be forgotten.

  4. Yeah, what do those hacks and no-nothings know about the wonders of Porkulus and Solyndra?

    At $1/4M per job "created"... we're cookin' with gas, baby!

    So yes, there is no "doubt". None. We have the master policy. Anybody standing in our way is evil, clearly. Not saying liquidating them is our next course, but we can see how some might think that to be a good idea.

    We're right, afterall. There's absolutely no doubt about that.

  5. Even when "we know what to do", our confidence often arises from ignoring contrary data, allowing us to question the sincerity of our opponents' motivations. "Knowing what to do" with Greece means some sort of orderly write-down of their debt within the Euro, somewhat similar to the 'write-down' of toxic bank debt in TARP. Anyone against this idea must just hate debt with a Bachmann-like irrationality.

    Of course, there's at least one glaring difference between a giant bank and Greece; a difference that smart fellows like Klein or Krugman or Geithner must be able to easily ascertain. Relieve the banks from the paralyzing impact of toxic paper and they can return to a profitable business model; relieve Greece from paralyzing debt and they're pretty much gonna return to piling up debt, as they unfortunately haven't much else to compete in the 21st century developed world.

    It would be interesting to know what percentage of pundits who dismiss German reluctance as a sign of irrational debt hatred do so in spite of full awareness of the risk that these are the birth pangs of a century defined by cyclical debt madness from the weaker nations on Europe's periphery.

    Looking at the bigger picture, not just today's short-term picture, its not at all obvious what Germany/the Scandinavian countries should do. Indeed, driving the weaker nations as close to the cliff as possible might very well be in the stronger nations' longer-term interests, regardless of what the Klein crowd thinks about the alleged prominence of short-term risks.

  6. I want to agree CSH's general point: I don't think that there's any consensus at all about what to do in Europe.

    And y'all will recall that I personally don't really agree with the idea that the US should be actively trying to lower long-term deficits. FWIW.

  7. What Andrew said. Klein's "we" was rhetorically excluding people who have no idea what they're talking about.

    But Klein, like others, is apparently also trying to understand the resistance to taking what used to be bipartisan, consensus measures to restore economic growth. I find this puzzling too, and hard to explain apart from the kinds of irrationalities and pathologies that Krugman and others have been chronicling almost daily. If there were no US government, and unemployment in America were as high as it is now, with businesses unwilling to invest because they don't have customers ..... and then some agency suddenly appeared that could borrow at ridiculously low rates (literally 0% interest on some loans) and then spend this money -- preferably on things we need anyway, like fixing bridges and schools -- thus creating new demand for stalled businesses, causing them to begin hiring again so fewer people were unemployed, more households could pay off their debts, normal spending began to recover, local and state tax receipts began to rise, etc. ..... if such an agency offered to do this for us, what kind of idiots would we be to turn it down?

    And yet there is such an agency, and its help is being turned down. Why? Because that agency happens to be us, we ourselves, the American people, acting through the government that "We, the People" created for precisely such purposes as promoting the general welfare. It really is strange. In another generation -- or maybe just ten years or so -- when this story is told in retrospect, it will be literally a textbook case of people refusing to act in their own interest.

  8. The causes of the trade cycle, and what can be done about it, are unsettled questions in macroeconomics. Only the uninformed or the dishonest deny this.

    See, I can do it too.

    Hayek and Friedman both won Nobel Prizes. Friedman's, unlike Krugman's, was awarded for work in trade cycle theory. I think Hayek's was too, but I don't recall for sure.

  9. I just heard Robert Reich doing the same thing on Marketplace today. He was talking about historically low interest rates, high unemployment, and infrastructure in need of repair. Anyone with "half a brain" knew what to do. They weren't doing it because too many in DC have less than half a brain.

    It's easy to make an argument and ridicule your opponents if you never consider their arguments, like we have a huge deficit and debt already. Oops, what part of my less-than-half brain did that come from?

    (Not that I think the jobs proposal is a total waste, but I'd evaluate piece by piece.)

  10. ModeratePoli, it is nowhere close to correct to say that Robert Reich and his kind ridicule their opponents because they "never consider their arguments." Considering their arguments has been almost full-time work for Paul Krugman, Brad DeLong, Mark Thoma, Jared Bernstein and a number of other economists, any of whose blogs serves as a daily update on the other side's arguments -- not just on what GOP politicians are saying, but what other economists write, what's coming out of European banking circles, what's in the latest reports of the IMF, the OECD and any number of other such agencies, etc. etc. etc. I mean, in all of history I wonder if there's been as much attention to the other side's arguments, and as much comparison of these to incoming new evidence in real time, as we've been seeing from left-leaning economists since the crisis of '08.

    Reich is obviously aware of all this, since his own online commentaries link to these discussions. What he's saying, in the telegraphic way these things get said on TV and radio, is that the other side's arguments -- various versions of the "austerian" view that deficit-cutting should be first priority in recessionary conditions -- has been shown again and again to be nonsense. It was already discredited in the 1930s, it's been tested and founding wanting again with Japan's Lost Decade, and it's made nothing but wrong predictions in the current crisis (to name two: it predicted growth in the budget-slashing UK, and soaring US interest rates despite the current liquidity trap). Some of this stuff is outright crankery, like calls for a return to the gold standard -- a measure that Krugman rightly compares to a modern doctor prescribing bloodletting or leeches. You can certainly disagree with Reich or any of these others, but they can't seriously be accused of not listening to the other side.

  11. Jeff -

    If we can discredit those concerned about debt by lumping them in with those on the right wanting a return to the gold standard, can we then discredit advocates of stimulus-now-austerity-later by lumping them in with those on the left that think restricting international trade will cure recession?

    I don't necessarily reject taking on debt to fund stimulus. I just think that other approaches should be considered, given our unprecedented debt burden. Is there a point at which we have to say "too much"?

  12. it's made nothing but wrong predictions in the current crisis (to name two: it predicted growth in the budget-slashing UK, and soaring US interest rates despite the current liquidity trap).


    What/where is this "budget-slashing UK" you speak of?

    There is a United Kingdom wherein the current Tory chancellor is executing budget policy less than 1% different than that proposed by his Labour predecessor, Alistair Darling. Budget-preservation, in other words. To include massive tax and fee increases. (Just as an FYI, the Cameroons are to the Left of the Democrat Party).

    And after Greece goes bust, and the PIIGS dominoes start falling, and the Euro banks start failing, you will see interest rates here rising. They're only low now because the US is a safe harbor, in the above storm. When those busted banks' assets start being sold, that safely harbored cash here is gonna flee there to scoop them up, and I think we all know what that's gonna do to interest rates here.

    I think you have to start at the beginning. If you haven't even properly defined the situation (See the UK budget issue, and the current status of fiscal/monetary policy worldwide, and its knock on effects), then it's going to be hard to claim that you have the "correct" formula to deal with that situation, since you haven't even defined it properly. The Germans are still laughing at Krugman, for example. He wanted them to spend like drunken sailors, they ignored him, even as he shrieked hysterically, and they now have the healthiest economy in Europe, and the rest are begging the Germans to bail them out. So much for Krugman.

    That's why it's so dangerous for a political subgroup to run around ranting that they are obviously "correct". It just ain't so. And ultimately, that attitude is electorally poisonous for the subgroup itself, as we see.

  13. Sullivan, you don't need to lump these groups together to discredit them. The people I mentioned have been answering arguments in detail from various sources as they arise, not dismissing one by its proximity to the others.

    Anonymous, I'm the wrong person with whom to debate the particulars of economic policy -- my point was just that Robert Reich and others have not ignored their opponents' arguments. But on Krugman, my understanding of his position on Germany is that (a) unlike the US, it has lots of "automatic stabilizers," i.e. what amount to automatic stimulus programs, which Krugman would welcome here too (you're aware that they keep unemployment low in Germany with job-sharing and the like, yes?), and (b) its economic policy -- relying on manufacturing exports + some budget cuts -- was an attempt to shore up its own situation at the expense of the rest of the Eurozone and the world economy generally, threatening the former with breakup and the latter with a second recession. I don't see that he's been proved wrong on that.

  14. Also, the UK government certainly CLAIMS to be cutting like mad. You're saying that's phony, then? OK. But you'd agree they're not pursuing a stimulus policy, right?

  15. Figured I should chime back in...The specific problem here is *not* about those who claim that their way is correct and the people who support the other ways are stupid. It's about people who claim that everyone really agrees about the correct policy, but that either bad motives or poor institutional design prevent the policy from being adopted.

  16. Jeff, I pretty much reject your entire post, but I don't much want to get into the argument with you.

    I don't think you understand what's going on in Germany and Europe, nor does Krugman. All you both need to know is that the Germans ignored Krugman, and are prospering and growing as a result, while Obama and the rest embraced Krugmanology, and are mired in stagflation and growing debt.

    And the rest of the world is trying to sponge off the Krugman-ignoring Germany. Meanwhile, the Germans laugh uproariously at Herr Krugman.

    And yes, if a government embraces its predecessors' budget in its entirety, it's pursuing Krugmanlike "stimulus"... aka Porkulus. See the greenie energy scams in the UK, same as Obama's scams here.

    And by the way, the near $1T Porkulus was a whole lot of "automatic stimulus" as you call it. Germany ain't got nothin' on us for automatic stimulus, bro.

  17. "Obama and the rest embraced Krugmanology."

    That will be happy and very surprising news to Krugman.


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