There's nothing wrong with talking about the federal deficit in a story about the budget. But this entire story is framed around a sense of dismay that Congress has "abandoned" its debt-reduction goals. This is done with no mention of the fact that Congress has already slashed the 10-year deficit by nearly $4 trillion over the past couple of years. No mention that we've been engaged in this frenzy of deficit cutting despite the fact that the economy is still fragile, which means that reducing the deficit is almost certainly a terrible idea. No mention that deficit cutting of any size in the wake of recession is unprecedented in recent history.Basically, there are two problems with Montgomery's piece. First, that she ignores previous deficit-cutting from this and previous Congresses; second, that he takes the position that deficit-cutting is unambiguously a good thing, now and always.
I'll add one thing: she uses "debt" and "deficit" in ways that obscure what's going on. So, for example, she begins by saying the prospective deal would "not significantly reduce the debt." Well, yes; that's not going to happen unless the government runs surpluses. While there are some who believe that would be a good idea, most economists, including many sincere deficit hawks (who do want both short and long-term deficits slashed), would not want the debt reduced next year.
Matt Yglesias is on this too, and he's right also: "Journalists who would never think of openly cheerleading for more people to get government-subsidized health insurance or for oil companies to secure a freer hand in drilling, regard the goodness of deficit reduction as a kind of non-ideological given."
Yglesias asks why that's the case. My guess? Reagan. Because Ronald Reagan's policies produced huge deficits, and his influence pushed future Republicans to adopt policies which produced huge deficits, the Democratic Party shifted to a mostly fiscally conservative party. And yet because Reagan's particular political genius lie in believing what he wanted to believe regardless of what was going on, under Reagan conservatives became even more rhetorically committed to balanced budgets and deficit obsession.
Which leaves both parties rhetorically, at least, committed to hating deficits and debt. And the norm for journalists is that if both parties support something, then it's okay to treat it as an unquestioned and unquestionable good thing.
Of course, there are plenty of liberals who don't always support balanced budgets, and a handful of conservatives who are honest about the effects of their policies. But on both sides, the bulk of the official messaging assumes that deficit reduction is always a good thing.
On the other hand, it's possible that reporter love of deficit reduction precedes the partisan (rhetorical) consensus on deficit reduction, in which case it's possible that one reason the parties adopted that stance is because they believed it would play better in the press. (I suppose I should note here, too, FDR's 1932 anti-deficit campaign rhetoric). So perhaps a more careful examination of this is in order.
At any rate: nice catch!
While, in the very short term (a few years), one could argue that we should be cautious about too much deficit cutting in a fragile economy, in the long run deficits must be cut.
ReplyDeleteMr. Drum highlights one sentence in the report, "The most recent Congressional Budget Office projections show the red ink receding over the next two years" to bolster his case. But he completely fails to discuss the next two sentences, "But annual deficits would start growing again in 2016 as the baby-boom generation moves inexorably into retirement. And the debt would again soar." I guess he can't read that far.
Given that truth, I view Montgomery's supposed "bias" towards deficit cutting as simple honesty.YMMV.
http://krugman.blogs.nytimes.com/2013/12/09/counterattack-of-the-deficit-scold-deadenders/
DeleteThe second sentence is a Strawman "They’ve seen their forecasts of fiscal disaster fizzle". The deficit scolds have not been predicted a financial disaster for 2013. Anything in the future is, in the future. And Krugman cherrypicks his data, conveniently failing to include the CBO forecast for *beyond* 2023, which shows a serious rise in debt. [http://www.cbo.gov/sites/default/files/cbofiles/images/pubs-images/44xxx/44521-land-LTBO-1.png]
DeleteKrugman the Editorialist is a partisan hack who is completely lacking in intellectually honesty. You should read him with extreme caution.
By "fiscal disaster", I'm guessing he means a scenario in which deficits stayed as high as they were or continued rising and this lead to a bond crisis. That scenario was often predicted.
DeleteThere's no way that graph you linked can be honestly described as "the debt would again soar" in 2016. It's not until the mid-2020s until the debt rises as high as it is now.
That chart shows the debt basically flat over the next decade, rising slowly in the decade following that. Is that good or bad? Who can say--it might represent an inter-generational wealth transfer, but so does, infrastructure development, education, scientific research, environmental conservation/destruction or a large basket of other actions we could take today that would determine how wealthy our country is in 2040.
Simpson and Bowles did, in fact, predict disaster by 2013.
DeleteHere's the chart with the years Krugman omitted. (Scroll down a screen). Keep in mind that the data includes not only continuation of the 2011 sequester, but other, further sequesters. And it totally sucks. Unless the Chinese just perpetually like our t-bills more than life itself.
DeleteYou liberals are fascinating in your unquestioning devotion to Krugman. After all, he did famously write a column in 1998 titled "Why Most Economists' Predictions are Wrong" ... at the bottom of which are five contemporary Krugman predictions that are almost staggering in their obtuseness.
Which is not to say he's right or wrong now, but rather its worth considering next time you demean conservatives for their unquestioning devotion to ideologues.
Krugman gets things wrong, as everyone does, but it's absolutely wrong to call him a partisan hack. He spent most of 2009-2012 ripping into Obama and emphasizing the weakness, not the strength, of the economy. Yes, he ripped the GOP too, but the key is he consistently emphasized the weakness, not the strength, of the economy. That's not partisan hack behavior.
DeleteScott, S&B predicted that our credit rating could drop. Correct there. Whether the sequester quites rates as a "disaster" is debateable. Jonathan, just cause Krugman is left of Obama doesn't make him "independent" or non-partisan. His columns rival righties like Rush and Levin in their vitriol against the other side.
Deletep.s. For the record, I think a significant part of deficit reduction should come from closing tax loopholes and deductions, and even some modest rate hikes. I'm not some righty Norquister.
DeleteC'mon; if he rivaled Rush and Levin, the Times wouldn't have him; he's not close to them.
DeleteHe is harsh. But it's a mistake to conflate that with partisanship.
Again, that CBO chart CSH and Morgan Conrad love shows the debt falling down for a bit, then slowly rising. Sometime in the later half of the 2020s it comes back to where it is today. In 2038, 25 years from now, it hits 100%.
DeleteThat is far more consistent with Krugman's view than Montgomery's. No, it doesn't mean deficits don't matter. But, word of advice for deficit hawks--if you want me to consider the debt a high priority, you basically need to tell me that that CBO chart is wrong. That chart shows a manageable debt that we'll eventually have to do something about, but "eventually" represents a time scale of decades.
The debt is just one of many issues that affect the future. Long term unemployment. Infrastructure. Education. Research. Poverty. Defense. You could take any one of those issues and re-write Montgomery's article about how Ryan-Murray fails to make any progress on it.
@prefix-free, I hope that you are correct and the CBO's estimates are spot-on and debt wont hit 100% until 2038. But that is the "median" projection if you will
DeleteIn the section "The Uncertainty of Long Term Budget Predictions" the predicted *range* of debt in 2038 lies between 65% and 156%. In effect, half the time our debt would end up at 100% or less, which should be sustainable, but half the time it's more. And, splitting the top half in half, maybe in 25% of the scenarios debt exceeds 125%. That sounds like a 25% chance of disaster.
The section ends with "CBO’s analysis shows. that under a wide range of possible assumptions about some key factors that influence federal spending and revenues, the budget is on an unsustainable path."
@Jonathan take a look at Krugman's latest 12/09 editorial. Republicans are "completely wrong". They desire to "punish the unemployed". And their ideas are "dangerous for evil". And that's just the FIRST TWO PARAGRAPHS. This "I'm right, I'm 100% sure I'm right, my predictions are perfect, nothing you say can change my mind, you are evil and wrong" attitude mimics many on the right.
DeleteAnd this is an editorial with which I largely agree with his main point! Just not the harsh, vitriolic partisan manner he makes it.
re:"unsustainable"
DeleteTake that list of issues I gave you. Infrastructure. Education. Research. Poverty. Defense. And add a big one: Climate.
For each one of them, you could look at some aspect of the problem that's getting worse, and note that if it keeps getting worse we'll be in serious trouble. Pipes will burst, bridges will collapse, other countries kids will be smarter than ours, PhDs will leave research and go gamble on Wall Street instead, China will out-gun us, inequality will threaten democracy, oceans will rise.
Even in the case that the debt is 125% in 2038, 2038 is a long time from now. We'll have a lot of problems until then. Some of the proposed ways of cutting the debt would make those problems worse. (Some of them would probably make the debt itself worse.)
Don't shift goal posts here. No one--not even Krugman--is claiming that long term debt doesn't matter. The question is whether there is something unique about debt that we means we must deal with it today--before any other issue--and that the two parties should be able to agree on how to deal with it. Neither of those are true--both parties think that the other party's long-term budget plan would be bad for the country.
For the record, the theory that Krugman describes, a theory which is common on the right, literally does call for the unemployed to be punished. The claim is that if it weren't for unemployment benefits, the suffering of the unemployed would motivate them to look for a job harder.
And it's not just in narrow economic terms that they need to be punished, but moral terms. Hence all the talk about "makers" vs. "takers.
I don't think Krugman is the perfect columnist or economist, but there's the thing: his predictions may not always be correct, but he is absolutely correct that many of his opponents are acting in bad faith. Our persistently high unemployment is a failure of morality, not economic knowledge. If we actually cared about their suffering, about their wasted potential, we would have found jobs for them by now. But enough people, some of them Democrats, didn't care enough. That calls for vitriol. Unemployment is a human tragedy worth yelling about.
I think the Reagan theory has some truth to it, but I'd also add two other points to the mix.
ReplyDelete1.) Boomerism. The whole baby boomer experience (or way that the boomer experience is portrayed in popular culture) is a really dominating force in the news. So much of the deficit fear mongering out there seems to be based on the idea that once the boomers start to retire, well then the world will end. Sure boomers retiring will be a big demographic change in American society, but the idea that it will forever alter American Civilization is a sort of ultimate boomer moment, since everything since 1960 has been about them, and their experience, why of course the current budget negotiations are about dealing with looming apocalypse of boomers retiring. (Yes I know that lots of reporters aren't boomers, but a lot of them have seemed to have soaked up the whole ideas of boomerism from their professors at the Annenberg School. See the whole worship of Bob Woodward as the God-Emperor of Journalism if you'd like more evidence.)
2.) WaPo itself. I don't want to knock them too hard, but it's always struck me as a bit of schizophrenic operation. You have really good people like JB and Greg in the opinion section, but then you also have Jennifer Rubin and Richard Cohen as well. It struck me as a sort of "of course!" moment when I read this COTD. As in: of course WaPo would publish a story about the catastrophe that is not imposing massive austerity.
Following on Morgan's point, here's the money (or - lack thereof) paragraph of Montgomery's piece:
ReplyDelete"Republican leaders are also seeking additional savings to knock a small dent in deficits projected to exceed $6 trillion over the next decade. But the deal would do nothing to trim the debt, which is now larger, as a percentage of the economy, than at any point in U.S. history except during World War II."
Now, she can be rightly criticized for locating that paragraph at the end of the column, but I found Jonathan's criticism that she conflates "debt" and "deficit" strange - everything in her column pretty much flows from (or before) that paragraph.
You know what else I find strange? The "Damn the torpedoes, worry not about the historic debt" crowd is overwhelmingly liberal, which is to say, folks who have a ton of skin in the government spending game, either personally (e.g. academics) or by ideology. I understand the reasons for not worrying about the debt: China is willing endlessly to consume our treasury paper at historically low returns, they will no doubt continue to do so indefinitely, or at least until 10 minutes after I retire from my government-funded job.
Who knows? On the theory that a little paranoia is a good thing, suppose they don't. Suppose further their backing away from the epic feast of US treasuries coincides with a brutal ACA death spiral, as Obamacare reveals itself to be the biggest unfunded entitlement ever. If your well-being, or the things you value, are contingent on government spending, for your interests that day is gonna be Katie bar the door.
And sure - that might not happen. Perhaps there is some avenue of amazing growth to naturally pull us out of this debt, like the historic industrialization post-WWII. Again, who knows? Nevertheless, it amazes me that liberals, who support (and in many cases, rely on) the good offices of government, are not more paranoid about the (30%? 50%?) forecast of really bad government weather to come.
After WWII, Eisenhower allowed wage inflation to occur, which vastly increased the purchasing power of the middle class and allowed the debt burden to reduce as a proportion of the economy.
DeleteRepublican would rather blow up the world than let that happen today.
I agree that the apparent anti-deficit consensus between the parties is an important signal to reporters here, but let's not overlook the obvious: the appalling but indestructible Household Budget Analogy. In their private lives, all other things equal, people prefer not to be in debt and therefore see debt (and borrowing) as a problem, and it's assumed that the goal is to retire any debt as soon as possible. The fact that from the standpoint of the macroeconomy, debt and borrowing -- as Krugman is forever and correctly pointing out -- are economic tools, something that governments can and should legitimately deploy when needed, is probably just too complex a thought for the Lori Montgomerys of the world. (ever underestimate the sheer lack of intellectual firepower among reporters (says the former reporter).
ReplyDeleteAs to CSH's apocalyptic worries, yeah, lots of bad things can happen if debt goes too high. Also, lots of bad things can happen if chronic underinvestment keeps an economy sputtering badly for too long: there's hysteresis, people lose skills and become unemployable, and of course partisan divisions deepen and cultural anxieties increase, causing political instability. Krugman's basic point of the past five years, boiled down to a sentence, is: stop insisting that we solve a crisis that isn't here yet by deepening a crisis that plainly is.
Jeff, my point isn't that Krugman is ever or often wrong (hell, if there were a prohibition on that I'd've been banned from the tubes long long ago), but that he writes with a certitude seemingly divorced from scrutinizing his own assumptions. One of his forecasts in the 1998 piece was "ten years from now, the phrase information economy will sound silly." Sure, at a certain level, heh - oops! But he wasn't just saying the information economy would be obsolete by 2008, the use of 'silly' meant the idea of an information economy would soon seem ridiculous. So at a deeper level...what were we going to be living in during 2008? The stupid economy? The we-only-rely-on-Krugman-for-our-truth economy? How does that sort of thing pass the filter, assuming one has a filter?
ReplyDeleteTo the arguments at hand - amen that hysteresis is a huge and terrible problem that leads to the societal issues you note. But - in the spirit of filtering our assumptions - are you sure Krugman's solution solves the hysteresis problem? One reads a lot about shovel-ready projects, bridges and roads that can be fixed with stimulus funds, which is great and all - but at the risk of being condescending - were those the jobs you had in mind wrt fear of hysteresis?
Cause the other side of that argument is that hysteresis is a natural by-product of the aging of an economy dominated by large entities (a point, interestingly, that Krugman more or less makes - correctly - in the top part of the linked 1998 piece, you know, mocking other futurists before stepping in it himself). I trust from the 1998 piece that Krugman recognizes that problem and favors addressing it; do you know how his recommended course of action does so? If its more of the same, we've had some of it already, and while it may not have been enough, the various stimuli we've had have done nothing for hysteresis. Why is more of the same the solution? (Remember - advocates of the various stimuli from 2008 onward say unemployment would have been worse otherwise. Perhaps! The jobs that have been created haven't helped with hysteresis though. At all).
Even if we ignored the problem of the dominance of big, hysteresis-inducing corporations, there's still the issue that the CBO chart to 2038 has a pretty chilling effect on the types of investment that will get the knowledge economy rolling again. Make that chart worse to jump-start that type of investment? Maybe.
I didn't even get into the fact that several decades of Debt>100% of GDP virtually guarantees that at some point the debt house of cards will fold like a cheap suit; to the extent that a large part of the knowledge economy is reliant on that debt, the current problems will then seem like child's play, and that point could be as soon as...tomorrow?
Look, as always, I could be totally wrong. What's written above is pretty much how I see it, which makes sense to me but may be crap. But given that the above seems pretty compelling to me, it grates when I'm told that its wrong because - duh, I'm Paul Krugman and I told you the information economy would soon be obsolete in 1998, so why are you bothering to think for yourself independent of my further efforts at futurism?
I'm not sure how seriously those 1998 predictions were intended. They seem to be absurdly specific. But if the worst you can dig up on a pundit is that he mocked the concept of information economy shortly before the dot com bubble bursting, before a decade in which the price of oil was the biggest economic news, more than a decade before Tyler Cowen wrote The Great Stagnation, he can't be doing too bad.
DeleteTo the arguments at hand - amen that hysteresis is a huge and terrible problem that leads to the societal issues you note. But - in the spirit of filtering our assumptions - are you sure Krugman's solution solves the hysteresis problem? One reads a lot about shovel-ready projects, bridges and roads that can be fixed with stimulus funds, which is great and all - but at the risk of being condescending - were those the jobs you had in mind wrt fear of hysteresis?
Yes. The choice between workers sitting around idle, and eventually being unemployable, to spending their labor building infrastructure that we can keep using for years to come, is exactly what people talking about hysterisis would have in mind. Potential future GDP is lower in the first scenario than the second.
Cause the other side of that argument is that hysteresis is a natural by-product of the aging of an economy dominated by large entities (a point, interestingly, that Krugman more or less makes - correctly - in the top part of the linked 1998 piece, you know, mocking other futurists before stepping in it himself).
I don't see that point in the 1998 piece, and it doesn't seem like a Krugmanian concern. Probably the biggest criticism I have of Krugman is that he doesn't spend enough time considering the possibility that there's a deeper, systemic problem in our economy that needs to be addressed. But it's hard to see how austerity or laissez faire would make that systemic problem better, or that fixing bridges makes it worse.
My own view is that as fixed costs dominate marginal costs of production (due to automation), capitalism's advantages in allocating resources have shrunk or in some cases turned negative. Here's your Information Economy--we've got the smartest minds in the world working to get you to click advertisements.
The most annoying feature of our age is that the debate is that the debate between Keynesians and Anti-Keynesians crowds out any deeper criticism of the economy. Sometimes, I think that's kind of the point--the people who benefit from the inefficiencies of our economy know that we'll never be able to address them as long as we have to spend our time stopping austerity fanatics from wrecking everything.
I didn't even get into the fact that several decades of Debt>100% of GDP virtually guarantees that at some point the debt house of cards will fold like a cheap suit; to the extent that a large part of the knowledge economy is reliant on that debt, the current problems will then seem like child's play, and that point could be as soon as...tomorrow?
DeleteFalse. The chart doesn't show "several decades of Debt>100%" It shows 25 years UNTIL Debt=100%, in 2038, the end of the chart. So, sometime long after the point at which CBO projects aren't really reliable, Debt goes above GDP. There's nothing particularly magical about that point--other countries have gone past that point and done fine. But in any event, according to the CBO, we still have plenty of time to avoid it, which suggests that as far as the future is concerned, debt won't be our most pressing problem.
CSH, no one's making any argument from authority here. What you're saying doesn't make sense in its own terms. You haven't even read the chart correctly.
To be fair, I think that chart actually is a good argument for raising taxes in 2016 or so. Yglesias had this exactly right:
The whole reason it's so hard for Congress to agree on a long-term fiscal deal is that everyone can agree that a long-term fiscal deal would be great if executed on their terms but not otherwise.
Besides seconding prefix-free's answers, I would emphasize again that to me -- and I think to Krugman -- the essential point is that a crisis is already upon us, and that the misplaced focus on debt and austerity not only perpetuates that crisis but, by lowering growth, increases the odds of a later one instead of reducing them.
DeleteKrugman's personal style -- how confident he sounds, how he characterizes opponents, etc. -- doesn't offend me, and anyway it's not the issue: the issue is who's right about the questions he discusses. What Krugman's opponents ought to do is demonstrate that he's wrong; that would be a lot more effective than accusing him of being too shrill and the like. (I'm referring now to people who do this, not to CSH.) So why don't they? He's giving them examples of how to do it every day: look at the data, print the graphs, show how the argument before us is wrong. Well, I think that's the problem -- his opponents are the people he's doing this to, and they can't answer substantively because they are wrong and he (usually) isn't.
On debt, Krugman's (and deLong's, Noah Smith's, Jared Bernstein's, etc.) particular recurring points seem to be these:
> Debt is less of a problem than it's made out to be, for one thing because it's mostly money that Americans owe to themselves.
> Anyway, the solution to it is economic growth. We know how to achieve higher growth; it's just not being done for political reasons.
> Another partial solution would be raising taxes. That this is a non-starter, at a time when tax rates are much lower already than they used to be, is a political choice, especially fanatically held within one party, which in turn helps prove that.....
> .....the debt hysterics aren't really arguing in good faith. They don't, in fact, care about deficits or debt as such; that's a pose they use to sell a different agenda and generally to be accredited as "serious" (along with another tactic, which is Paul Ryanesque magic asterisks). What they really want to do is savage the welfare state.
> Politicians pursuing that agenda have a lot of cheerleaders and enablers among economists and people who make what sound like economics-based arguments (e.g. Simpson and Bowles). These arguments, on examination, are generally wrong in their particulars -- that's the gist of 70% of Krugman's blog posts -- and have been spectacularly wrong as predictions about the course of events during the present crisis.
> Yet they are still worn as a badge of "seriousness" and are never re-examined. Nor do failures of prediction based on purported economic models ever seem to lead to re-examination of the models -- which suggests that the "models" are actually.....
> .....political arguments dressed up in and as equations. This reflects the capture of a large part of the economics profession by the political right.
> All in all, what the data -- and good-faith modeling -- have actually been showing is that governments should be spending more, not less; could do this in relative safety at persent; and instead are immiserating the people of 2013 allegedly out of concern for the people of 2043, who, however, are not actually helped if the 'teens are a decade of low growth and underinvestment. This can all be demonstrated (or at least effectively modeled), but is trumped by a right-wing attack on state provision -- the same one, basically, that makes the prospect of universally affordable health insurance, in some circles, the second coming of Pol Pot.
That's a summary. For the particulars, include Krugman and/or the others aforementioned in your daily news feed.
Interesting conversation. For easy reference, here's the 1998 Krugman column, again. I believe earlier in this discussion I insinuated that Krugman "understood" the flaws of Herman Kahn, the 1967 futurist in the open of Krugman's column. Kahn's idea was that technological advancements would so improve efficiency that the 30-hour workweek would become the norm. Krugman has a theory about why Kahn's prediction didn't materialize; contra my earlier assumption, I now see that Krugman's explanation, like much of his writing in technology-related areas, is simply daft.
ReplyDeleteKrugman credits Kahn with getting much right about the technological future, "mainly in the area of information processing". Kahn also goofed, said Krugman, in thinking there would be stuff like underseas cities and housecleaning robots. Connecting the dots, in spite of the vast increases in workplace efficiencies, technological gains in the workplace failed to deliver workweek efficiencies because there weren't housecleaning robots. Or underseas cities. Or something.
There is a very good reason Kahn's prediction of the 30-hour workweek hasn't come to pass, an obvious reason, one quite pertinent to our discussion and one that, interestingly, Krugman (apparently) never sees: an employer that experiences 25% technological efficiencies is not going to send his workforce home 1.25 days per week - he's going to fire 1/4 of the staff.
To the extent that big companies increasingly dominate the economy (indeed true), those lost jobs will never come back. Your Fortune 100 company that takes efficiencies to the bottom line by axing a big part of the workforce will never bring those folks back. Ever. To the extent the economy increasingly lacks alternative places for those fired folks to work (also true), your hysteresis cannot be solved. Period.
So, Jeff, I certainly understand the Keynesian argument - I just think it doesn't apply in an increasingly BigCo dominated economy. You tell me that if I read Krugman more religiously I would understand? I'm willing to give it a try. Tell you what: you point to his blog post - really, from whenever - that shows some understanding that the reason we don't see reduced worker hours in response to technological gains is because the efficiencies were banked - the very heart of our hysteresis crisis - as opposed to, say, not enough housecleaning robots - I'll certainly be interested, and I'll take it from there.
I'll have a look for that, CSH, but meanwhile, you are obsessing about hysteresis and about one discussion from 1998 and, as far as I can tell, ignoring the larger and more recent (2007 - ) context in which Keynesians keep making right predictions and austerians / debt hysterics keep making wrong ones. Maybe I wasn't precise enough. The current crisis is one of underinvestment and underutilization of resources in general, including (but not only) labor resources, and hysteresis is just one of the ill effects it's having. Maybe we should distinguish two kinds of hysteresis, the kind you're referring to -- which may well be independent of the current crisis, as you say -- and the kind Krugman means, which we might call "Crisis-Induced Hysteresis" or "Long-Term-Unemployment Hysteresis" or something like that if this makes it clearer. Even if you're entirely right about "BigCo" and so on, there could still be a further problem (or an unnecessary aggravation of that one) owing to poor policy responses to the crash of '07-'08. If I have, let's say, tuberculosis, that doesn't mean I should just go ahead and smoke because, what the hell, I've already got tuberculosis. It's all the more reason I should take care not to damage my lungs any further.
DeleteActually, Jeff, a more pertinent comparison to my perception of the recommendation of the Krugman school:
DeleteIf you have MRSA, and the physician, lacking appropriate knowledge, prescribes you methicillin, on the rationale that drug helped in "similar cases he's seen in the past", and you - inevitably - keep getting sicker, the right next steps is not more methicillin.
Its surgery, or to our purposes, something drastic and different from what has been tried before. My impression is that Krugman, though careful not to go into too many specifics about his proposed stimulus, is proposing more methicillin. Worked in the past. But there's a reason the disease is named as it is.
Or more succinctly, throw a bunch of borrowed dough at an economy increasingly dominated by a smaller number of firms which - as time passes - need fewer and fewer of the types of work positions you're trying to create - and you're wasting your time. Show me a convincing argument that Krugman sees the post-2008 stimulus, and future stimulus, as not following the logic above, and I'll be amenable to the argument.
DeleteKeynes has been dead for many years. We live here, now.
CSH, the "doctor" has underprescribed. Or rather, there were (some) doctors who prescribed correctly, but the insurer agreed to pay for only half the medication needed. So the economy has not "kept getting sicker," it has been recovering, but too slowly -- as Krugman predicted at the time. Meanwhile, nations whose leaders rejected Keynes altogether in favor of "expansionary austerity" and other such quack treatments have had multiple recessions and generally been doing even worse. Simpson, Bowles, the economists who signed that big letter, and others who predicted dire consequences, like dollar crises and runaway inflation, from the policy moves of 2009 have been proven spectacularly wrong. And in light of all this, you're dumping on Krugman? I don't know, just seems odd.
DeleteCSH, you're reading way more into that 1998 column than was intended. It's definitely not meant to seriously analyze why there aren't 30-hour work weeks.
ReplyDeleteBasically, he's just saying that an increase in information processing capability doesn't necessarily translate into a proportional gain in usefulness. If that position seems absurd to you, maybe you should check out Tyler Cowen's book I mentioned above.
As to your analysis, I don't think the size of the corporations has much to do with it. You can replace all the Fortune 500s with small businesses, but if the same amount of labor is required to make the same amount of stuff that's not going to have anything to do with unemployment.
That's not to say that there's no problem here--Google pointed me to Krugman talking about it here: http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/ . But it's not clear how the bigness of corporations has anything to do with labor's declining share of income (you're not necessarily wrong, but you haven't described a plausible mechanism yet). Also, nothing about this alters the argument for fiscal stimulus. We have workers sitting idle, we have important work that needs to be done (e.g. crumbling public infrastructure). Pay the former to do the latter. Our economy might have other problems, but that's no excuse not to address this one.
As to "prescriptions", you should click the link to Kevin Drum at the top of the OP. The chart of "government spending after recession" should make it clear who's prescription has won the day.
Jeff, I'm not trying to shake down Krugman, though I believe I've done a poor job explaining my concerns. Perhaps the following won't help. Here goes anyway:
ReplyDeleteImagine its 1963 and there's a big company called "Orange" (Get it? Get It? Orange not Apple? I'm here all week, people) comprising 10% of the economy. Suppose that in 1963 OrangeCo needs to employ 100 highly-paid knowledge workers to meet their corporate goals.
Over the ensuing 50 years, OrangeCo will have two primary goals: first, increase productivity, and second, increase their share of market. Suppose they succeed on both fronts, such that, by 2013, they now comprise 15% of the economy, but they only need 75 highly-paid knowledge workers to meet their corporate goals.
The change is very good for Orange. Very bad for the economy. In 2013 Orange needs only 5 highly-paid knowledge workers for each percent of the economy they occupy, while in 1962 they needed 10. If the rest of the economy was like Orange in 1962, then fast-forwarding 50 years, 15% of the economy in 2013 (the part Orange represents) only 'needs' half as many knowledge workers as it did in 1962.
Repeat that story across the economy and you have a recipe for hysteresis, plus slack demand, low workforce participation, and all the rest. The question is: assuming the hypothetical economy has grown to be comprised of Orange and a few, large others, what can be done?
Well, in the hypothetical, traditional Keynesian intervention won't help at all. That's because the problem of work force demand in the economy has become structural, it matters not how much money one throws at Orange and the other oligarchs, they are not - ever - going to return the economy to the state of full employment of knowledge workers prevailing a half-century earlier. That's not their thing! It makes no sense to throw money at them, in the guise of throwing money at the labor problem.
The only solution, really, is to break OrangeCo and the others up.
I agree that the US economy is not precisely the way I have described above, but it certainly has moved in the direction I laid out over the past 50 years. To the extent our economy resembles the description above, randomly throwing money at it, in classic Keynesian style, won't help solve our employment problem, as it obviously wouldn't in the example above.
So, you know, YMMV about how much the actual economy resembles the model I laid out above. Consider the various stimuli of the Great Recession. Maybe we didn't stimulate enough. But we sure stimulated a lot, and pretty much we got a couple million Applebee's jobs for our trouble. Which would seem to suggest the economy is much closer to the example above than the pure classic Keynesians would like to admit.
We need an intervention. We don't need more enabling.
CSH, I'm about to leave on a trip out of town so might have to break off here, but I believe that Krugman and his comrades have addressed the concerns you're raising -- basically, about whether we're looking at structural changes in the economy or a straightforward Keynesian-type lack of demand. For instance:
Deletehttp://krugman.blogs.nytimes.com/2013/08/03/structural-humbug/
I'm a layperson, but this rebuttal seems reasonable to me, especially combined with the observation that the economy crashed in 2008 and that we've been through other crashes before. What is the likelihood that the deeper kinds of problems you're talking about suddenly made themselves apparent just when there was also a burst housing bubble, a banking crisis, a big overhang of houshold debt and, consequently a major recession involving a big contraction in demand? And then stupid policies (see the graph that prefix-free links to) that kept demand low for no good reason, unlike the policy responses to every other significant recession? And then, further, that countries that pursued at least mild stimulus and monetary expansion have done better than those that went with austerity? It doesn't seem like it would take a Nobel laureate to draw the obvious conclusion.
Sorry, I mean the graph that prefix-free refers to (link in the OP above).
DeleteJeff, good conversation and safe travels, that's a pretty good column from Krugman. I suppose the pushback might be that rebound jobs growth (structural or cyclical) would naturally occur where the slack capital was highest. But that's a quibble.
DeleteThere's a spreadsheet, somewhere on the tubes though I couldn't find it, showing that the market share of the top players in the major S&P sectors have all increased dramatically over the past 50 years (the HHI measures something similar, but that wasn't what I was seeking). Additionally, there is the well-known finding that post-recession jobs recoveries have been progressively slower over the past 50 years, another potential sign of market concentration. Beyond that I guess are your lyin' eyes: are there jobs like door to door salesmen anymore in the US? Mom-and-Pop variety stores? Mom-and-Pop anything anymore?
At least conceptually, the small-business squeeze shouldn't happen overnight, but I think we've all seen it over the past several decades. If we've reached a tipping point, further stimulus will fall in the wrong hands, unless our political class shocks us with levels of enlightenment none of us believe they possess.
So if all of this is correct (admittedly a big if) and further if the Beltway is hopelessly unable to direct jobs stimulus at real, honest-to-goodness job creators, then it seems to me the high level of extant debt is - almost - an objectively bad thing.
Because you can't help the above situation (assuming its real) with more debt, but there's some chance that removing debt will also remove uncertainty that will spur entrepreneurial investment. Maybe not, but maybe is better than certainly not.
Not sure anyone will see this, but I just have to point out that CSH's theory doesn't make sense in two critical ways.
DeleteHe hasn't explained how breaking up the business would mean more jobs. Whether you have one company holding 50% of the market that requires 500 workers, or 50 companies holding 1% each requiring 10 workers each makes absolutely no difference. Moreover, if it DID make a difference, that would be a point in favor of the big company--it's more efficient! Breaking up the company does no good. You either need some way to make the companies--big or small--increase production to employ more people, or if that isn't possible you'll have to find some way to help the unemployed people--either find them jobs or give them money.
And that's the larger problem with this theory. Nothing about it implies that Keynesian methods wouldn't work. If you pay some people to repair bridges, nothing about that is going to make OrangeCo start firing people. On the contrary, they might actually increase production, and hire more people, to produce stuff to sell to all those newly employed people.
I'm not ruling out the idea that firm size is a problem for Keynesian theory. But CSH hasn't yet explained how.