Timely post from Krugman on the relationship between debt and growth. I particularly liked this seemingly obvious but actually quite interesting take:
What I think I’m seeing, although I haven’t tested this carefully, is that the causal relationship largely runs from growth to debt rather than the other way around. That is, it’s not so much that bad things happen to growth when debt is high, it’s that bad things happen to debt when growth is low.
He references two Carmen Reinhart papers in this post. I don't have the time, energy or, quite frankly, ability to read many academic economic papers, but I've read and listened to numerous interviews with Reinhart and she is defintely one of the go to people when it comes to debt and growth.
Showing posts with label Paul Krugman. Show all posts
Showing posts with label Paul Krugman. Show all posts
Liquidity Trap/Stimulus/Wages Links
Chicago economist Casey Mulligan on the "paradox of toil", stimulus, unemployment, Krugman, and liquidity trap.
The Marginal Revolution boys offer their thoughts here and here.
Sumner here.
And here's a link to Krugman's blog, where he has a number of posts on the topic.
Question for liquidity trap proponents: can the Fed actively buy debt (as oppose to passively inflate through zero interest rates), both private and public, to further increase the money supply? If so, would this make fiscal stimulation unnecessary?
The Marginal Revolution boys offer their thoughts here and here.
Sumner here.
And here's a link to Krugman's blog, where he has a number of posts on the topic.
Question for liquidity trap proponents: can the Fed actively buy debt (as oppose to passively inflate through zero interest rates), both private and public, to further increase the money supply? If so, would this make fiscal stimulation unnecessary?
Competing Macro Views
Some would say the current state of macro is in disarray as it is having a great deal of trouble explaining the current economic situation. But I don't think disarray is so much occuring as is intense competition. Right now there are a ton of competing views trying to explain the siuation. Krugman, Kling, and Sumner seem to me to be the big three right now. Here's Kling on the current state of macro and the competing views:
I am prepared to offer pushback against the Sumner-Hetzel viewpoint. However, it really deserves the status of the "null hypothesis." In a more reasonable world, everyone would be starting from the presumption that Sumner and Hetzel are correct. Those of us arguing folk-Minskyism and telling the Recalculation Story should be the ones fighting an uphill battle to bring our ideas into the policy debates. That this is not the case, and that SC is now on the fringe, is one of the most remarkable stories of this whole macroeconomic episode.
I am prepared to offer pushback against the Sumner-Hetzel viewpoint. However, it really deserves the status of the "null hypothesis." In a more reasonable world, everyone would be starting from the presumption that Sumner and Hetzel are correct. Those of us arguing folk-Minskyism and telling the Recalculation Story should be the ones fighting an uphill battle to bring our ideas into the policy debates. That this is not the case, and that SC is now on the fringe, is one of the most remarkable stories of this whole macroeconomic episode.
Deficit Discussion/Clarification
Okay, so I read all of Rob's links concerning Krugman framing his liquidity trap/fiscal stimulus story. And Rob is right, he does frame the argument quite well. It seems I was speaking more out of my own incoherence than Krugman's failure to convey his ideas clearly.
So I propose we drop Murphy as I don't think he adds anything to the discussion (I regret the post) and ignore tax policy (at least for the time being) so we can focus on Krugman's deficit argument.
As I understand it, Krugman's premise is we are in a liquidity trap (interest rates = 0) so monetary policy is a gun without ammunition and fiscal policy needs to step in to make up for what the Fed and private sector can't/won't do. This can be done through tax cuts or increased spending. This is viewed as a short-term issue so it is assumed the deficit can be paid off in the long-run without signifcant inflationary costs. Also, tax cuts will be saved instead of used for investment or saving, and thus government must step in to do the spending. Ala, deficit spending is the best remedy for our current woes.
Rob, is this correct? I don't want to go any further unless I have basics of the story down.
So I propose we drop Murphy as I don't think he adds anything to the discussion (I regret the post) and ignore tax policy (at least for the time being) so we can focus on Krugman's deficit argument.
As I understand it, Krugman's premise is we are in a liquidity trap (interest rates = 0) so monetary policy is a gun without ammunition and fiscal policy needs to step in to make up for what the Fed and private sector can't/won't do. This can be done through tax cuts or increased spending. This is viewed as a short-term issue so it is assumed the deficit can be paid off in the long-run without signifcant inflationary costs. Also, tax cuts will be saved instead of used for investment or saving, and thus government must step in to do the spending. Ala, deficit spending is the best remedy for our current woes.
Rob, is this correct? I don't want to go any further unless I have basics of the story down.
Cochrane vs. Krugman
A couple of months old, but John Cochrane takes Paul Krugman to task in this essay.
(HT: The Big Questions)
(HT: The Big Questions)
Roberts on Mankiw vs Krugman
Russ Roberts offers his thoughts on the recent Mankiw vs Krugman debate. A snippet:
Does anyone (even Krugman or DeLong) think that the $100 billion or so of stimulus money that had been spent at that point had really saved or created one million jobs? (I’m ignoring the “tax cuts” which were mostly saved.) It’s possible of course. But does anyone think that the claim of one million was the result of careful objective analysis to control for everything necessary it would take to measure the number of jobs that would exist in the absence of the stimulus? And it’s not even clear that the exercise is econometrically possible. Yes, economists try to estimate things like the multiplier and the estimates vary widely for purely statistical reasons and not just the challenge of measuring confidence say, or why all government spending is not alike or any of a myriad of other challenges.
Does anyone (even Krugman or DeLong) think that the $100 billion or so of stimulus money that had been spent at that point had really saved or created one million jobs? (I’m ignoring the “tax cuts” which were mostly saved.) It’s possible of course. But does anyone think that the claim of one million was the result of careful objective analysis to control for everything necessary it would take to measure the number of jobs that would exist in the absence of the stimulus? And it’s not even clear that the exercise is econometrically possible. Yes, economists try to estimate things like the multiplier and the estimates vary widely for purely statistical reasons and not just the challenge of measuring confidence say, or why all government spending is not alike or any of a myriad of other challenges.
Krugman Misses the Point
In a recent post on his blog, Paul Krugman disparages Dick Armey for saying the government ran the housing market into the ground (or something along those lines). Krugman writes:
There’s a persistent delusion, on the part of many pundits, to the effect that we’re actually having a rational political discussion in this country. But we aren’t. The proposition that the Community Reinvestment Act caused all the bad stuff, because government forced helpless bankers into lending to Those People, has been refuted up, down, and sideways. The vast bulk of subprime lending came from institutions not subject to the CRA. Commercial real estate lending, which was mainly lending to rich white developers, not you-know-who, is in much worse shape than subprime home lending. Etc., etc.
If you watch the video, you'll see Armey never mentioned the CRA. He simply made a sweeping blanket statement. Now anyone who has followed the decade long critique of government interference in the housing market knows the CRA is the last policy serious critics claim played a role in the debacle. It's pretty much accepted, in all camps, that the policy had a relatively negligible effect on the market.
But what Krugman misses (or most likely chooses to miss) is that the CRA is in and of itself one of the many results of a political mindset that dominated Washington in the 80's, 90's, and 00's that indirectly forced hundreds of thousands, if not millions, of parties to get involved in something they ordinarily never would have gotten involved in.
No doubt a similar thing will happen in healthcare if the same mindset wins out.
(Note: See chapter 2 of Johan Norberg's Financial Fiasco for a detailed analysis of government interference in the housing market)
There’s a persistent delusion, on the part of many pundits, to the effect that we’re actually having a rational political discussion in this country. But we aren’t. The proposition that the Community Reinvestment Act caused all the bad stuff, because government forced helpless bankers into lending to Those People, has been refuted up, down, and sideways. The vast bulk of subprime lending came from institutions not subject to the CRA. Commercial real estate lending, which was mainly lending to rich white developers, not you-know-who, is in much worse shape than subprime home lending. Etc., etc.
If you watch the video, you'll see Armey never mentioned the CRA. He simply made a sweeping blanket statement. Now anyone who has followed the decade long critique of government interference in the housing market knows the CRA is the last policy serious critics claim played a role in the debacle. It's pretty much accepted, in all camps, that the policy had a relatively negligible effect on the market.
But what Krugman misses (or most likely chooses to miss) is that the CRA is in and of itself one of the many results of a political mindset that dominated Washington in the 80's, 90's, and 00's that indirectly forced hundreds of thousands, if not millions, of parties to get involved in something they ordinarily never would have gotten involved in.
No doubt a similar thing will happen in healthcare if the same mindset wins out.
(Note: See chapter 2 of Johan Norberg's Financial Fiasco for a detailed analysis of government interference in the housing market)
Mankiw vs Krugman
Greg Mankiw defends himself against (seemingly unjust) charges made by Paul Krugman.
Every Keynesian style defense I've read on the stimulus package, including the White House, confuses modeling with reality. Krugman, the central figure of this group, consistently determines the assumptions he makes about the economy are 100% true and infallible. This is an unbelievably arrogant and dishonest thing for someone as intelligent and influencial as Krugman to do. Mankiw writes:
I do not object to claims such as:
A: "Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus."
But it is absurd to suggest that you can say:
B: "We have measured how many jobs the stimulus has saved or created, and the number is X."
Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is, of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you "learn" that 110,185.36 jobs have been created or saved in California alone.
Krugman is disguising politics as economics, and his pedigree is allowing him to get away with it. This is bad news for the discipline of economics.
UPDATE: Mario Rizzo weighs in over at Think Markets.
Every Keynesian style defense I've read on the stimulus package, including the White House, confuses modeling with reality. Krugman, the central figure of this group, consistently determines the assumptions he makes about the economy are 100% true and infallible. This is an unbelievably arrogant and dishonest thing for someone as intelligent and influencial as Krugman to do. Mankiw writes:
I do not object to claims such as:
A: "Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus."
But it is absurd to suggest that you can say:
B: "We have measured how many jobs the stimulus has saved or created, and the number is X."
Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is, of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you "learn" that 110,185.36 jobs have been created or saved in California alone.
Krugman is disguising politics as economics, and his pedigree is allowing him to get away with it. This is bad news for the discipline of economics.
UPDATE: Mario Rizzo weighs in over at Think Markets.
Subscribe to:
Posts (Atom)
