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Paul Krugman said thread Paul Krugman said thread

08-26-2011 , 01:21 AM
According to wikipedia there was a recession in March 2001–Nov 2001 and then no recessions until Dec 2007-June 2009. So Krugman was also wrong in his prediction that there would be a recession. But the larger point is that he clearly was advocated a spending induced bubble here and it would be anomalous for him to have advocated otherwise.
08-26-2011 , 01:23 AM
Quote:
Originally Posted by Low Key
No he isn't.

Like any other reading, I can do nothing but suggest reading the entirety of the article again, and perhaps pretend it isn't written by someone whom you disdain.
Can you please point me towards another article in which he things that spending our way out of a slowdown is not a good idea. It seems like it would be anathema to him.
08-26-2011 , 01:26 AM
Quote:
Originally Posted by DMACM
Can you please point me towards another article in which he things that spending our way out of a slowdown is not a good idea
Please to define 'spending' in this sentence.
08-26-2011 , 01:27 AM
This is the last paragraph of the article in question.

But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
08-26-2011 , 01:29 AM
What are you even trying to say?
08-26-2011 , 01:30 AM
Quote:
Originally Posted by Low Key
Please to define 'spending' in this sentence.
I mean spending in the sense it is used in the article here:

Quote:
needs soaring household spending to offset moribund business investment
Krugman thinks that recessions are due to an aggregate demand shortfall. I mean consumption or consumer spending which is a component of aggregate demand.
08-26-2011 , 01:30 AM
Quote:
Originally Posted by DMACM
Can you please point me towards another article in which he things that spending our way out of a slowdown is not a good idea. It seems like it would be anathema to him.
Can you point me to any article where 'Keynesians' use the word 'bubble' to describe their belief in stimulus.

Krugman is not describing the policy he desires as a 'bubble.'
08-26-2011 , 01:32 AM
Quote:
Originally Posted by Low Key
What are you even trying to say?
I was just confused as to how you could possibly think that Krugman was not advocating a housing bubble there based on what I read. And I was also perplexed as to why you think in that instance he would. I actually read the article based on your recommendation and I thought maybe I was missing something.
08-26-2011 , 01:35 AM
Quote:
Originally Posted by DMACM
I mean spending in the sense it is used in the article here:

Krugman thinks that recessions are due to an aggregate demand shortfall. I mean consumption or consumer spending which is a component of aggregate demand.
Which part happened:

Household spending increasing dramatically?

The US getting out of the recession completely?
08-26-2011 , 01:36 AM
Quote:
Originally Posted by Low Key
Which part happened:

Household spending increasing dramatically?

The US getting out of the recession completely?
Household spending increased, a housing bubble was created and the recession was pushed off into the future.
08-26-2011 , 01:41 AM
Heres his explanation. He says he advocated the low interest rate policy that Greenspan used but didnt think that that could create a bubble. As I count it hes wrong on 3 counts in this. He was wrong that there would be a recession in 2002. He was wrong that a housing bubble could not be created with low interest rates and he was wrong that this would be a good idea. Even if he denies that creating the housing bubble was what he was advocating he advocated the policy that created the housing bubble.

http://krugman.blogs.nytimes.com/201...nd-the-bubble/
08-26-2011 , 01:43 AM
5% increased growth over 2 years is dramatic?
08-26-2011 , 01:45 AM
Quote:
Originally Posted by Low Key
5% increased growth over 2 years is dramatic?
I dont know what you're referring to when you say that but heres the GDP rate for the last 10 years.

http://www.tradingeconomics.com/unit...tes/gdp-growth
08-26-2011 , 01:47 AM
Using the source I found and the one you have, it looks like consumer spending flatlined around aug 02 and gdp tanked around 2003.
08-26-2011 , 01:52 AM
Quote:
Originally Posted by jungle survivor
Can you point me to any article where 'Keynesians' use the word 'bubble' to describe their belief in stimulus.

Krugman is not describing the policy he desires as a 'bubble.'
Here is a quote from 2001-2002 when 'Keynesian' Krugman uses the word 'bubble' to describe his belief in stimulus:

Quote:
That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.
08-26-2011 , 01:54 AM
Quote:
Originally Posted by Sholar
The whole point of "Keynesian-style stimulus" is to improve the short term--even with the implicit understanding that it may come at a long-term cost. I don't think that's a controversial statement, by the way, but I'd be willing to entertain objections to that characterization.
I don't think most Keynesians believe that there is a long term cost.
08-26-2011 , 02:02 AM
Quote:
Originally Posted by Low Key
Using the source I found and the one you have, it looks like consumer spending flatlined around aug 02 and gdp tanked around 2003.
I would encourage everyone to look at the graph and form their own opinion on that. I can't get your link to open.
08-26-2011 , 02:07 AM
Quote:
Originally Posted by DMACM
Here is a quote from 2001-2002 when 'Keynesian' Krugman uses the word 'bubble' to describe his belief in stimulus:
I must be missing it but I thought he is saying a speculative bubble need not lead to a recession if certain technocratic measures are taken, and then he complains that the technocrat did not take those steps.

"B does not need to happen as a consequence of A" is not an endorsement of A.

Just like "economic growth looks mediocre for the future unless [x]" is not necessarily an endorsement of [x] particularly when the GOP controlling POTUS, Senate and the House rules out other alternatives to [x] like more traditional stimulus.

though like I said maybe there is something I am missing in that piece you linked.

edit: btw I think I was mistaken before to say Krugman was predicting a double-dip, he was more generally saying things looked mediocre for the future. His predictions seem to be consistent with either a double-dip recession OR just meh growth.
08-26-2011 , 02:13 AM
Here is a link to the full article. Krugman is differentiates himself from other economists who believe that recessions must follow from bubbles. He is also advocating that Greenspan work even faster to blow up the housing bubble.

http://www.pkarchive.org/column/5201.html
08-26-2011 , 02:24 AM
Excellent parody I must say. It's really embarrassing for the people who respect Krugman. The guy fails at step #1 of objective economic analysis... avoiding all partisan hackery. Not surprising all of the hacks on this forum are showing up to defend him.
08-26-2011 , 02:25 AM
Quote:
Originally Posted by DMACM
Here is a link to the full article. Krugman is differentiates himself from other economists who believe that recessions must follow from bubbles. He is also advocating that Greenspan work even faster to blow up the housing bubble.

http://www.pkarchive.org/column/5201.html
Krugman wrote on 5.2.01 that after a speculative bubble the Fed can minimize or prevent a recession by aggressively cutting interest rates.

My question to you was asking where Krugman or any other Keynesian - or for that matter economist - advocates a policy they explicitly refer to as a bubble. Krugman's column about what to do after a bubble is not an answer to that.

It defies logic that every other time an economist arguably is calling for a bubble, they use other euphemisms (like "stimulus," if you take that to necessarily mean a bubble) besides the word "bubble," but in this one instance where Krugman says "looks like we'll have meh growth unless there is a bubble" he's advocating that bubble.

Quote:
Of course capital is wasted in a speculative boom, and much of that capital must be written off. Moreover, the sectors of the economy in which the speculative excess was greatest may not see much new investment for a while; it might be years before the demand for servers or business software resumes rapid growth.

But why should this stop the economy in its tracks?
translation: speculative bubbles are bad but need not be catastrophic.

Or does cutting interest rates = lets make a bubble in your opinion?

Last edited by jungle survivor; 08-26-2011 at 02:36 AM.
08-26-2011 , 03:32 AM
krugtard quotes:

"During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?"


Weak growth, let's lower interest rates. Ok.


"I've always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly -- that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

However, let's give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed's four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It's still not clear that Mr. Greenspan has caught up with the curve -- let's have at least one more rate cut, please -- but the interest-rate cuts do, cross your fingers, seem to be having an effect.

If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come."


Yay, we're cutting interest rates. Let's keep cutting em some more.


"KRUGMAN: I think frankly it's got to be -- business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).

DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she -- or I should say he and she, can they bring back this economy?

KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don't know"


No, really. We need rate cuts so housing can save the economy.


"KRUGMAN: I'm a little depressed. You know, inventories, probably that's over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven't fallen enough to produce a boom there."


Can I make it any more clear that I advocate rate cuts for a housing "boom"?


"Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery.... But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place."


A housing boom will lead us to recovery. Not quite, Krugtard.
08-26-2011 , 07:48 AM
Quote:
Originally Posted by Sholar
The whole point of "Keynesian-style stimulus" is to improve the short term--even with the implicit understanding that it may come at a long-term cost. I don't think that's a controversial statement, by the way, but I'd be willing to entertain objections to that characterization.
I think when they say long term cost they mean that the stimulus will be paid for when the economy is doing better, paying for it in the good times. Of course there is no guarantee that there will be good times (as we are seeing now) and the cost will have to be paid while we are still in recession. Whenever you increase the debt in the system you increase the risk to the system because there is a significant chance that you wont be able to pay it back and end up in the recurring recessions we have faced over the past 10 years.
08-26-2011 , 07:51 AM
Steven Williamson trolling Krugman again this morning

Understanding Irregular Economics


Quote:
Fifth paragraph:
Quote:
Meanwhile, there’s actually a lot of evidence for a broadly Keynesian view of the world. Not, to be fair, for fiscal policy, mainly because clean fiscal experiments are rare. But there’s huge evidence for sticky prices, lots of evidence that monetary shocks have real effects — and it’s hard to produce a coherent model in which that’s true that doesn’t also leave room for fiscal policy.
We have a fairly good characterization now of how prices behave - the frequency of price changes for particular goods and services. That evidence does not entirely square with modern Keynesian models, and we have search models which can deliver the features of price behavior we observe, but where money is in fact neutral. It does not follow obviously from the observed behavior of prices that the short run non-neutralities of money actually result from the pricing behavior of firms. The big gap in Keynesian theory is that it does not deliver on the elements that are key to how it works: Why are contracts set in nominal terms? Why are prices changed infrequently for some goods and services? What would make a firm unwilling to change its price but more than willing to incur the costs of changing output and employment?

Last paragraph:
Quote:
In short, there’s no reason at all to consider microeconomics the “real” economics and macroeconomics some kind of flaky impostor. Yes, micro is a lot more rigorous — but if it’s rigorously wrong, who cares?
Note how he uses "macroeconomics." He means the macroeconomics that is spooned out to poor unsuspecting undergraduates in many undergraduate principles and intermediate macro books, which is indeed flaky. This is not the macroeconomics of most practicing macroeconomic researchers, the macroeconomics taught in PhD programs or the macroeconomics of the economists who advise many policymakers. It's not too much to expect that macroeconomists be rigorous - just like everyone else.
08-26-2011 , 08:05 AM
Quote:
Originally Posted by maxtower
I don't think most Keynesians believe that there is a long term cost.
I wasn't talking about Keynesians. "Keynesianism" as a school of economics was already going out of fashion before Keynes died.

Quote:
Originally Posted by ianlippert
I think when they say long term cost they mean that the stimulus will be paid for when the economy is doing better, paying for it in the good times. Of course there is no guarantee that there will be good times (as we are seeing now) and the cost will have to be paid while we are still in recession. Whenever you increase the debt in the system you increase the risk to the system because there is a significant chance that you wont be able to pay it back and end up in the recurring recessions we have faced over the past 10 years.
A completely reasonable reply, but the two positions are not in conflict.

      
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