Paul Krugman Goes for a Knockout Against Scrappy Austerians

http://www.bloomberg.com/graphics/2015-krugman-battles-austerians/?cmpid=yhoo

by petethomas • 11 years ago

29 51 11 years ago

comex2• 11 years ago

The GIFs are clearly the product of some effort, but I would've preferred if the article itself were a bit more thorough. In particular, it mentions several debates between Krugman and other economists that seem to have a basis in more or less factual allegations - whether switching to a different month as a basis for a comparison would indeed seriously undermine one of his arguments, whether he failed to predict such-and-such (really, in general whether he's been as spot-on over the years as he himself claims), etc. What I'd really like to read would be a Politifact-style third party analysis of the disputes. Of course, there is no such thing as a truly objective fact check, but an attempt would at least give me some idea of the reality of the situation. I could try to do the research myself, but I don't know the first thing about economics, so I expect it would be rather difficult... doesn't prevent me from taking a casual interest in the matter.

zurn3• 11 years ago

Indeed. This sounds like they just gathered soundbites from his opponents without any attempt at even-handedness, even though many of the issues have been followed by a lot of back-and-forth in public fora. Followers of Krugman's blog can recognise many counterarguments in the article which have been specifically addressed in his blog (and in many cases credibly overturned).

Also it would be fair to let his side pick a share of the debate points.

maxlybbert4• 11 years ago

There are no GIFs, but I enjoyed the "Three Wrongs Don't Make a Right" article ( http://fee.org/freeman/detail/paul-krugman-three-wrongs-dont... ):

"Krugman, armed with his Keynesian model, came into the Great Recession thinking that (a) nominal interest rates can’t go below 0 percent, (b) total government spending reductions in the United States amid a weak recovery would lead to a double dip, and (c) persistently high unemployment would go hand in hand with accelerating price deflation. Because of these macroeconomic views, Krugman recommended aggressive federal deficit spending.

"As things turned out, Krugman was wrong on each of the above points: we learned (and this surprised me, too) that nominal rates could go persistently negative, that the US budget 'austerity' from 2011 onward coincided with a strengthening recovery, and that consumer prices rose modestly even as unemployment remained high. Krugman was wrong on all of these points, and yet his policy recommendations didn’t budge an iota over the years.

"Far from changing his policy conclusions in light of his model’s botched predictions, Krugman kept running victory laps, claiming his model had been 'right about everything.' He further speculated that the only explanation for his opponents’ unwillingness to concede defeat was that they were evil or stupid."

overgard7• 11 years ago

Yeah, but why engage in thoughtful debate when you can show a gif of him punching people?

zurn3• 11 years ago

This guy doesn't seem very credible judging by the WP article about him or the one about his employer (He works for an oil money funded right wing climate-skpetic "think tank").

comex2• 11 years ago

I read the article. It's interesting, as it does point out situations where Krugman seems to have been somewhat wrong in hindsight - which may be more discrediting than it otherwise would be, despite the difficulty of most predictions, when combined with his constant self-praise. That said, the evidence is fairly subjective: for example, even as someone unfamiliar with economics I can be pretty confident that Murphy is overstating his case when he lambastes Krugman for talking about the zero lower bound, when it turns out that interest rates can go slightly negative - it may be more than "nitpicking", as he says, but the zero lower bound turning out to be less than zero hardly vindicates the idea that the entire concept is a "mentality" Krugman is "locked into". Also, a prediction that 'X will push the economy in the wrong direction' is not directly contradicted by the economy going in the right direction in the presence of X; it's evidence against the relation, but not necessarily strong evidence in a complex system with many other factors - yet Murphy uses words like "revisionism" and "withering and irrefutable criticism".

Meanwhile, Wikipedia has links to articles where Murphy has made absolutely worded claims that have turned out to be completely wrong. That doesn't make Krugman right, but it's hard to take seriously anything about economics written by someone who said

"We can’t know the timing of the impending monetary catastrophe, but it is coming. Smart investors will minimize their dependence on the dollar before it crashes. At this late date, no one should trust the government and media “experts” who assure us that the worst is over." [1]

Maybe two excesses average out somewhere closer to the truth? But I'd like a more neutral source.

http://www.theamericanconservative.com/articles/killing-the-...

c2the3rd• 11 years ago

One thing to remember about Krugman is that his specialty in college was trade theory. That is what he studied as a graduate and what his thesis was about. He made landmark advances in that field, and I respect him for it. However, this also means he is not an authority on monetary or fiscal policy and his views on these things do not have the weight some think they do. He is widely published in mainstream news only because he is an talented writer.

ende2• 11 years ago

Yup. If anyone wants to read some high quality Krugman, check out his recent posts on TPP. I think he does a great disservice to his intellect by wading into political economy and his constant partisan mudslinging. I think it's the one thing standing in the way of him taking the baton from Milton Friedman.

theophrastus• 11 years ago

However beware the anointed authority; Greenspan was certainly that, and he denied the recession was coming, was already underway, and to this day has only grudgingly admitted that it happened. Krugman, among others, saw the danger early and tried to warn us.

datainplace• 11 years ago

I hate that Bloomberg is trying to be Buzzfeed. This could be the most amazing though provoking article of all time, but I'm not going to read it when it starts with an animated Krugman GIF

overgard7• 11 years ago

Yeah, it's entirely unreadable, but I suspect for the target audience reading is not the point.

usefulcat• 11 years ago

Spoiler: it's not.

dredmorbius2• 11 years ago

That page is truly optimized for lynx (or, in my case, w3m).

EdSharkey4• 11 years ago

The whole anti-austerity argument has always sounded to me like the left's version of "grow your way out of recession/depression" or "trickle down economics".

Doesn't wasteful central government stimulus always just enrich cronies and banksters? The whole shovel-ready jobs being nowhere to be found/summer of recovery thing was kindof laughed off by the president, but that obscene $500bil stimulus still got spent.

jbooth6• 11 years ago

Sure, 'wasteful' anything is probably, uh, wasteful. But there's a long history of successfully executed stimulus, VERY MUCH INCLUDING the recent one which was supposed to lead to hyperinflation and the end of society as we know it, but actually was highly correlated with a very nice recovery from near total economic meltdown.

Austerity has way better rhetoric, you can talk about wasteful spending and living within our means, blah blah, but the predictions have absolutely sucked compared to standard economics.

Edit: other austerity greatest hits:

* don't bail out detroit!

* qe will lead to hyperinflation!

* cancel infrastructure projects!

* buy gold!

ende2• 11 years ago

What stimulus? According to Krugman, fiscal policy in the US fell far short. In fact he classifies temporary decreases in spending -growth- as austerity. Frankly most developed economies have thrown the kitchen sink at their problems to the extent that its near impossible to disentangle policies that coherently resemble either strategy. That makes analysis difficult, but also means all the economics bloggers blog about how right they were. Such is the dismal science.

EdSharkey4• 11 years ago

I suppose 'wasteful' isn't descriptive enough. What I was thinking was something like, 'a big glob of money generally earmarked for boosting the economy and other do-goodery'.

Sure 500bln is a delicious shot in the arm, even if most of it is 'wasted' on the cronies. I can't predict what will trigger inflation, hyper- or otherwise, in this distorted economy. All I want to know is, just when exactly can I expect the payoff? Will there be growth or recovery such that the debt holders are paid back? No? Never can expect it, realistically? Ok, let's cut it out with the stimulus then, because I'm sick of bailouts and blatant cronyism.

wavefunction• 11 years ago

Regarding quantitative easing, I would actually assign support for pursuing to the pro-austerity camp as it devalued the dollar and caused the average consumer's purchasing parity to decrease. It was austerity applied to the population at large to solve the problems caused by only a fractional portion of the population in the US.

_yosefk3• 11 years ago

Erm... I think asset price inflation actually did happen. With stock prices (which anti-austerity economists say are "fair" in that you cannot expect P/Es around 15 under ZIRP, so get used to 20) the result is wealth redistribution from the majority of the population to the richest people, but since rich people don't typically increase consumption that much as a result of extra wealth, this does not affect things like food prices. However, housing, which is also one of the kinds of assets the rich buy as an investment (rather than to "consume" it/live there), had its prices increase around the world as well, which I think hurts most people really bad.

Another big issue is all the stuff that got financed that normally couldn't be financed, with investors everywhere willing to buy junk bonds and any imaginable kind of stock. How that works out remains to be seen.

(Personally I don't have a firm opinion on stimulus/austerity, apart from it being a far from obvious issue - that I believe rather firmly.)

api• 11 years ago

I mostly agree, but I do have to point out that inflation has occurred. It's just been confined to a limited number of areas. Housing is completely insane in many areas when compared with median income, and that's largely a side effect of cheap money. Food, fuel, college tuition, and health care also continue to inflate, with tuition being almost as bad as housing.

Hyperinflation is almost impossible in a highly leveraged credit economy, but cheap money has to go somewhere.

I'm personally unimpressed with all the various schools of economics. Sometimes it seems like astrologers and palm readers arguing over which technique happened to randomly seem to work last time.

bloaf• 11 years ago

https://en.wikipedia.org/wiki/Civilian_Conservation_Corps

Not always. I think it's a shame that the stimulus wasn't done too well, but I don't think any attempt was destined to failure. If done well, the stimulus might have effectively addressed a large number of problems, such as infrastructure and unemployment as the CCC did in its day.

pdkl95• 11 years ago

"Wasteful government spending" is a propaganda meme used to justify austerity, when it usually is just a dog-whistle for "screw PBS/NASA/the poor". Notice how the "waste" never seems to be found in the traditional crony/bankster favorites like our huge military or anything resembling a subsidy for Wall St. Removing "waste" sounds good, but you have to make sure it's actually "waste" being removed, and not the usual political targets.

The real problem with austerity is that it makes debt bigger by shrinking the underlying GDP, and a fallacy of composition where individually rational actions (e.g. cutting your personal expenses so you can pay down your debt) doesn't work if we all do it at the same time. The solution often is some variant of "grow your way out of recession". It's not a great solution, but it's probably the least-worst plan. This may or may not involve make-work programs; an "anti-austerity" plan may simply be a plan that stops ruining the GDP with cuts.

(trickle-down the opposite idea, I'm not sure why you associate it with anti-austerity)

Never mind Krugman - I highly recommend Mark Blyth's (prof. econ. Brown Uni) discussion of the topic ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 - the main lecture starts after a boring introduction at ~12min). While this particular lecture is focusing on the situation in the EU, Blyth covers a lot of general econ topics and spends a lot of time on the history of austerity and what it does to an economy.

EdSharkey4• 11 years ago

trickle-down theory presumes the whole rising tide lifts all boats deal where the creation of new businesses and increased wealth at the top will trickle-down to the lower and middle classes through jobs and wage increases.

"grow your way out of recession" is pretty much making the same argument.

rbehrends• 11 years ago

That'd be the fallacy of the excluded middle. There's middle ground between austerity and wasteful government spending. It's not as though countercyclical spending is particularly heterodox (though certain implementations can be).

For example, one of the most successful anti-austerity measures was the "kurzarbeit" program of the German government, which prevented mass layoffs and kept the German "mittelstand" (the backbone of the German economy) afloat.

"Kurzarbeit", very simply put, is a program that allows businesses to keep their employees employed part-time, while the government makes up for most of the loss of wages by paying them benefits. Once the recession is over and orders are coming in again, they go back to full-time employment. People don't lose their jobs, there's no drop in consumption, and businesses don't have to go through painful layoff and rehiring processes for high skill positions.

In America, which has a more consumption-driven economy, food stamps (i.e., SNAP) have been shown to be one of the most effective forms of stimulus; not only do they keep low-income families fed, but because the marginal propensity to consume is basically 100% for SNAP recipients, this then creates business for supermarkets, which in turn can keep employing their workers who also have a high marginal propensity to consume, and so forth. As a result, increases in SNAP spending were probably one of the most successful parts of the Recovery Act [1].

[1] http://www.cbpp.org/research/snap-is-effective-and-efficient

stephenboyd• 11 years ago

You know you're finally an adult when mainstream business news companies try to package themselves in a way that appeals to people your age. Are 16 bit-style animated loops like the "Dennis Hopper in a motorcycle jacket" for millenials? Are we going to see mutual fund ads like this in 20 years?

overgard7• 11 years ago

This is quite possibly one of the stupidest things I've ever seen. First off, the form. I did not appreciate the fact that hitting the down arrow on the keyboard made me scroll right, and the right arrow did nothing. I'm amazed by people that go to great technical lengths to fuck up scrolling. My browser works fine by default, stop doing shit to break it.

Second, I can't even find the point of this article other than like, Paul Krugman wins at something and they have illustrated this by showing him punching people? Is that really the standard now? Jesus Christ. Even before this I thought Paul Krugman was generally an idiot, and while I don't know if he endorsed this nonsense, it doesn't help my opinion of him.

Third, the animated gifs made this unfucking readable. Even if I wanted to focus on the light weight content, I couldn't, because there's this goddamn gif blinking in the corner of my eye every three seconds. If you're making me queue up an ad blocker to block a thing that's not even an ad, you've failed at web design.

dredmorbius2• 11 years ago

Applause, on all points.

I've got the article open in w3m to see it's even worth reading.

noobermin• 11 years ago

Sheesh, am I the only one who actually enjoyed the visuals? The idea of having economists in an arcade brawl is basically parodying their usual blogpost battles and treating it as if it were real fighting, so I found it humorous.

The article itself, however, is queer--it ends in an unsatisfying ambiguity: apparently Krugman wins because he is both "ref as well as combatant". In fact, the article seems to imply he loses three arguments (there are three gifs of him getting hit) and wins two, although with Osbourne, it's a little ambiguous there who is right. So, 1.5/5...So he...wins?

overgard7• 11 years ago

Sheesh, am I the only one who actually enjoyed the visuals?

Pretty much. The pixel art was well made, but the point of design is to convey an idea. The only point conveyed to me here was "I can't read this because things are flickering in the corner of my eye", and the parts I did manage to read did not seem worthwhile of the effort.

sixQuarks• 11 years ago

When you throw as much money at the problem as we did in 2008-09, of course there's going to be a "recovery". I'll believe Krugman was right only if we go another 15 years without a major economic collapse.

I believe all we did following his policies is kick the can down the road, and will eventually pay a bigger price in the future.

afsina• 11 years ago

I read it as ".. Against Scrappy Austrians" and thought finally Krugman showed some guts to debate against Austrian school economists.

Mikeb853• 11 years ago

The fact that anyone will still argue for austerity is mind-boggling.

It's been shown to have failed. You can't slash spending and increase taxes and expect the GDP to go anywhere but down. Greece is the poster child.

Most of the arguments made for austerity is for countries that modestly reduced some government spending in an otherwise positive economic state.

And let's face it, every 'developed' country's government spends a vast quantity of money, far more than most will admit. Here's a list of countries' government spending as a percentage of GDP: https://en.wikipedia.org/wiki/Government_spending#As_a_perce...

The US is at 42%, Germany at 45%, Sweden at 51%, and France at 56%, and Denmark at 57%. Most of the countries at the lower percentages are '3rd world' or failed states... The idea that a 'smaller' government will lead to economic prosperity has no basis in historical reality.

overgard7• 11 years ago

I have no strong opinions on austerity (I think this tends to be a european topic that I hesitate to comment on because I don't have enough information), but I don't think it's that weird that people might disagree. Somehow Keynesian economics has become the dominant ideology, and while I think that rational people can certainly have differences with regard to his economic views, I think it's weird that his ideas have essentially become a religion, where arguing against them relegates one to the "fringe".

Of course, this article didn't help, because instead of advancing a thoughtful discussion, it tried to use animated gifs and "clever" web design to distract people from noticing that the content of the article was both vapid and internally incoherent.

I know people are probably thinking, "why do you care", and I don't particularly, but I think this article is basically an insult to all of us. This is bloomberg essentially stating: "this is what we think of you, if you're reading this, we think you're the sort of person that can be distracted by shiny stupidity". My previous feelings towards bloomberg were mildly positive, but I suspect moving forward any articles they write I will have a more critical view towards.

That said, hats off to the people that made the images. They are really good, and obviously the people behind them are very talented. I wish it had been attached to something worthwhile.

Mikeb853• 11 years ago

I think it's weird that his ideas have essentially become a religion

If you think that's strange, read internet blogs based around the 'Austrian' economic school.

Anyhow, Keynes' theories weren't so much ideological as they were based on his observations of economic events and models. And they've been elaborated on in the current 'dominant' economic school, which is better called 'Neoclassical Economics', wrongly labelled as 'Keynesian Economics' by the naysayers (though of course much of it does develop on Keynes' ideas).

while I think that rational people can certainly have differences with regard to his economic views

The problem isn't so much people with 'different' opinions, but rather those who have opinions about economics but no coherent economic models, theories or observations of their own.

And I've found many of those who argue against Keynes' theories are also the ones who espouse things like a gold-backed currency, or eliminating government altogether. I've seen blogs that equate Keynesian economics to satanism... There's far more 'kooks' in the anti-Keynesian camp than in the Neoclassical camp.

atmosx• 11 years ago

I was disappointed, although I've read many of those debates (to some I could answer easily myself heh) but this nice street-fighter-like gifs and the short text without any sort of arguments/data is kinda ridiculous.

bjterry• 11 years ago

This is interesting as an art piece, but I think it is easy to intuit from the presentation that the authors are not being very careful thinkers.

The truth is that the question of austerity is a fairly complex one. The reason it seems so cut and dried is that the modal promoter of austerity has no training in macroeconomics and is making arguments that are clearly not supported by theory. That said, to portray Krugman as definitely correct on the matter of austerity is very misleading.

There are basically two camps of people opposing Krugman, "mainstream Austrians" and market monetarists. Mainstream Austrians isn't really a category, but this is people who make arguments based on analogies with household budgets, and worry about hyperinflation from out of control spending. Most of them have economic theories that are not well-supported empirically. These people say austerity is better and will lead to stronger growth, possibly after a painful period of economic adjustment. Often these are head economists at small banks or other pundits that get a lot of airtime for their opinions. They probably don't actually identify as Austrians 95% of the time, but in this particular instance they are following Austrian thinking.

The other major camp is market monetarists, whom Krugman is very dismissive of, despite the fact that their arguments are compelling and their empirical support is probably as strong as pro-spending Keynesians. In his arguments with market monetarists Krugman has been almost dishonestly evasive, initially claiming that the American austerity would be the ultimate test of market monetarist thinking, but then posting no follow-up eating crow after the test showed strong macroeconomic growth "in spite of" the austerity.

The fundamental issue of austerity under market monetarist thinking is that of monetary offset. The central bank has an inflation target, and they are targeting it no matter the fiscal policy of the country as enacted by legislators. If the legislature authorizes dramatically higher spending, monetary authorities increase interest rates to slow down the economy and bring inflation back in line with their 2% target. If the legislature instead goes after austerity policies, the monetary authorities lower interest rates to increase economic activity and again hit that 2% inflation target. In America, when our austerity came into effect, our central bank started a round of additional quantitative easing, which is functionally similar to lowering the interest rate when it is at zero, and this lead to us having continued growth despite the slowdown in government spending.

One of the things about monetary offset is that it only applies to countries that have independent monetary policy, i.e. they have their own independent central bank issuing their own currency. Market monetarists and Keynesians agree that austerity is a terrible policy for countries in the Eurozone, because they do not have independent monetary policy to make up for their decreased spending. The problem is that Keynesians also apply that thinking to countries that have independent monetary policy like the UK, Switzerland and the US. The fact that Krugman does not address this explicitly is one of the best demonstrations of his unwillingness to intellectually engage with his market monetarist opponents. It's much easier to bash on the people making the worst arguments on the other side, rather than those making the best arguments, and he is obviously very political in his thinking, and thus very tribal in his politics. Krugman is a very careful writer, however, so he rarely says anything that's outright wrong, he just chooses not to address the best arguments against his viewpoints, or says more by implication than by direct statement.

For more on market monetarism, one can read the blog of Scott Sumner at http://www.themoneyillusion.com/ or as one of the blggers at http://econlog.econlib.org and in particular one can read recent posts at [1], [2] and [3] on this topic:

1: http://econlog.econlib.org/archives/2015/06/the_other_thing....

2: http://econlog.econlib.org/archives/2015/06/russ_roberts_vs_...

3: http://www.themoneyillusion.com/?p=29692

Paul Krugman Goes for a Knockout Against Scrappy Austerians

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