Paul Krugman (Jan 1, 2012):
People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!
…while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.
…nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe.
Paul Krugman (March 11, 2003):
…last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.
…we’re looking at a fiscal crisis that will drive interest rates sky-high….But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency.
…How will the train wreck play itself out? ….my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.
Now to be fair, Krugman covered himself in 2003 in a credible way he said “unless we slide into Japanese-style deflation, there are much higher interest rates in our future.” Thus, I do not fault Krugman’s forecasting ability. What I do fault is that despite a 180 degree about-face, one thing remains constant in all of Krugman’s writings, anyone who disagrees with him is portrayed as a mendacious idiot. In truth, Heritage today and Krugman 2003 both have legitimate concerns about the long-term debt situation of the United States and it would have been to the credit of Krugman 2012 had he acknowledged that point more fairly.
Addendum: Krugman responds pointing out that he has acknowledged this mistake. Fair enough, although I remain puzzled as to whether we did or did not owe the debt to ourselves in 2003.
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I lead a much happier life without any mortgage.
Alex, if you read Krugman’s response, you’d know the reason back then was that the economy was in a different situation. *And* the nature of what Bush did was different (permanent tax cuts and spending increases).
What amazes me about right-wing economists is that they never give a clue that they comprehend *why* these arguments are made (whether or not they agree).
Tabarrok is such a hateful little prick.
What makes this debate so unnecessarily confusing is the fact that there are actually 2 separate issues here:
1) Is 2003 Krugman inconsistent with 2012 Krugman?
2) Are 2003 Krugman or 2012 Krugman (or both) wrong?
In my humble view, 2003 Krugman and 2012 Krugman are not inconsistent, because they were clearly predictions made on the basis of different, very specific assumptions about the conditions of the world at the relevant time. It is not an inconsistency for someone simply to make two different predictions based on two different sets of assumptions. This is the case even if you (as an observer) think one or both predictions is wrong.
As to whether 2003 Krugman or 2012 Krugman are wrong in their predictions, it is safe to say that although the jury is still out on Krugman 2012 (indeed, it is this very issue which is being debated in so many forums today), 2003 Krugman was indeed wrong. Indeed, Krugman admitted this mistake long ago (as soon as it became apparent that his prediction would not come true).
However, please let’s be clear about one thing: What Krugman has admitted is that 2003 Krugman was wrong about that particular prediction. He has NOT admitted that there is any inconsistency between the two positions, and in my view, such an admission would be unwarranted because there is simply no contradiction there. Neither does the simple fact that 2003 Krugman was wrong necessarily have any bearing, by itself, on the accuracy of 2012 Krugman. If you want to make that argument, you have to find something more than the mere fact that the two positions seem to be contradicotry. Given that this is the case, I can’t understand the relevance of this issue to the current debate. It seems to me to be simply a pointless and irrelevant piece of Krugman-bashing.
Chickenman, you’re getting too complicated for these people
Man talldave has done his fair share of bitching in this post
You know, Krugman’s position really isn’t hard to figure out if you are willing to tolerate a little bit of nuance. It sounds inconsistent if you reduce it to a ten-second soundbite, but thinking things through does make a difference.
1. Krugman did not then, and does not now, argue that deficits or debts “don’t matter.” If you want proof of that, try reading what Krugman has written about Jamie Galbraith (who really does seem to believe that deficits don’t matter). But it’s important to understand why they matter. Contrary to what you hear from the right-wing deficit “hawks” (who aren’t really hawks because they resist lots of measures that would reduce the deficits), the mere size of the deficit isn’t itself important. $800B, $1.4T, 2.8T, who cares? What matters is the economic policies that are required to service that debt.
As Krugman wrote recently, if the debt gets very large, then it may be the case that it can serviced only by means of tax rates that stunt economic growth. To that extent, deficits do matter. In an extreme case, the deficit might get so large that the government simply cannot raise sufficient tax revenue to cover it (i.e. because the necessary marginal rates would fall on the right side of the Laffer curve). But since we aren’t rearlly near either of those points, it’s maybe not all that important to fret about them incessantly.
2. The question that Krugman is asking today is “what economic policies, if enacted today, will best improve American’s economy.” The answer to that is to run large deficits. That’s a function of the current state of the economy, not of a general principle of deficit irrelevance. We *know,* because Europe has amply demonstrated, that reducing the deficit will choke off economic recovery and possibly cause another recession. And that will cause yet another plunge in revenues. In this sense, spending an extra $1T in debt today will more than pay for itself in the medium-term, the same way that spending in WWII more than paid for itself once the economy recovered from the Great Depression. That wouldn’t be true if the economy was near full-capacity.
Suppose you asked Krugman the following question: which economy would you rather have, one that is liqiudity trapped and requires a $1T+ deficit to avoid recession and more to generate economic growth, or an economy like late 1990s U.S., in which unemployment was low, the government was nearing surplus, and the likely result of government spending would be the crowding out of private investment? I am 100% positive he would choose the second. It just so happens that’s not our economy. There’s no such thing as one-size-fits-all economic policy. Measures that would be wrong in boom times are right in bust times, and vice versa.
3. People who think that Krugman is a partisan ought to read his writings from the 1990s. He spent an awful lot of time slamming protectionists, including and perhaps most especially labor unions. I’ve never seen him endorse protectionism. Not once. He doesn’t talk much about trade policy these days, in part because the matter is largely settled: we are all free traders now. But if Obama were to roll out a Smoot-Hawley tariff proposal in 2012, I’m positive Krugman would slam him mercilessly.
There’s no question that Krugman has political leanings. There’s no question he takes a different tone re: Bush and Obama. But he hasn’t been changing his theories to fit prevailing political winds. Anyone who thinks that simply isn’t paying attention and/or has no regard for truth.
The defence of Krugman seems to be that he isnt inconsistent because of a bunch of things he didnt include in the article. Yet I am fairly sure that those making the argument would also jump to his defence if anyone accused him of being a bad communicator.
I see the same tactic used by people defending the “truth” of the Bible.
(P.S. the argument that Krugman isnt a partisan because of stuff he wrote in the 1990′s is aborted in utero by the fact that his current critics sa the man has changed into a partisan.)
Sure, they say he’s changed into a partisan. But his policy ideas flow from his theory of liquidity traps, and he started writing about liquidity traps back in the 1990s, when he was also taking aim at unions and protectionists.
Krugman seems to be the kind of guy who arrives at his conclusions by following his theories, not vice versa. I’ve rarely seen examples to the contrary.
That’s a different question from whether or not his writing is excessively tendentious, polemical or arrogant. These complaints seem to pop up in any critical discussion of him, which suggests that his critics’ are mainly taking issue with his rhetoric, not his ideas.
Actually I only ever see his professional critics taking issue with his rhetoric at the same time as his ideas. “He’s wrong, and he’s an ass.”
And it is nothing special to note that his conclusions come from theories. As it is the theories are criticised equally as much (and concurrent to) the conclusions. Again, “His theory is wrong, his conclusions are therefore wrong, and he’s an ass.”
Consistency is the refuge of small minds frozen in place. Intelligent people never stop learning or expanding their horizons, and if they’ve misunderstood something one year then realized they were wrong and corrected their concepts accordingly, the next year, that’s what makes them adults, not children. And a man is someone who admits when he’s been wrong; a child is someone who tries to hide it or ignore it. Which type do you think fills the Heritage Foundation?
Sorry, lots of people ignore what Krugman writes because they want to fit them in the straw narrative about what they think a liberal economist does.
In reality, being Paul Krugman means being able to yell “Scoreboard”. Remember, he worked at the Reagan White House as a staff member of the Council of Economic Advisers. (Now there is a Kenyan, Keynsian Socialist outfit.) For how hard he was on GW Bush, he certainly has been very hard on Obama. If you disagree, you don’t know how to read.
You think the Heritage Foundation is better a backing up their statements with empirical facts? They had to walk back their statements on Ryan’s plan, cause they got their hands caught in the cookie jar. Sheesh
>> Fair enough, although I remain puzzled as to whether we did or did not owe the debt to ourselves in 2003
We did. But it does not mean that US do not have a long-term budget problem — which Krugman acknowledges regularly now, as well as in 2003. And in 2003 he was right to criticize the government for making the long-term outlook worse. And he was right to worry about the investor’s reaction to the US behaving like a banana republic.
But the argument about the debt ownership is not made now to prove that the debt never matters. This is merely a response to the demands of austerity now now now.
“In truth, Heritage today and Krugman 2003 both have legitimate concerns about the long-term debt situation of the United States”
This is, of course, not even remotely true. Heritage today is *pretending* to care about debt in order to push far-right memes. Their pretense coincides with the presence of a Democrat in the White House and will disappear the moment that does. In fact, it even disappears in the meantime any time it’s convenient, like say, when increasing the debt by extending Bush tax cuts, repealing the ACA or supporting Paul Ryan’s innumerate mess comes up.
So let’s accept, as Krugman does, that Krugman was wrong at least once, in 2003. Does that make the Heritage foundation right about everything? Anything? Off the top of my head, I can’t think of an example where the scholars at the Heritage Foundation didn’t get things flat out wrong and/or manipulated the data to get the numbers to work out to what they already believed. Wallison and Pinto are the most recent examples, inventing their own definition of ‘subprime’ and ignoring all of the contrary evidence, but they certainly aren’t unique.
good grief you are such an idiot
How can you acolytes not recall the many instances where Krugman has called into question the intelligence, honesty, and motivations of people who disagree with him?
…. but accurately, kimble, but accurately. Are you really advancing the proposition that those who disagree with him are honest, intelligent, or have intellectually honest motivations? If so I would like to sell you the Brooklyn Bridge.
The MR site is disappointing when instead of concentrating on microeconomic analysis, they get into squabbles in defense of some rather arrogant theorists of the Chicago School. I’d say, that apparently you just don’t like that he challenges them in a popular forum and is a Nobel winner. Otherwise you wouldn’t be making up these assertions about what he is saying. The attacks in Economics started along time ago in the Chicago School because of ideology about the Government. Keynes died along time ago and was not in much of a position to defend himself and frankly even the Neo Keynesians don’t do enough to point out that just perhaps if some of the early Keynesians were flawed, then perhaps they didn’t understand some of his subtlety.
“…nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe.”
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There is in fact no inconsistency between the two statements when you consider that the Bush administration, at least by Krugman’s reckoning, was not a ‘stable, responsible government’ as defined here. Krugman was in fact expressing concern over the fact that the government had no intention of ever raising taxes – that in fact it was cutting them even as it increasing its spending.
“…nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe.”
________________________________________________________________________________________
There is in fact no inconsistency between the two statements when you consider that the Bush administration, at least by Krugman’s reckoning, was not a ‘stable, responsible government’ as defined here. Krugman was in fact expressing concern over the fact that the government had no intention of ever raising taxes – that in fact it was cutting them even as it increased its spending.
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“Krugman responds pointing out that he has acknowledged this mistake. Fair enough, although I remain puzzled as to whether we did or did not owe the debt to ourselves in 2003.”
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Well, yes we did, in a sense. But he wasn’t claiming that this means that debts therefore posed, and now pose, no difficulties whatsoever – especially for nations lacking ‘stable, responsible governments’ (see above).
“…nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe.”
There is in fact no inconsistency between the two statements when you consider that the Bush administration, at least by Krugman’s reckoning, was not a ‘stable, responsible government’ as defined here. Krugman was in fact expressing concern over the fact that the government had no intention of ever raising taxes – that in fact it was cutting them even as it increased its spending.
“Krugman responds pointing out that he has acknowledged this mistake. Fair enough, although I remain puzzled as to whether we did or did not owe the debt to ourselves in 2003.”
Well, yes we did, in a sense. But he wasn’t claiming that this means that debts therefore posed, and now pose, no difficulties whatsoever – especially for nations lacking ‘stable, responsible governments’ (see above).
Alex, dear boy it may have escaped your notice but there are in fact a lot of credentialled mendacious idiots (particularly on the right) opinionating on economic issues. And that’s without the cloud of gnats who inhabit the blogosphere. In fact I find Krugman on the whole quite reticent on the topic of academic economists who peddling obvious falsehoods. Is Krugman omniscient? Of course not, his economic doomsday scenarios and glossing over political realities is often questionable, but has he on the whole been right in his analysis? Indubitably. Which is what probably ticks off his critics.
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