Krugman v. Krugman

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.


His buddy Stiglitz isn't much more consistent:

Actaully Krugman is plenty consistent given, as Alex Tabarrok now concedes, PK admitted his '03 take was erroneous a good while ago. The original post was weak enough to begin with, now it can be declared a total disaster.

I tend to be a pretty big fan of Paul Krugman but ham-fisted attempts like this to take his ego down a notch tend to have exponentially the opposite effect (in case no one has noticed that). Not a pretty sight for anyone involved. I for one will forgive MR if this one disappears down the memory hole.

Yes, he very consistently thinks across-the-board tax cuts are bad, and gov't spending is good, and that the people who disagree with him are a bunch of mendacious idiots. It's just that all the reasons keep changing.

if that is your view of what Paul Krugman consistenly thinks... I strongly suggest you back date his blow and read all his columns from any point in the past to present. I've read him since mid 2008 and the man is a pillar of consistency. Most people who think other wise do so based on silly criticisms and out of context attacks they read somewhere and not based on reading the material itself.

One bad call in 2003 does not hurt credibility, 1. he acknowledges the error, 2. he has a lot of things he got right. 3 his record beats anybody Else's record on the right that you put up against him. that last one nobody can argue.

Yes, he´s definetely quite consistent since he keeps calling stupids those who disagree, but then, when was him beeing an idiot? Perhaps both, by his own view, because PK late 2000s contradicts PK early 2000s and the other way around. So, which of those posts do you dislike, the former or the later?

3. I assume you mean his record of being wrong.


What PK is saying is this: there are policies that make sense in a liquidity trap and things that do not make sense in a liquidity trap and many of those are two things are polar opposites. Simple.

What annoys PK is that some "people who disagree" have made every plausible effort and MANY, MANY implausible efforts to say that 1) we are not in a liquidity trap and even 2) PK (who introduced most Americans to the term) doesn't know what a liquidity trap is.

All it took to convince Krugman that deficits aren't dangerous is putting a Democrat in the White House.

I look forward to Krugman disappearing down the memory hole....

Then, like I suggested, you should discourage the feeble hackery that feeds his fire.

"one thing remains constant in all of Krugman’s writings, anyone who disagrees with him is portrayed as a mendacious idiot"

Yeah but that's the BEST part of Paul Krugman

Also the Japanese style stagnation bit is really the heart of the matter, Krugman's argument for why federal debt levels don't matter much in the short or medium term is always based on the fact that there is too much excess capacity currently for inflation to start catching on.

"Yeah but that’s the BEST part of Paul Krugman"


Without the smugness and condescending attitude what would be left in his articles of any merit?

I prefer to call it "congeniality deficit disorder".

Cogent analysis backed by data. Don't see that very often from the freshwater group.

"...based on the fact that there is too much excess capacity..."

Which is pretty obviously true.

There is also the Krugman of 2006,, for instance: "In practice, however, a "soft landing" looks unlikely, because too many economic players have unrealistic expectations. This is true of international investors, who are still snapping up U.S. bonds at low interest rates, seemingly oblivious both to the budget deficit and to the consensus view among trade experts that the dollar will eventually have to fall 30 percent or more to eliminate the trade deficit. "

It's sort of neat how things suddenly became a problem or a nonproblem to Krugman based on which party is in power and where the money is going,

Budget deficits because of military spending? The end is nigh!

Three times larger defiicits for Obama's domestic spending? We're not spending enough!

It is so funny to read Krugman's half-baked apology for the 2003 statement. It was almost like "I only said that because it was the BUSH tax cut! BUSH made me do it!"

I wonder if at some level he actually understands that he has become a partisan hack.

He's a bright guy, I've always assumed like his counterpart Ann Coulter, he is merely playing to his fans.

Are you seriously suggesting that Krugman's counterpart is Ann Coulter? The former has a Nobel prize, the latter boasts about being able to convert her sexual partners to conservatives.

True, fp3690, can't imagine Paul Krugman actually converting anyone to his nakedly partisan version of liberalism.

context matters, go fish. it isn't as simple as you portray it.

I totally agree with you. Krugman has been constantly attacked and taken out of context. Quite often I see criticism against him that is based on bogus ideas or on distortions of his writings. I follow several economics related sites (from both right and left) and I find Krugman to be consistent, clear and almost always right on his forecasts. I do not think there is anybody that opposes him that has a record that is close to Krugman's.

Krugman is attacked quite a bit - almost always with proper justification and context. The problem is that, as his followers see it, his mea culpas for his (not so infrequent) hypocrises are 'acceptable' while other economists' are not. Every economist makes errors and reverses positions - usually based on economic principles, however. Krugman does it based on political principles, which is a horrid way of approaching economics. In other words, if Bush was running the Obama deficits, it's a 'bad thing', whereas Obama doing it is 'good', simply because Krugman believes Obama is a better person to be spending the money.

As a non-partisan political player, I find Krugman's articles laughable at times. His assuredness, at all time, of being correct is odd. His ability to add little 'outs' ("if we fall into a Japan-style deflation") is logical, but he uses bizarre thought processes for this approach. After all, if interest rates HAD zoomed as he predicted, then we almost certainly would have fallen into a deflation, as credit dried up. So he basically creates a circular pattern of logic that is self-reinforcing.

His Social Security discussion was a classic. He calls it "Ponzi-Like", acknowledging that it has all the hallmarks of a Ponzi scheme (which is most assuredly is), but then simply falls back on the old saw that it's money we owe ourselves so it will never go broke because we can always tax more, thus it's not a Ponzi scheme. Uhm, if that was actually true, then Ponzi would never have been discovered, would he? He would have just kept increasing the payments from people who either joined the scheme or those in it. The government's only advantage is that it prints its own money, so it can monetize SocSec. Thus, Krugman has yet one more (odd and absurd) 'out'....just monetize SocSec, if necessary.

Look - the fact remains, and Krugman admits it, that nobody understands public debt. Not even him, however. So while he can claim assuredness and perfection, he also knows most of the BS he spouts is pure conjecture. In not understanding public debt, therefore, isn't the BEST guide to approach it from the standpoint of what we DO know about it? And that standpoint is that too much debt is, always and everywhere regardless of who has the debt, a bad thing?

I have yet to see a nation utilize Chartalism (which, for the record, Krugman opposes) and make it work. Chartalism, however, is where Krugman is drifting....and he knows it.

The funny thing? I've always had a fixed rate mortgage. But only because I had a feeling rates would rise since about 1994. I agree with his original perspective, and technically I haven't been wrong. So why haven't I changed my POV like him? Because I recognized that a fixed rate mortgage can be renegotiated if rates fall - so why bother with the risk of an ARM? The cost of a refi is low enough that if you make the money back in 10 months (and I have, each time, while reducing length of time), then it's worth it. And I also realize today's low rates are totally artificial, based on a creation of credit from the Fed that is wholly unsustainable.
It was unsustainable in 1994, in 2003 it was worse, and today it's out of control. The problem isn't that I'm 'wrong'. It's that, as Keynes once said, you can't ever time things. It's possible for the market to remain irrational longer than you can remain solvent, I believe was his terminology. Sad that Krugman is unable to accept that the one part of Keynes which is meaningful is something he's ignoring.

" In other words, if Bush was running the Obama deficits, it’s a ‘bad thing’, whereas Obama doing it is ‘good’, simply because Krugman believes Obama is a better person to be spending the money."

Well, no, RR. That's a complete and utter misunderstanding, or ignorance, of all Krugman's writing on liquidity traps, Keynesian economics, etc. to the point it makes every other claim in your comment suspect at best. Obama doing it is "good" - really it's just correct - because of the economic context in which it occurs, a recession. Running deficits to fund tax cuts during a boom, as Bush did, was the source of that criticism.

Adam, your history is bad. The Bush tax cuts came in a recession. That was the recession that came in the wake of the dot com bust. Hence, a good Keynesian like Krugman should have approved except that Krugman would have preferred the state dictate how the money be spent rather than leave it up to messy individuals.

RR is correct. Krugman's economics change depending upon what party is in power.

"The Bush tax cuts came in a recession. " 2001 cuts did, 2003 did not. Not exactly a minor point. Be sure to check your history before sticking foot in mouth. I also enjoy the accusation of Krugman's political leaning. If you actually read what he says, he's excoriated Obama almost as much as Bush for his policies.


That's wrong. The 2001 tax cuts were passed during a slight recession, but they were long-term policy changes rather than short-term, targeted stimulative efforts. And the 2003 tax cuts were indeed passed during a boom.

The opinion changed because the economy changed. Running a budget deficit when the economy is doing well is bad. I think I should save in good times and borrow in bad (if I have to). That doesn't mean my opinion on how to run my household suddenly changes when I fall on hard times.

PK makes a lot of predictions and pretty much all of them are qualified (e.g. "unless we fall into Japanese style ..."). He gets as lot of things right, including the housing bubble, and when he's wrong, it's usually in a way that he has already acknowledged (that's what the "unless" is for). Also, he admits when he's wrong- immediately.\

He can be a real jerk sometimes and I understand not liking him as a person, but it's hard to imagine that anyone judging his abilities as an economist without personal bias can honestly say that he isn't very talented. In fact, it's his talent as an economist that causes me to forgive his (often petty and childish) personal attacks.

You just don't WANT to understand "liquidity trap" do you? Krugman has consistently said that deficits do matter in a normal economy, such as existed in 2003. However in a situation of extremely depressed demand and huge excess capacity, such as exists now, deficits don't push up interest rates or inflation. It's all about context. For example, it's normally great to conserve water, even better in a drought, but not so smart when your house is burning down. The deficit to worry about is the long term deficit, caused mainly by health care costs. Short term stimulus we can easily pay back; in fact, by growing the economy and the tax base it might end up paying for itself, like the much maligned auto industry bailouts did.

greg mankiw does the same thing. economists are a disgrace to society and sciece.

not to mention speling and capitolizashun

You should use tinyurl for those long links with all the %'s in them.

Heritage does not have legitimate concerns about the USA's fiscal situation. Heritage concerns are mostly about WHAT the money is spent on not how much. I'm sure if a Politician came along demanding a quadrupling of the Pentagon's budget Heritage would be lock-step behind that proposal.

To republican there can never be to much military spending and to democrats there can never be to much school spending.

s/school/democratic party special interest/

I seem to recall that Republicans in Congress were complicit with Clinton in eight consecutive years of military budget and personnel cuts. In fact, DoD was the only thing that was truly 'cut.' Non-defense expenditures declined in their growth rate.

It was George W. Bush who coined the term 'peace dividend.'

John Kerry proposed in the 2004 campaign that we add two active duty Army divisions. It might have been wiser not to have eliminated those two divisions in the 1990s.


No, it was not "George W. Bush who coined the term ‘peace dividend.’" You're thinking of his daddy, George H.W. Bush.

And you don't recall correctly about the "eight consecutive years of military budget" cuts, either. There were 7 consecutive years, but they started under George HW (who was responsible for the '93 budget, which also represented the trend he and Reagan started with defense budget cuts with the '89 budget, only '92 seeing a slight increase). Clinton had 6 consecutive years of cuts, followed by a 4.5% increase in 2000. Reagan and Bush Sr cut the budget over 16% during 1989-1993 and Clinton cut it 14% from 1994-2001.

I didn't check to see whether the Congressional Republicans were really complicit in the first 2 FYs under Clinton, but the fact that the cuts started under Reagan and Bush supports your point that Republicans did play a role in military cuts in the 90's (starting with the end of the end of the Cold War).

Now if only there were some way to argue that Krugman 2003's model of deficits & interest rates given the absence of a liquidity trap was inconsistent with Krugman 2012's model of deficits & interest rates given the liquidity trap, this post would make sense. But alas...

The word 'given' does not mean what you think it means.

I assume he correctly thinks it means

> assumed as actual or hypothetical : granted


Taking into account: "given the complexity of the task, they were able to do a good job".

b : assumed as actual or hypothetical : granted

sorry it didn't all take:

b : assumed as actual or hypothetical : granted

looks like same type of usage to me.

stupid HTML:

b : assumed as actual or hypothetical : granted (given that all are equal before the law)

replaced carets with parens

How is it a 180 about-face if the original claim was conditional and the conditions have played themselves out?

My experience is Krugman is much more likely to be called a mendacious idiot by his critics than he is to call his critics idiots.

Yeah - if you compare Krugman's predictions to how reality bears out, obviously LIKE THE PREDICTIONS OF ALL ECONOMISTS they don't look so hot. But if you compare Krugman's predictions to OTHER economists - particularly the predictions of his critics he looks like a golden boy.

I should also add that from reading Krugman's columns I don't see anywhere where he's argued the current budget path is absolutely sustainable. His arguments are always centred around the short/medium term and the fact that (as he believes) there is substantial excess capacity.

Of course he hasn't said anything like that.

95% of the Krugman critiques out there are complete garbage. You don't have to be a Krugman fan to see that.

Good work, Daniel.

No, he hasn't argued the current budget path is sustainanble, he's argued we need to be spending much, much more.

saw Nouriel Roubini's twitter today saying that 9 out of 10 studies show the stimulus that was too small helped but we aren't revisiting that.

people in the main stream do not recognize GDP lost 2 trillion and nobody is doing anything to close the gap. Krugman called all that back in January 2009

Yes, because the government is so good at creating value. A thousand more Solyndras!

Really? Because he calls his critics idiots in almost every single post. And not just a one-word insult, but a lengthy explanation of how they have forgotten even the most basic economics, etc., etc.

By the way, his latest post does not seem to mention deflation or a liquidity trap at all or mention any contingency. He also makes some ridiculous claims about the debt being money "owed to ourselves" and that while "we" owe foreigners money, they also owe "us" money, so somehow it all cancels out.

I love the critic bashing that guy does

Cliff, "a lengthy explanation" of someone's errors isn't an insult, it's the opposite of one.

I don't think he meant 'explanation' literally.

I didn't say a lengthy explanation of someone's errors. I didn't mean an explanation of how they have gotten some economic concept wrong. I mean him literally saying that everyone who does not agree with him has "forgotten even the most basic economics", is a fool, is a tool of the republican party and on and on for a paragraph or so. And all this about professional economists, not reporters or amateur bloggers.

But when he backs that up by going through the data and demonstrating the error, as he normally does -- or when he tries to explain the sources of the error in terms of the politics and sociology of the economics profession -- he's interpreting, not insulting. A writer, and especially one with professional qualifications of his own, is not obliged to assume that someone who presents himself under the title "economist" necessarily understands how economies actually work.

Yes, assets do offset liabilities, particularly when they yield more. You don't need scare quotes, Cliff. Just maybe look into the data. It is imperfect, but may beat your gut feel.

Krugman's record is obviously imperfect, but he seems not to be hell bent on embarrassing himself. So far as I can tell, that is his edge. Look and learn.

Yes, and I love that he has learned from past calls...

"I learned from both these mistakes. In the 90s, I learned to take very seriously what people on the ground are saying about the economy, even if it isn’t well-argued. After 2003, I learned that there is a great deal of ruin in a nation — that markets give advanced countries a lot of benefit of the doubt.

So yes, I’ve been wrong. Let those who are without error cast the first stone."

Have any of his ideological opponents admitted on the record they got the inflation calls in 2009 wrong?
Have any of the opponents reevaluated their faith on the confidence fairy is light of how austerity has played out in Europe?

That stuff matters. I'll take the guy who is wrong once in a while and acknowledges his error and learns from it over the guy who lives in a hermetic world were anything that doesn't fit their belief is ignored.

And I'll say on the surface his 2003 call is on the mark logically but the market isn't always logical. The bond rate calls are very logical yet it is his opponents who have been wrong all along...will they admit it? don't hold your breath!

Has anyone who shops at a grocery store been convinced there's no inflation?

Huh? What in the world are you talking about? What data are you referring to? Does the data say that the people holding the bonds are exactly the same people the government is collecting taxes from? Because I guarantee you it does not. "We" is not any identifiable group of people. Talking about the whole country as if it were a single entity is very stupid and meaningless.

"very stupid and meaningless" -- well, it's good to see that you wouldn't stoop to insults yourself, Cliff.

I always try and read critically and often wonder about the future accuracy of pundit predictions. This study shows that Krugman's are pretty good: Interestingly, it also seems to show that liberal predictors have a better track record than conservative ones. Could there have been a bias built in? Anyone know of another study like this?

No. You're wrong. He has called all who disagree with him morons, idiots or some form of this over the years. You've chosen to ignore it. Frankly, it took me a long time to dislike him enough to consider him his own worst enemy.

The original claims conditions were self-selected and therefore meaningless. I can claim that it's going to rain tomorrow unless the sky is clear and blue. If the sky is clear and blue, then I'm not wrong. Doesn't mean I was right. It just means I chose to avoid having anyone really call me out by setting terms which allowed me to sneak out without getting caught. He knew if interest rates rose enough, a deflation would likely occur (there is more than one way for a deflation to occur, and he knew that was one), so he set terms which allowed him to say "see? I wasn't wrong!"

Fact is, he is trying to play both sides of the coin as long as it suits his political goals. This isn't economics, it's self-parody.

Yeah, another thing about 2003 is, Bush was President. I think it was Megan McArdle who made a crack back then to the effect that "Krugman used to write about economics, before he devoted full time to hatred of George W. Bush."

This is bullshit because Krugman spends a lot of time hitting hard at Obama as well. He used to be a big critic of the Clinton administration before that.

So when is he going to run for the presidency?

Has Paul Krugman ever controlled a budget on anything, ever?

Has he ever had to make an operational decision for an organization during a time of uncertainty?

Has he ever hired or fired anyone?

I'd really like to know if he's had any leadership experience at all.

Google Enron and Krugman

TA is right and CBBB is wrong about this. Krugman's criticism of was laced with hatred and colored by politics. Krugman's criticism of Obama is more polite and usually faults him for not going far enough. I usually agreed with Krugman's critiques of Bush economic policies, but was disappointed at his partisanship and mean-spiritedness toward Bush.

But criticizing Obama for not going far enough is valid because Krugman holds a certain ideological positions, which he is open and honest about. If Krugman were really just a partisan hack he would resort to the usual hackey pro-Obama arguments of "He did the best he could", "He REALLY wanted this liberal policy X but that damn Congress just screwed him over". On the contrary he tends to blame Obama himself for his failures.
I used to read a wider variety of "liberal" blogs before Obama was elected and now I don't because most of them just turned into big hackocracies dedicated to excusing Obama policies and being apologists for his failures. Krugman didn't really go down this route. On the other hand I don't read Brad Delong's blog as much because of this.

anyone who disagrees with him is portrayed as a mendacious idiot.

Lots of them are at least one or the other.

@ Pat MacAuley -

I think you have that exactly wrong. Krugman's criticism of Bush was based on frankly dishonest and stupid Bush policies. The Bush Cohort contrived pseudo-evidence about WMD's and lied to Congress to get into a discretionary war. They cut taxes and went to war simultaneously. No government in the history of the world has ever done that. None of this can be justified on any grounds.

Krugman was quite apolitical until the Bush administration made politics impossible to ignore.

Criticizing someone who worked so hard to deserve our criticism is not partisanship, it is completely rational, valid, and, I will argue, a columnists sacred duty. I'll also point out that criticism is not hate.


I'm sorry, but Krugman was virulently anti-Bush starting in 2001. For instance, he claimed that some sort of fraud was involved in Bush's investment in the Texas Rangers, because Bush put up only (say) 2% of the capital but got (say) 8% of the eventual profits. Hopefully, Krugman has learned by now what a "carried interest" is, but what he hasn't done is admit that he was wrong and that he doesn't know and never did know anything about how investment partnerships are commonly structured. He's a total hack.

What troubles me is, I don't see any evidence that any macroeconomist is different (although some are more polite). Is there any content to macroeconomics other than the political views of the individual macroeconomist? If so, why can't everyone see it?

This is what I've said before, Economics is a political discipline especially Macroeconomics. Given the assumptions made in their models there's no such thing as an apolitical economist - the most honest ones are like Krugman, they admit they have a political bias.

Seriously, you have to realise there is nothing about macro, international finance, and trade you know that he doesn't.

Wrong Pat, that is just not true.

Absolutely right Pat.

Wrong TallDave.

Krugman is by far the best and most relevant economist in the blogosphere. But even a fine and specialized talent as his would hardly have been wasted if directed full time to Bush Hating in the last decade, which it was not. The marginal product of Bush Hating was really high because it was held in such short supply by the MSM.

He left being an economist behind when he entered the blogosphere. I did see one of his ardent supporters one time try to cover for some economically ignorant statement on his blog by stating 'he is not an economist anymore and should not be held to that standard'.
One of the few honest and correct statements from any of his supporters.

In a good sense this is true; since being an economist really means first and foremost you hackishly defend the interests and views of the rich and powerful and Krugman doesn't really do this on his blog then he is not an economist

Put down the crack pipe and step away from the keyboard...

Delusional. The MSM hated Bush as much as they loved Obama.

Yeah they HATED that guy - that's why they loved to portray him as a rustic, manly cowboy next to the boring, long-winded, effeminate, fat Al Gore in 2000.
Get off of it the MSM just loves whoever is in power or whoever is "cool" and establishment.

I guess you slept through 2000-2008. If the NYT had covered WW II the way they covered Iraq, FDR would have thrown them all in prison.

I hated Bush but that is laughable. MSM is like 90% Democrats and it certainly shows.

I feel that McBrien of Calculated Risk is the best economist in the blogosphere (although I do like our hosts on MR and read Krugman). Calculated Risk provides outstanding insights and a wide variety of hardcore economic information, with charts and links to the actual data. He also tries to keep his political opinions out of his work 95% of the time.
I disagreed with most of GWB's economic and Iraq policies, and agreed with the substance of most of Krugman's critiques. But Krugman the economist should have stuck to intellectually skewering Bush's policies instead of Bush Hating. At his worst he was simply degrading the level of economic discourse in America.

OOPS! Bill McBride (not McBrien) is the virtuoso at Calculated Risk blog, and is my nominee for the best economist in the blogosphere.

if you go back and check yourself, you'll find that the truth is quite different.

In my view Krugman is harder than anybody on the right on Obama. Why? because PK has rational well thought out questions about the policy while Obama's opponents basically sound like idiots to rational thinking, well informed, college educated individuals with developed critical thinking skills. They also sound like intelligent people to people who aren't very smart and well informed.

I can agree with your criticism of his tone, but I'd like to see some kind of analysis of Heritage claims that Krugman is implicitly referring to, because they do have a reputation for being somewhat partisan and open to similar charges of inconsistency. What were they saying about the deficit in 2003, what are they saying in 2012, how is it different from what Krugman said, and why is the distinction important? What counts as a "legitimate" criticism of debts/deficits and what doesn't? Is Krugman right to dismiss Heritage debt commentary? Otherwise this is going to turn into Yet Another Krugman Post and you might as well turn off comments, because no one will learn anything.

"because no one will learn anything"

Might as well call it "Yet another Marginal Revolution Post" then

or 'CBBB will not learn anything.'
For as much as you're here and for as little you know, one would think the quality of your comments would get better in time. Unfortunately not so. I guess you can't listen when your mouth is running overtime.

Yeah yeah I know that on this blog "improving the quality of your comments' means agreeing more with Cowen and Tabarrok

I agree with that. I've come here a few times to learn a different perspective and all I get is "Krugman's an idiot and calls other people idiots." Sometimes there is an interesting post on food.


Ahh as much as I bash it this might be the best overall blog on the internet, at least from a certain perspective.

Is Krugman right to dismiss Heritage debt commentary?

No more right than Heritage is to dismiss Krugman and lefty think tanks.

read the sources...
"NRO: When government borrows $800 billion, it has to lure that same amount of investors’ money out of the economy, does it not? Away from investments in businesses, and into safe, low-yield bonds?

Riedl: The government is going to have to raise interest rates in order to convince people to lend them the full amount they need. We’re already facing a deficit of $1.2 trillion this year, and 700 billion next year. We borrowed $700 billion for TARP, and now we’re going to borrow $800 billion for this stimulus package. Compare those numbers to the entire public debt, which was 5.8 trillion up until a few months ago. It’s going to be very difficult for a global economy, which is already in a recession, to supply the U.S. government with [$3 trillion] in new borrowing. Right now, a lot of banks are happy to buy Treasury bonds because they are safe investments . . . but overall, that may not be enough. The government may have to raise interest rates higher and higher and higher in order to persuade people to lend their diminishing savings to the government. And that’s going to hurt the economy for a long time."

that was in 2009...around the same time Krugman was saying the opposite about rates and so far is PK has been right even though the monetary base has tripled. PK likes to always say "show me the model"...PK's model fits the world we live in. The chicago boys and right wing think tanks have been wrong about everything in this crisis yet have kept their credibility.

and sorry but the crowding out, the misuse of Ricardian Equivalence theory to make a logically bad jump to allege that government spending doesn't help has been debunked to the point that it is sad when you see it trumpeted as Brian Riedl just did in that National Review link.

Track records, context and knowing enough of the material matters.

Krugman covers the basics so well on his blog that when I read nonsense I know it. Why? because one is teaching me how the world works and the other is telling me how the world works in an imaginary place. When you start asking rational questions one doesn't hold up.

It's Krugman, so they're both wrong.

I encourage you to check PKs blog and articles from the last 10 years and to also do the same for Heritage. There is a huge difference and almost always Krugman wins!. As Fausto mentions, Krugman explains how the world works and then consistently verses opinions based on that knowledge and in rational analysis. Heritage just follows a dogma that justifies their political position.

This is the most ridiculous 'gotcha' I've seen in a long time. You guys can do better.

Gee I wonder if anything has changed in the world since 2003. Perhaps...wait for it...something has changed about the context of our budget deficits?

Yeah, a Democratic president is running them up.

And, they're driven by domestic spending which is yay!, rather than military spending which is boo!

Yes, the problem has gotten much worse.

Considering how much Bush loved to spend in an up economy, I can only imagine what debt levels Bush the Keynesian would have racked up the past three years. Whoa boy.

2011 United States federal budget - $3.8 trillion (submitted 2010 by President Obama)
2010 United States federal budget - $3.6 trillion (submitted 2009 by President Obama)
2009 United States federal budget - $3.1 trillion (submitted 2008 by President Bush)
2008 United States federal budget - $2.9 trillion (submitted 2007 by President Bush)
2007 United States federal budget - $2.8 trillion (submitted 2006 by President Bush)

Given the trend, I'd say we'd have saved a trillion in the first two years alone.

Really smart, hard hitting post Tom. You must be a Rhodes scholar.

Thanks for pasting that in from Wikipedia.

Under Bush's budgets we went from a deficit of $157 billion to $1.4 trillion.

Under Obama, even with the Bush tax cuts and the decimated economy, it is estimated that we will go from a $1.4 trillion deficit to a $767 billion deficit. (

So Bush's average is in the 400s (not saying that's good), and Obama's projected best is almost twice that. Actual average is 3x that. You two Einsteins make a great argument for your case.

Remember though, under President Krugman, the deficit would be $5T.

The point is that Bush added to the deficit, by more than 9 times where he started. Obama will have reduced it. Hmm...

No, the point is that by the time he leaves office next year, Obama will already have added more to the debt than Bush did in eight years.

" You guys can do better."

Actually, they can't. that's why I don't spend much time here.

An order of magnitude.

Let's say Krugman switches from an ARM at ~4% in Spring 2003 to a 15-year FRM at ~5%. Then along comes Spring 2007 when Krugman figured a housing collapse fairly likely (ARM ~ 8%) or Spring 2008 when he'd figured that a liquidity trap and protected low interest rates was the likely near/medium-term (ARM ~7%) reality. It wouldn't have been till late 2008 when the ARM rate again dipped below his fixed rate, at which point he'd been in the black for over a year, and probably refinanced to a lower rate or switched back to an ARM if his personal financial decisions were consistent with his public predictions.

And none of this is inconsistent with consistently fretting about a long-term debt crisis brought about by an inability to either raise taxes or reduce spending in a future where printing money doesn't become temporarily reasonable. The Spring-2003 tax rates + possible trillions in war spending + mandated spending necessarily equalled an unsustainable budget absent major reforms. Where has Krugman argued that our current deficit/debt trajectory is sustainable absent tax or spending reform? In 2003, he argued that while we'd inflate away the debt rather than raise taxes or cut spending; in 2012, he's arguing that it's we've got a manageable debt with reasonable levels of taxation... not that there's some politically feasible way to raise taxes to that level.

That's what I don't get about the viewpoint that "deficits don't matter in a liquidity trap." Sure, I get that when there's excess saving over investment, issuing more risk-free bonds won't raise interest rates. But what about when we get out of a liquidity trap? What then?

The only way the argument works is if our government is truly Keynesian and runs big surpluses in good times to offset the deficits. Otherwise, if we successfully get out of a liquidity trap with fiscal stimulus but deficits continue, the Fed will have to increase interest rates to prevent inflation. As the government keeps rolling over debt, costs will eventually have to be paid, one way or another, by future generations.

Then there's the pesky issue of misallocation of capital. If monetary policy successfully lowers interest rates or raises future demand expectations, then AD increases through an increase in private investment. This is exactly what happened in the v-shaped 1933 recovery, as dramatic increases in the money supply increased future demand expectations. Private business investment, not fiscal stimulus, were the keys to that recovery. Given how the stock market rises and falls on QE announcements by the Fed, monetary stimulus still works through the same private investment lever.

On the other hand, the one time fiscal stimulus worked was World War II. We were successful in our goals, but we also had to pay back the war spending over the twenty years after World War II. We were lucky that we also had a huge economic boom in that time which lowered debt/GDP even as we didn't run many surpluses, but debt/GDP was also lowered somewhat by hyperinflation during and right after World War II. Even in that case, America paid for all the bombs and planes with inflation and future economic growth.

So, if given the choice between these two levers to increase AD, why choose the latter? I've read Krugman for years and haven't seen a good answer.

Keynes and Krugman both had the same ending point in mind for "in the long run". Unfortunately, 2017 is a lot closer now than it was when Keynes said it.

He isn't saying deficits don't matter. He is saying that when businesses aren't spending because of lack of demand, and you have 18% real unemployed/underemployed, and a gap in potential gdp that will take 10+ years to close, and you are in a liquidity trap(zero lower bound, the fed's main rate setting tool is useless), and you have tripled the monetary base and the market is lending your government at real negative interest rates over 10 years(the market is paying you to hold their money), and inflation is ridiculously low just like economic growth is barely keeping up with population growth but not making any progress towards closing the gap....there is a lot of pain out there and government is the only entity out there that can speed up the healing process, reduce the pain and has the resources to do so at relatively cheap costs.

the deficit solves itself when gdp returns to trend, bush tax cuts expire and unemployment rate is below 6% with 63% or more workforce participation rate(what we had in 2007 pre crisis).

there are 2 theories on how to get out of the whole...if you think less regulation and tax cuts are the answer...then you haven't thought about it from the level that delong, krugman, roubini, robert johnson, simon johnson and joseph stiglitz do. and you also haven't been paying attention to recent history and how we got in this mess in the first place.

Sure. But instead of your wonderful scenarios we have the Japanese example leading to the point where half of the government revenues pay interest on the debt. The US is now depending on being the least insane jurisdiction.

There won't be an economic recovery as long as the distortions of non responsive government spending continues. The world economy won't recover until the US stops hoovering up any excess capital available to fund granny's hip replacements. There will not be growth until private investment starts occurring.

Greenspan and Bush did exactly what you are suggesting in 2001, which led to an asset bubble whose collapse we are enduring right now.

We are at the end point of keynesian economics where there is no more stimulus available and oddly enough no growth. Those who profit off the issuing and trading and allocating of government debt get richer, everyone else gets poorer.

Well if that is what he meant it is too bad he didn't say it.

He has said it! Over and over again! Practically every post or article by Krugman for the past 2+ years has hit on this theme and has cited record-low interest rates. I'm beginning to think that Krugman's critics don't read him...

This is "Krugman is a wrong wrong wrong hypocrite, and he calls people mendacious idiots, therefore he is a jerk and wrong about this one thing."

It is disheartening to see the individual bashing on here. It's tiring and old and not productive. This is more a personal attack than it is a discussion of ideas or policy. How about just doing a post on how you think debt is a problem?

To be fair, you did some add a weak conciliatory statement that does a poor job of covering up the thrust of this post, which is a personal attack.

Krugman did the post on why debt is a problem...

It's not unfair to point out that someone lives in the glassiest of houses should not be such an ardent thrower of stones.

I mean really. It's a personal attack to point out how he attacks others?

An example of an attack would have been useful in this post.

Was reading the article too much to ask?

Of course, Mr. Fisher isn't allowed to draw the obvious implication: that his boss's push for big permanent tax cuts is completely crazy.
investors still can't believe that the leaders of the United States are acting like the rulers of a banana republic. But I've done the math, and reached my own conclusions

I don't see anything in the post that's an example of Krugman treating others like mendacious idiots. He does bash the Heritage foundation a bit, but it's certainly not out of line compared to much of the blogosophere.

Given how coy Tyler is about what he actually thinks, it's nice to see someone draw a clear line.

Sorry for some reason I assumed this post was by Tyler. My bad.

A causes B unless C. C happened so A doesn't cause B anymore. Nothing inconsistent here... move along.

2003: Debt is a huge problem unless there is Japan-style deflation (note: did not happen in any case)
2012: Debt is not a problem at all and everyone is an idiot

What do you mean? It's pretty clear that we're in a long period of stagnation and chronic unemployment. As long as there are a large contingent of people who can be hired you aren't going to be getting any significant inflation from loose fiscal or monetary policy.

12 paragraphs of how awful B is going to be, including claims that the gov't is a "banana republic" led by "crazy" people who are doing A, then a few words to the effect that maybe his whole rant is irrelevant because there's a chance C might happen.

So, yes, he was totally wrong about A, and yet his argument today is essentially still A, except now it's going to cause D.

Meanwhile, there is still a glaring dearth of information suggesting that increasing the size of government from 40% of GDP to 60-80% with borrowed money is somehow a path to growth.

Okay, here is what I don't get. You have an entire post which purports to find Krugman contradicting himself, only to show that he did not contradict himself (his position changed when the 2003 Krugman's claimed exception to the rule actually came in being).

And basically your post finally boils down to you saying that yeah, he didn't really co tradition himself, but he is so mean.

Besides, even ignoring that, you misrepresent his argument against Heritage. Krugman himself thinks the long term debt is a problem (visit any MMT bloggers website and you will find tons of criticism of him for worrying about the long term debt). His argument against Heritage is that in the face of massive unemployment the SHORT term deficit is not the immediate problem.

Honestly, I am shocked that in over a decade of public writing the only contradiction you could find was not a contradiction at all.

Most of Krugman's critics DON'T read his columns they just read snippets here and there and form their opinion based on per-concieved notions. I'm not a fan of economists in general and I throw Krugman in there as well but he's a much better practitioner then a lot of others out there.
The criticisms of him being some kind of Partisan Democratic loyalist are fucking ridiculously if you've ever read him.

Just because he is left of Obama, he's not partisan?

He's not Partisan because he'll willingly attack the Obama administration. Or rather he's not AS partisan as many other commentators. I think all economists are biased and hold ideological positions - Krugman is more open and honest about his positions then other economists out there who pretend their impartial scientists.

the thing about ideology is, one can examine and see which ideology reflects the world we live in better. which has delivered better results...especially in a field like economics. problem is not enough people are honest and some have made a living being "the opposite viewpoint" when sometimes there really is one viewpoint.

fausto, if you were honest with yourself you would use your logic to renounce Democratic (economic) principles. Really look at the economic policies in different countries and states over time and look at the results.

yes... actually. Partisan, to me, it means that you support a party regardless of facts on the ground and your ideals. Say, Fox News (or many other fiscal conservatives) that supported Bush's fiscal policies.

Krugman is not like that. He has certain beliefs (and he's pretty open about them), and he analyses the world based on those beliefs. When he thinks someone's policy will cause a disaster (say running huge deficit during good economic times, or severe austerity measures during recession) he calls them on that. Is he always correct (or even, is he correct all except for two times in his lifetime)? I doubt it. However, he has been right on the money in this recession. He has targeted the GOP right now, not because he's partisan, but rather because what they're saying and what they're doing is destroying the economy from his perspective.

Isn't the giant elephant in the room >2% inflation? Where is the supposed liquidity trap? And everything he says is based on this supposed liquidity trap. If there is no liquidity trap, he is wrong about everything. It seems obvious that NGDP targeting is vastly superior to blowing up the country's fiscal situation.

No, he's definitely a partisan hack. He's basically Ann Coulter, but on the left.

Ann attacks Republicans for being insufficiently on the right, too. I'm going to bet I won't see long-winded defenses of her commitment to principle from you guys.

You're basically the Hack King of Marginal Revolution

Get back to me when you're employable.

+1 buddy. I just posted the same thing above lol

If Krugman respected his "opponents," would he be more or less influential?

He very much has an "us vs. them" mentality. But maybe it gets him more followers.

No he would be less influential. I read Krugman largely for the personality.

Krugman is not a policy maker, he's not a politician, or a lobbyist. As a whole, his goal in life is not being an influential person. He is a scientist (assuming you consider economics a science). He looks at the data in real life, and fits into various known models, and draws conclusions based on that. He usually points out how the models he strongly believes in work so much better than the ones that various politicians, newspaper contributors, or in general newspapers. He even explains (better than his opponents usually) what are some other models or explanations for the data that we see. He respect the models in economics that seem to match the data, and throws out the ones that don't. It's not a matter of respect, it's the fact that he expects his "opponents" to do the same thing.

His "us vs. them" mentality is more of a "this model vs. that model" mentality. Of course, in politics it is hard to distinguish the two. Specially when "that model" doesn't seem to fit the data, and one political group seems to be pushing it hard anyways.

Will he be more influential if he was more of a politician rather than a scientist? Probably... but I doubt that the Nobel committee awards medals for people who are less of a scientist.

The man wants to be Hari Seldon and you say he doesn't want to be influential?

I doubt he really even believes most of his really tendentious arguments. He's just throwing red meat to his base.


Did you even read the linked pieces?

"Of course, Mr. Fisher isn’t allowed to draw the obvious implication: that his boss’s push for big permanent tax cuts is completely crazy. … investors still can’t believe that the leaders of the United States are acting like the rulers of a banana republic. But I’ve done the math, and reached my own conclusions"

"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"

It's interesting that after acknowledging that Krugman didn't do an about face, (because he noted the difference during a Japan style event) you conveniently ignore that fact, and proceed with your statement deriding him for what you apparently wish he'd said.

Krugman does advocate different policy at different times, but it doesn't seem like a controversial claim to say that those policy changes are pretty well documented in standard Keynesian thought.

Is his current stance on deficits inconsistent with his previously shared thoughts on a Japanese style recession? Are his previous concerns about large budget deficits when the economy is near full employment inconsistent with standard Keynesian ideas?

You can question the validity of his Keynesian ideas, but they seem to be pretty consistent.

1) If the economy is in good shape the deficits should be small (as a liberal he'd probably advocate higher taxes to reduce the deficit). That fairly accurately describes the world in the time of his 2003 statement. If you are running huge deficits during good times, they will necessarily be larger during bad times, and if it's assumed that even when the economy rebounds, you will still be unwilling to either raise taxes or cut spending to address the debt problem, then eventually interest rates will skyrocket.

2)If the economy is in bad shape, deficits should be large because cutting government spending during a recession is self defeating. If you are in a Japanese style recession, borrowing huge amounts and printing money will not have much effect on interest rates. That seems to fairly accurately describe the world at the time of his 2012 statement.

His probably over generalized, but not much, claims about groups like the heritage foundation are that their analysis doesn't follow a consistent logic. His portrait, which is at least supported by their policy proposals is:

1)If times are good, tax cuts will pay for themselves through increased growth, and the short term deficits won't matter, because GDP growth will eventually make the deficits smaller in terms of debt to GDP. Interest rates will remain low, even with huge deficits, because bond buyers trusts that we will grow our way out of debt.

2)If times are bad, deficits are bad, and government spending needs to be cut before the bond buyers lose confidence. Taxes also need to be cut, even though this will make the budget situation worse. This seeming conflict regarding the importance of budget deficits is explained by. . .

Too bad Krugman's post wasn't your post, it would have made a lot more sense

My post wasn't to try to clarify PKs view in either post, because they are on completely different topics, and unrelated except by Alex Tabarrok trying to insinuate some sort of inconsistency in PK caring about deficits in one post, and not in a second. There is no inconsistency at all, it's standard Keynesian thought.

Post 1:
I'm worried that interest rates are going to skyrocket because we are increasing spending and permanently cutting taxes at a time when we shouldn't be doing either. That's not a sustainable policy over the long term, and the bond market will eventually reflect that.

Post 2:
The deficit is large as a % of GDP, but it's been much bigger in the past and is easily manageable by raising taxes and cutting spending in the long term. Deficits do matter, and will have to be addressed in time, but that time is not now, and the bond market reflects that.

You can say he's wrong, and apparently he said he was wrong with regard to post 1, but you can't say it reflects an inconsistent view, and I don't see how Alex can attempt to use these two statements to demonstrate that Krugman and the Heritage Foundation are similar in how they have shifted their views.

Good work, Kyle.

bigger in the past for one year: 1943

That would make more sense if the deficits in post 2 weren't several times larger, or other countries hadn't already seen the "bond vigilantes" show up on their doorstep unannounced, or he wasn't arguing for far larger deficits.

As it is, yes, he has been wildly inconsistent.

It's pretty easy to see that his view amounts to saying deficits from tax cuts are bad, while deficits from spending hikes are not a problem.

He is a statist. It's fine to be a statist, but if her were honest he'd just come out and say "I'm for pretty much anything that makes government larger and more redistributive, and opposed to anything that does the opposite." rather than come up with these complicated, tendentious circumlocutions.

We clearly have different definition of "consistent". Some one who believes in Keynesien economics thinks that during recessions, the government should increase spending and decrease taxes i.e. increase monetary stimulant. Paul Krugman has been a big advocate of this view for as long as I've followed him. He's been advocating despite debt/deficit/bond vigilantes/etc. He also points out regularly why this model of economics makes sense.

This is very similar to a good republican being the one that always believes taxes are bad, and signs a pledge to never raise taxes, ever. This despite debt/deficit/bond vigilantes/etc. As much as I disagree with them, I won't call them inconsistent. The thing that sets professor Krugmen apart from Eric Cantor or Rand Paul is that his models has been correctly predicting what we've been seeing for the past few years.

A Keynesian would also suggest reducing government spending during non-recessions. He's not a Keynesian so much as a statist who employs Keynesian arguments when convenient (notice he did not argue for the Iraq War as a Keynesian stimulus, but instead argued it would wreck our fiscal situation).

Krugman's models are just unfalsifiable prattle. If the recovery had been stronger, he'd be saying "See! Gov't spending worked!" Since it didn't work, he says "See! We didn't do enough gov't spending!"

you, like me, read Krugman regularly and understand all this very well. Hats off to you buddy!

So you say it's not inconsistent, but Krugman says that it is. Interesting. I guess he is wrong at least once, then.

Well, let's turn to Lucas, September 19, 2007:

"It … is all too easy for easy money advocates to see a recession coming and rationalize low interest rates. … [But] I am skeptical about the argument that the subprime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy”.

The main lesson of the last 20 years was... wrong! But Lucas didn't change his mind, when te facts changed. And he did not even do that when it became abundantly clear that a 'representative consumer', who has no need to borrow from himherself, might not always be the most apt idee fixe to model an debt ridden economy.

The great thing about the Krugman blogs, however, is that his command of statistics and his ability to focus on meaningfull relationships between theory and the complicated reality of these statistics is unsurpassed (I really miss this on marginal revolution, you're falling behind, the internet has given us access to all these databases - and Tyler and you will have to catch up! My question, for instance: why does the rise in 'Austrian' 'True money' post 2008 not lead to inflation? Is Austrian 'true money' the right variable to estimate? Tip: look at M-3 on 'shadow statistics). Krugman does know when to focus on GDP or GNP, alas a rare quality among academic economists. An example: heterodox economics have been warning against the use of Unit Labor Costs for some time now.When you really look at the statistics, it's obvious that ULC might fit a Lucas style simplenomics model, but that it doesn't square with real life economies which consist of different sectors. Krugman is the first to seize upon this. You guys might learn quite a bit from him.

his command of statistics

He commands them all right -- and they obey, or out they go!

Has he ever acknowledged how much of the mortgage bubble Fannie and Freddie actually controlled (hint: it came out in the SEC case)? I'm guessing not, because it runs counter to his most-beloved principle: more government is better.

How much? because the SEC case wasn't about the housing bubble, it was about the Fannie and Freddie executives lying about how much they held in sub prime. and if you look at the data the % given was like 20% coming from 8 % in 2006. The SEC never at any point said Fannie and Freddie owned a significant % of the bubble. That just wasn't relevant to the case and you are fabricating facts here.

Also, there is subprime and then there is SUBPRIME...well established fact that fannie and freddie came into the game late in 2006. also well established fact that the bubble was worldwide in all developed countries. fanie and freddie only operated in the United States. So if the Bubble started before do you explain that? the CRA didn't force any banks to lower lending standards...i could go on but you need to do some homework if you really want to sound like you know this stuff.

Fannie and Freddie held HALF of all U.S. mortgages. This is from the SEC investigation, in which it came out they'd been lying about their exposure.

They "came into the game" in 2006? Do your homework, indeed.

Yes, he's discussed that issue at length, particularly after Joe Nocera wrote columns about it. Hint: it wasn't much.

Krugman wrote a blog post in 2010 about how the argument he made for higher interest rates in 2003 was a mistake:

The second was circa 2003, over the Bush administration’s use of the illusion of victory in Iraq to push through more tax cuts, even though the optimistic budget projections used to justify the first round had proved completely wrong. It’s worth pointing out that the situation was not at all like the present, where I support temporary deficit spending to deal with a depressed economy; the Bushies were pushing permanent tax cuts that had nothing to do with economic stimulus, and did so at a time of war with no offsetting spending cuts (and then pushed through an unfunded expansion of Medicare too). This struck me at the time as banana-republic behavior, and still does.

However, I wrongly believed that markets would look at it the same way, and that they would lose faith in American governance, driving up interest rates on our debt. Instead, bond investors discounted the politics, and acted as if they believed that America would eventually pull itself together and start behaving responsibly. The jury’s still out on that, but clearly my short-run prediction proved wrong.

Good pickup, Jodd. I had forgotten that, but now that you remind us...

Furthermore, this whole thread has to make you wonder does anybody around here look at data before they jump on Krugman, the conveniently visible liberal spokesman? Isn't it embarrassing to jump on the anti-Krugman bandwagon and then have to say "Oops." (BTW, is writing "Oops" an infringement on Rick Perry's IP?)

When Krugman switched to a fixed-rate mortgage because of his fear of soaring interest rates, he was RIGHT.

When Krugman converted, the prime rate was 4.25%. It held (actually dropping another quarter point) for a year, then began its steady climb. In two years, from July of 2004 to July of 2006, it DOUBLED. A 100% rise in two years -- yeah, I'd say it "soared." And it held that level for 15 months. Then the world crashed, and interest rates came down.

But there is not doubt that Krugman was EXACTLY right. Interest rates SOARED after he said he was afraid they would.

First of all, Krugman specifically denies that he was right.

Second of all, mortgage rates did not go from 4.25% to 8.5% in the U.S.

hmm... I'm actually shocked that Ken is right. I can't find historical data for Prime rate, but the federal funds rate (that is usually 300 basis point lower than prime rate) seems to agree with his claim:

(just to clarify... I'm shocked since that seems like a huge jump, and not because I don't trust the poster's comment.)

Additionally (noted above), Krugman figured the housing crash to be more likely than not well ahead of when it began and predicted a liquidity trap well before rates bottomed out... if someone aggressively invested solely based on Krugman's prognostications in Spring 2003 and reversed after reading his warnings in Spring 2007 or Spring 2008, they would have profited hugely, although there were some smarter 2003-2007/8 investments.

OTOH, they probably would have already lost all their money on his prediction about the Internet being less important than the fax machine.

Preach on, brother Alex.

The fact that there are defaults is partly a learning process in response to financial innovation, and thus evolution, but also partly a simple matter of risk. Defaults are to be expected. I see no reason to expect contagion. All lending statistics must now be marked to the global financial market which means that diversification is now more extensive than ever before and thus net risk is lower. Moreover, the whole point of recent financial innovation (and reformed bankruptcy law) has been to reallocate risk way from borrowers and towards those lenders in the world wide market for capital who are in the best position to handle the risk.

The democratization of credit worries the credit snobs. The credit snobs fear that capitalism isn’t just for the rich.


Tabarrok is author of the Wrongest Post in the History of the Internet (and he was proudly huzzahed by Cowen in comments), and I don't recall him ever shifting his worldview in light of the developments of the past few years. And yet he appears to still fancy himself some kind of white knight of the economics profession. Absolutely bizarre.

The posting is just foolish or deliberately deceitful. Krugman may be right or wrong, but the comparison elides his entire point: We Are in A Liquidity Trap now. Were we in one in 2003? NO.
So what's the point or purpose of this post?

He says nothing about liquidity traps.

If you think Krugman doesn't talk about liquidity traps than you have just proven that you don't read Krugman.

IN THIS POST (which is the topic at hand)

He talks about liquidity traps all the time - I mean seriously

Yes, but in this post he doesn't mention liquidity trap at all, so it's a bit of stretch to call that "his entire point."

In fact, in this post he seems to think gov't spending is the answer to the "unemployment trap." (I'm not quite sure what that is, but I bet it's full of confidence fairies and bond vigilantes.)

What are you doing replying to every post? That's my schtick.

"anyone who disagrees with him is portrayed as a mendacious idiot" - this is a very weak example. "the likes of the Heritage Foundation" is positively mellow compared to other things he's said. In fact the vitriol quotient has been decreasing lately, probably because he's disappointed in Obama and Bush is no longer President. Here's a prediction based on no evidence whatsoever: look for a career change announcement from Paul Krugman sometime in 2012.

Career change?

Krugman already has TWO careers, which he seems to enjoy and do pretty well at:
(a) He's an economist. Many may disagree with him on some (or many) specifics, but measures of success would suggest he's pretty good at that.
(b) He's a liberal columnist. Many may disagree with him on some (or many) specifics, but measures of success would suggest he's pretty good at that.

And all this complaining about his partisan language is just silly. As a columnist, his does not pretend to be non-partisan.

I guess you're a big fan of Ann Coulter too, then?

You're talking about orders of magnitude in differences there. Also Krugman has been way more right then his critics. I mean look at Tyler Cowen's solution here - we need more STEM grads? Huh?

Seems more plausible than Krugman's solution of a bigger, badder stimulus to end all stimuluses.

How is it possibly plausible? For every 10 STEM grads that go through the pipeline you probably have 7 who are just going to wind up with a useless "education". Any way this is a topic for when Cowen posts yet another entry on this.
Another point for Krugman is even when the Obama stimulus was being proposed he came out and denounced it saying it would be too small and not nearly effective enough to get the economy going

It's pure magical thinking to believe that even though the $700B in fiscal stimulus that did pass had basically no effect, a $1.5T stimulus or a $2T stimulus would've fixed everything up.

I don't think he says NO EFFECT. Sorry, he DOESN'T say NO EFFECT.
How is it magical thinking to say something along the lines of "Since the drop in demand was 2 Trillion a $700 Billion stimulus will not be sufficient to restore consumption"?
But his criticism of the stimulus isn't a Monday Morning Quarterback thing - he was criticizing it from basically the first month of the Obama administration.
Krugman pointed out a few things about the stimulus:

- Even as the federal government was ramping up spending State and Local governments were cutting back and the increase in Federal spending was not sufficient to really cover the decrease in Local Spending
-The Size of the stimulus was far, far smaller then the what the fall in demand was - the wealth lost in the housing crash would need to be replaced to maintain consumption
-A large chunk of the stimulus was tax cuts which Krugman believed were a weaker form of stimulus then spending as many of the tax cuts would either be saved or go into paying down debt

So no flip-flopping or magical thinking here, you can disagree but I see nothing magical about this.

I didn't say he was "flip-flopping", I said his Keynesian fundamentalist solution of a monstrous, multi-Trillion dollar pump-priming stimulus was implausible. As in unlikely to work.

In my view, Keynsianism has passed the point of diminihing return because now, as opposed to Keynes's day, we hav permanent big government and redistributive welfare programs. There's a constant Keynsian stimulus being applied, which drastically reduces the impact of big one-time pump-priming exercises like the Obama stimulus or the many fiscal stimuli that the Japanese government has tried over the years.

I myself think a big stimulus isn't going to put everything right either. However, the only solution I see working involves way more government and a much bigger and permanent expansion of redistributionist policies, which is not like the big but basically temporary stimulus Krugman and other Keynesian imagine. Still I find the Krugman solution much more realistic then the alternatives I've seen.

For every 10 STEM grads that go through the pipeline you probably have 7 who are just going to wind up with a useless “education”.

The unemployment statistics suggest the number is more like 1 out of 10.

A fan? What alternative language are you reading in? In English, I wrote that his language reflects his partisan views, so complaining about his language is silly. No, I'm not a fan of a raving right-wing doofus, but it certainly isn't because of her partisan language.

But you do like raving left-wing doofuses, such as Paul Krugman.

This is the typical right-wing ploy of false equivalence.

You're right, Ann Coulter is Krugman's superior in every way, but we have to go with the columnists we have, not the columnists we might like to have, or might have at a future date.

Alright I'm done, this thread just became too ridiculous even for me.

He says we are not allowed to complain about someone being too partisan. Why is it unfair to analogize to a right-wing partisan and ask if he is allowed to complain about her? I am not claiming she won the Nobel prize.

Scrolling through this interesting post and its thread, I have learned that Krugman thought large budget deficits would in good times would send interest rates higher. I have learned that he was wrong, at least in 2003. I have learned that he has acknowledged that mistake. And I have learned that Krugman now thinks that large budget deficits in bad times will not make interest rates higher. And it seems like he is right on that point, at least for the U.S.

I have also learned he writes barbed prose that sometimes offends his opponents. To that, the foregoing is no defense, I guess.

Actually, he was NOT wrong. Although it took another year after he wrote it, interest rates then DOUBLED in the following two years, and stayed at that doubled rate until the crash.

See JoddEHaa above, in which Krugman acknowledges that things didn't go as he had predicted. I generally defend Krugman and his nasty habit of being correct. But when he corrects himself, I will offer no defense.

The reason he is not concerned about deficits now is that we are in a liquidity trap with interest rates at or below zero. In 2003 we were facing an unfunded war in Iraq and Afghanistan, on top of a tax cut during that war. The two statements about debt were under very different conditions, and to imply "look! he's a flip flopper!" is intellectually dishonest, and shows how ignorant you are of economics.

Why didn't he say that, then?

Don't think Krugman should be required to say "We're in a liquidity trap" in every paragraph he writes. However, he says it quite often.

You don't think he should even mention the supposed central point of the article in the actual article?

This appears to be another display of the cognitive biases that are precisely the reason markets cannot be trusted to be efficient. Affect heuristic plus my-side bias.

I do think krugman is uncharitable with the "mendacious idiot" characterizations -- they are basically calling out these very cognitive biases.

Posts like these will make you loose this war... I agree it is utterly misleading to decontextualise K's posts in this way and raises a lot of attention as to why so many voices other than the big fish actually targeted came so readily to the fore to attack Krugman.

This is the sort of post that does nothing except make people line up with whatever preconceptions they already had. I wish I could have a Tyler-only version of this blog.


You accuse people of being sheep lining up behind their preconceptions and THEN go on to say you want a blog where you ONLY read Tyler Cowen's opinions HAHAHAHAHA.

I almost never miss a Krugman column I also read this blog every day. Sounds like I'm much more open minded then you.

Oops sorry I see what you were going for now - I though you were smearing the commentators, I didn't realize Alex wrote this post. Let me wipe the egg off my face.

Tyler often makes me think in different ways than I had before. Alex rarely makes me think at all.

You can always try skipping the posts that say "by Alex Tabarrok" at the top.

The liquidity trap is irrelevant to Krugman's change. Note that in 2003 Krugman did not say that the debt is not a big problem since "we owe it all to ourselves." In 2003, he said the debt was a "fiscal train wreck," despite being significantly smaller than today.

GIVEN that the economy did not slide into some sort of deep recession or stagnation. That's always been central to his arguments.

Also how about comparing Krugman's analysis and predictions to that of his critics. No economist makes good predictions but Krugman's been much more right then most of the mudslingers.

Since Krugman self-selects his critics after the fact, he does make it sound like he is right more than his critics. Of course, so did Enron, where Krugman learned that trick.

Cheap Shot

I've read the opinions of these top economists - Lucas, Cochrane, etc. I mean these guys aren't exactly getting the story right here.

Krugman is at least twice as wrong as anyone else.

His basic principle is that we need more gov't and more redistribution. Very little in the last 100 years suggests that at 40% of GDP that is the path to growth.



Wrong. He never mentions anything about liquidity traps in this new article. He expressly denies his earlier views, he does not try to reconcile them.

2003, fretting about the future: "How will the train wreck play itself out? Maybe a future administration... Or maybe a repentant Rush Limbaugh... But my prediction is that..."

2012, not sweating current debt and temporary deficits: "the economic “experts” ... have been repeatedly, utterly wrong about the short-run effects of budget deficits."

The articles are about two different things:
2003: Debt will be a problem that will get much worse if we don't address the long-term budget.
2012: Debt is not a problem, and a little extra debt now won't hurt, if we address the long-term budget.

Setting aside Krugman's admission that his 2003 prediction was incorrect (which you curiously failed to note), one might also point out that his 2012 statement: "…nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it..." hardly applied in 2003.

Then how does it apply now??

Surely if his statement didn't apply in 2003, it doesn't apply now, either.

But we have a Marxist Socialist in charge of the government now.

A wimpy one, though.

Krugman's 2003 writing strikes me as the same type of concern that was contained in Sargent and Wallace's Unpleasant Monetarist Arithmetic. Which I thought was an excellent discussion. Simply put - the long-run government budget constraint has to be honored somehow. And if markets are ever convinced that our political masters have decided to spend and spend without raising taxes - inflation would soar, which I think Iriving Fisher in 1907 claimed would drive up nominal interest rates. So what is so bizarre about this argument again?

Krugman is great and presents pretty good back-of-the-envelope analysis which, even if you disagree with it, definitely presents stimulating food for thought

However, he is extremely mean-spirited in his blog posts, which I find annoying

Q: How do you know that economists have a sense of humor?

A: They use decimal places.

Just to be contrarian: it's not quite exactly true that "one thing remains constant in all of Krugman’s writings":... in his Friedman NYT obituary/retrospective Krugman wrote "although this essay argues that Friedman was wrong on some issues, and sometimes seemed less than honest with his readers, I regard him as a great economist and a great man." The fact is that Krugman A the mainstream economist and Krugman B the left-wing polemicist are fundamentally at odds with each other and this plays out in his NYT column.

"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."

In 2003, he talked about 10-year deficit projections, a long-run deficit problem, and the likelihood that half-measures would be used to address the problem rather than fundamental reform until it was too late. I wasn't about the cost of paying down the 2003 debt, but about the eventual dilemma of being unable to borrow to finance higher and higher deficits that the 2001-2003 cuts and wars promised without additional reform if you ignored fanciful economic projections. Owing debt to ourselves is irrelevant; rates will still go up.

In 2012, he's talking about the cost of the current debt as well as the cost of debt incurred from one or a few years of stimulus spending. Saying that this is perfectly manageable coupled with responsible governance, and that paying down the debt later won't hurt the economy as much as one might expect because it's owed to ourselves.

However, had the wars gone as promised there would be an inconsistency here since war spending's equivalent to other temporary measures.

Not sure that war spending is equivalent to other temporary measures, as the infrastructure we built during the war now sits in a foreign country. I think building a highway in the U.S. will generally be better for the U.S. economy long-term than building one in Iraq.

That depends on whether the highway is useful. If you build a highway no one uses, it's better if another country maintains it!

No, the problem is that the Iraqis were incapable of destroying enough equipment to create the economic stimulus needed.

Go 88's.

Sorry; roughly equivalent as stimulus at least in the least-possible-multiplier/burying-gold sense. A new highway does have a more guaranteed impact on future economic growth and thus revenue and the ease of paying down stimulus debt, but a war can be more effective in this respect. US economic growth from 1945 to today would probably be depressed without entry into WWII. The war in Afghanistan will make gas and oil pipelines possible that will speed up global economic growth to some extent (but probably not enough to give us $500 billion or whatever in revenue any time soon). The war in Iraq could have better long-term economic consequences, but those could've been achieved far more cheaply by normalizing relations with Iraq.

As a non specialist who, in general, hates to see Mr. Krugman be right about anything. I have a question that maybe some of you more knowledgable commentors can help me with. The way I understand Mr. Krugman's arguement is that eliminating government waste is crucial and should be taken seriously, however there are certain times, a recession, when eliminating waste at all costs will cause more harm than good. Like when your playing Jenga, (I'm not sure if I am ready to think of out economy as a game of Jenga but...) the goal is always to pull out as many bricks as possible in order to achieve the greatest height and best distribution of resources. Occasionally however right after you've made a particularly risky play the stucture will begin to wobble. I think Mr. Krugman's point is not that we should stop removing bricks but rather that we should at least wait for the stucture to stop wobbling. Our deficit is not going to kill us tomorrow, so why is it so unreasonable to wait for the building to stop shaking.

no, you're confusing two issues: Government expenditures and government waste. While some libertarians see these as virtual synonyms, liberals like Krugman very much do not.
Here is what he (and most liberals) think:
1. Government waste is always bad - while you can't completely avoid it, you should reduce it as much as possible.
2. Government expenditures should in the medium run be balanced out by government revenues (Krugman and most liberals think that both revenues and expenditures should be higher than they are currently).
3. In a recession and especially in a liquidity trap situation, government expenditures should rise in the short term, even if they significantly exceed revenues (which will drop because tax revenues drop in a recession). The incurred deficits will be balanced out by growth and balanced budgets in the medium run.

The conservative/libertarian argument against 3) is partly economic - increased government expenditure crowds out private investment etc (that's mainly the argument that PK attacks Heritage, Cochrane, Lucas etc. for) - and partly political: conservatives say that past experience shows that once the recession is over expenditure programs aren't actual reduced and governments do very little to actually reduce budget deficits.

I'm not sure it's right to say that Krugman thinks government waste is always bad. He thinks that sometimes waste isn't wasteful on net - hence the whole fake alien invasion example (which conservatives love to misunderstand.) Preparing for a fake alien invasion may not directly produce anything of value, and hence be 'wasteful' in one sense, but if it gets people to stop hoarding, that waste is a good thing. He'd clearly prefer to get people to stop hoarding by spending on useful things like public goods, rather than digging and filling ditches or fake alien invasion preparation, but in principle government 'waste' could be a valuable thing to do.

Or potentially even take some bricks from the top at put them back in the middle. If the other option is a total collapse.

Welcome to the morass of economics blogs. I am disappointed by this post...who cares what Krugman thought in 2003 or 2006? I want to know the very best of economic thinking right NOW. I would expect a self-assured, intelligent person to change their view on things...especially as the world changes. The field of economics is constantly developing and improving. I thought that was the point of MR...small steps to a better world...not with this post in my opinion. Oh well, can't hit them all. Or maybe this was just a joke to see if we were all still awake?

The field of economics is constantly developing and improving.

Citation neede, on the second part

At the end of the day Alex is picking on Krugman because Krugman has a gruff writing style. Tell me which major economists have been getting it right? Tell me which major economists have good proposals about what to do? I haven't been too impressed with what I see from the superstars of the Right and all economists (Krugman included) are pretty sad when it comes to predictions.

CBBB, I don't understand why economists get lambasted for not being able predict stuff...there are many unforeseen shocks to the economy. For example, the earthquake in Japan wreaked havoc on motor vehicle supplies in the early part of this year. Economists should not be judged on their ability to predict such shocks, but how well their policy responses mitigate (or see through) the effects of those shocks. Of course, this is not necessarily a lower bar than you propose...just a different metric of success.

That's a fair point. However, I see these posts on MR lambasting Paul Krugman - where are the posts about the predictions of other economists (who are not as gruff and mean sounding in their writings)?

Just last month ...

I appreciated that post a lot more than today's.

In my opinion, economists' ideas should not be rank-ordered on style of the economist (in any sense of the word) and yet a little more civility could go a long least to the people trying to listen and learn from the debate.

No I mean what about those guy's like Lucas and Cochran. I know Cowen does tend to point out his errors - in fact I commented on that post.

CBBB, So this took some digging, but In 2008 Alex critiqued Martin Feldstein's op eds on stimulus in the recession using some of his earlier writing: There were other links and implicit endorsements of Feldstein's popular economics writing that MR could have revisited ex poste, but I appreciate that overt score keeping is rare here.

The bottom line is that, as those who read Krugman regularly know, Krugman is almost always right about everything and goes to great length to explain his logic with explicit assumptions and relevant data. It is true that he has little patience for people like Paul Ryan, who make policy statements that are based on analysis that is clearly designed to mislead, or John Cochrane, and Bob Lucas, who "pull rank" and do not try to address critiques of their own assertions. Marginal Revolution does not come off well when it tries to take these little potshots at Krugman without doing due diligence.

You should wait until you see Krugman's or de Long's Cowen v. Cowen post.

I doubt there's any ammunition there, the way Cowen writes

And when's the last time you admitted to a mistake Alex? Eh?

Are you a credit snob, RN?

Right after 9/11 and before the Iraq war? No one knew what was going to happen. I'd cut him slack. Libertarians have been wrong about everything however. Housing bubble = market failure. Financial crisis and panic of 2008 = market failure. Onset of another Great Depression unless government massively steps in? Market failure of huge proportions. Libertarians have been so wrong it's not even funny.

Wow you are either absurdly bias or absurdly ignorant. Austrian economists and libertarians correctly identified nearly all of those recessions, depressions and collapses. Do you even know what the federal reserve is or do you think that the U.S. is some sort of free-market paradise?

Yes, that's why we are right now living in the hyperinflation Austrians have been predicting for three years.

Libertarians do not generally believe that market failures are impossible. Nevertheless, you have to admit that government had a pretty hefty role to play in both the housing market and the banking system. The banking system is probably the most regulated industry of all. How can you tease out who was responsible for what and how more government regulation could prevent it?

Yes, the conservative economic model has worked so well, hasn't it?

Who the fuck has been using a conservative economic model? All we've had are Princeton and Harvards economists like Krugman running the show.

The last period we had fiscal conservatism was 1994-2000.

How many economists correctly predicted the current state of affairs? OK, besides Paul Krugman?

Economists on the right were wrong on several different counts - and the further right you look the further wrong they were. Libertarians turned out to be the furthest wrong. Hyperinflation? Look, squirrel!

Oh my god Alex what have you done? You've opened the floodgates.

Alex Tabarrok and Tyler Cowen are both sad little twerps who got picked on in high school and decided to get revenge on the world by espousing nonsense conservative economic ideas that fluff the wealthy, ruin any possibility of reasoned debate, and make life miserable for the vast majority of us. It isn't enough for them to be paid a salary from some second-rate university to spew their BS; they also feel the need to sullenly whine about anyone who refutes their oligarchy-promoting, halfwit ideas.

Not to mention that the Koch brothers control the recruiting committee at George Mason.

Why haven't you graduated from that high school yet?

Excuse me, but Prof. Krugman didn't just acknowledge the mistake; he LEARNED from it and adjusted his thought processes to better prevent the same mistake from happening, again. Something few people who pontificate about the economy seem willing to do. Alex.

No, he just rationalized in a way to reinforce the actual pre-assumed conclusion of all his arguments, which is that we need more government and more redistribution.

It's interesting reading the comments because the truth is that Krugman does do some bashing but if you agree with him it doesn't seem so bad and if not it seems worse. And everyone is like that, those you agree with seem more reasonable in their insults.

The lesson is stop bashing people and start talking to them. It is foolish for Krugman to go over the line to insults when he does, and I agree many others are worse. It also gratifies readers who agree with him and probably helps his fame and readership numbers.

But if we are ever going to get out of all this mess we need to be able to talk to those we disagree with, and insulting is a sure fire way to make sure we never do.

"But if we are ever going to get out of all this mess we need to be able to talk to those we disagree with, and insulting is a sure fire way to make sure we never do."

Government is a conflict between rent seeking coalitions. They aren't there to solve problems or get out of messes, and when they happen to its is only incidental.

I'm glad we solved all our governance issues that had him so concerned in 2003!!

Fine. And:

All parties presuming to discuss the issue should acknowledge what Samuelson demonstrated in 1958, which is exactly what Galbraith continues to insist on today:

If GDP growth is (mostly) higher than interest rates, the national debt will continue to grow -- as it has been doing for 200 years (nearly 400 in the UK) -- without ever overwhelming GDP or needing to be "paid back."

Sure. So what is keeping interest rates on treasuries so low? Either direct purchases of debt by the Fed printing money, or the fear flow of cash running from collapse into a liquid market. This will probably keep happening for a while yet as Europe continues it slow train wreck and Japan starts imploding.

So in 4-5 years, then what?

The question over that time will be whether economists such as Krugman and policy makers view the events as object lessons showing the foolishness of profligate spending and accumulation of debt. I think I know the answer.

Was it really necessary to demonstrate a tautology?

Well, he did have a "responsible government" clause in there, so perhaps he simply did not think the 2003 Government was responsible. I would tend to agree with that opinion myself, although I can't see how he'd believe our current government to be any more responsible

You see, back then we had "irresponsible governments" whereas today we have "stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it."

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."
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.
"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).

"…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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