Menacing Krugman

One more reason that the Great Depression dwarfs our current economic downturn: In the 1930s, only the male head of most families worked, so if he was unemployed, the family's income dropped to zero. Today, in many families, both husband and wife work, so if one is unemployed, the family's income doesn't completely evaporate.

Don, not to be a suck-up or anything, but I enjoy your constant assault on Krugman. He's got a nice fat pedestal from which he can assault us (and the progressives who listen), so don't change a thing.

You know, I've been pretty healthy lately, but this morning I woke up with a headache. It's the worst I've felt since I tore my ACL several years ago. I guess I should go in for knee surgery, eh?

Come on, Paul and Daniel. Krugman is a Nobel laureate with a twice-weekly column in the New York Times, frequent time on major news networks, a popular economics blogger, and the author of best-selling books on economics. He is THE most important and loud and visible economist speaking now for that strange concoction of notions that is misnamed in the U.S. as "liberalism."

Krugman also is a gusher of inconsistencies (that is, claims today that are very difficult to square with claims he made in the past)....

and half-truths (yes, by some measures today's downturn IS the worst since the Great Depression; but it is so much more like most of the post-WWII downturns than like the Great Depression that to compare it to the Great Depression is dishonesty hiding behind a factually valid claim)....

and childish "economics" (where to start? How about his Sept. 14, 2001 NYT column that argued that a silver-lining around the 9/11 attacks is that these attacks would help the economy? Or his assertion in one of his NYT magazine articles a few years back that it's a matter of "arithmetic" that if the rich get richer the poor get poorer)?....

and scurrilous attacks on dead people unable to defend themselves (see his early-2007 essay in the New York Review of Books on Milton Friedman, in which he accused Friedman of being dishonest).

Sure he deserves to be criticized. I don't think we're denying that. It's the regularity with which the specter of Krugman gets raised that is interesting. I don't understand the obsession.

We agree it's the worst since the depression. But if you actually read why Krugman is advocating some quite singular and powerful solutions to this crisis, then you'd realize that it's not really comparable to any of the post-war recessions. The point is we have no room to adjust interest rates and we've bumping along at zero inflation, if not deflation. We seem to be in a liquidity trap. What post-war recession does that sound like to you Don? None that I can think of. Reminds me of the Great Depression.

And I know you may not buy into Keynesianism, but the fact is that the Keynesian conclusion of needing a fiscal stimulus relies heavily on a liquidity trap. People here casually talk as if Keynesians always want pump-priming and deficit spending. Maybe that was true with the very, very early Keynesians - but it isn't now. If you're going to engage Krugman's Depression comparisons, at least acknowledge WHY he talks about the Great Depression, and why no post-war comparison will really do.

I've given my thoughts on the abuse of Bastiat here numerous times, and I think calling someone dishonest because you consider some of their work to be inconsistent is barely notable (although I know there is a crowd that that still causes great consternation for). There were arguably some inconsistencies between Friedman of the Monetary History and the later Friedman, and there's a case to be made that the later Friedman was ideologically motivated, unlike the earlier Friedman. I think it's a perfectly valid point to make and still respect Milton Friedman a great deal.

As for the NYT magazine piece - I hadn't heard of this before, but I just googled it. He seems to be talking about the percent of national income going to the rich. In that case it IS just arithmetic, Don. If the percent going to the rich goes up, the percent going to everyone else goes down. I fail to see the problem. That seems like a tautology to me. He knows the pie is growing and that it's not a zero-sum game - he mentions that in the same paragraph that he mentions "arithmetic".

As for Krugman's assessment of Milton Friedman's monetary policy as being laced with "dishonesty," I recommend this article by Anna Schwartz:
www.cato.org/pubs/journal/cj28n2/cj28n2-9.pdf

Daniel:

Here's the relevant passage (and surrounding context) from Krugman's NYT Magazine piece:

"Still, you can understand why Novak assumed that we were No. 1. After all, we really are the richest major nation, with real G.D.P. per capita about 20 percent higher than Canada's. And it has been an article of faith in this country that a rising tide lifts all boats. Doesn't our high and rising national wealth translate into a high standard of living -- including good medical care -- for all Americans?

Well, no. Although America has higher per capita income than other advanced countries, it turns out that that's mainly because our rich are much richer. And here's a radical thought: if the rich get more, that leaves less for everyone else.

That statement -- which is simply a matter of arithmetic -- is guaranteed to bring accusations of ''class warfare.'' If the accuser gets more specific, he'll probably offer two reasons that it's foolish to make a fuss over the high incomes of a few people at the top of the income distribution. First, he'll tell you that what the elite get may look like a lot of money, but it's still a small share of the total -- that is, when all is said and done the rich aren't getting that big a piece of the pie. Second, he'll tell you that trying to do anything to reduce incomes at the top will hurt, not help, people further down the distribution, because attempts to redistribute income damage incentives."

I cannot accept your interpretation. Krugman clearly is saying that, despite high per-capita GDP in the U.S., ordinary Americans are not really so well off because most of this wealth is going to the rich.

"First, the share of the rich in total income is no longer trivial. These days 1 percent of families receive about 16 percent of total pretax income, and have about 14 percent of after-tax income. That share has roughly doubled over the past 30 years, and is now about as large as the share of the bottom 40 percent of the population. That's a big shift of income to the top; as a matter of pure arithmetic, it must mean that the incomes of less well off families grew considerably more slowly than average income. And they did. Adjusting for inflation, average family income -- total income divided by the number of families -- grew 28 percent from 1979 to 1997. But median family income -- the income of a family in the middle of the distribution, a better indicator of how typical American families are doing -- grew only 10 percent. And the incomes of the bottom fifth of families actually fell slightly."

You dazzled me with statistics. I'm taking copious notes here. I'll get to where you are in no time. I'm starting to convince myself, which I think is the first step.

it was a quote, you goof

you are my guru. You can't offend me. You dazzled me with that quote - chock-full of stats. You are amazing; Your ability to talk out of both sides of your mouth is something I need to master. Keep the tips coming.

you're an odd duck, sandre

Daniel: This quotation from Krugman does not change what he said in the passage that I quote -- and the one that I quote is the offensive one. Let me highlight for you the core of the passage that I quote: "if the rich get more, that leaves less for everyone else."

OK, I thought my point was clear. He never mentions what "more" is "more" of. It's vague the first time he mentions it. It's specific the second time he mentions it - he's talking about a slice of a static pie. He's not saying people are "poorer" - they just get "less" of the pie. Big difference.

It's like in your most recent post on Krugman - you can assume that Krugman doesn't know what he's talking about, or you can assume that "dollars" isn't actually currency, but short-hand for a variety of different assets.

I don't think anything I ever say is going to convince you not to go into reading Krugman thinking he doesn't know what he's talking about.

Daniel: Also in the passage I quote above (from Krugman's NYT Magazine article), he tries to discredit - as being inapplicable today to the U.S. - the "rising tide lifts all boats" metaphor. Seems pretty clear to me that Krugman is here suggesting that many 'boats' are not 'rising' in the U.S. -- that 'the rich' are benefiting at the expense of the poor.

Well right - that's what I would disagree with him on. But the section we're both quoting from is called "The Price of Inequality". I doubt he questions "a rising tide lifts all boats" so much as he questions whether that oversimplified metaphor really captures all the issues that he (and presumably his readers) care about.

Even you have to admit that the "rising tide" illustration is just an illustration. Not everyone's income rises at the same pace, and some decline. Some people care about that, some people don't.

Daniel: If by "dollars" Krugman means "a variety of different assets," then his assertion that Chinese accumulation of "dollars" is siphoning demand from the rest of the world doesn't follow.

I just think it is over the top. In many instances I think the blog has been right to have a pop at Krugman but in this instance it seems as if Krugman was just mentioning the Great Depression (I haven't read Krugman's full entry so I am taking what is said above in the letter). He didn't compare today's problems with the Great Depression. I'm from Ireland - what Krugman is saying is similar to me saying that the weather today is the worst since last week. I am not comparing the two weather situations. Today could be good weather but it's still the worst day since last week. I just want the blog to be judged on its own merits and not resort to constantly having a go at Paul Krugman.

RE: "Reasonable people can disagree about the proper role of government in dealing with recessions. But to suggest that today’s troubles are remotely akin to those of the 1930s is decidedly unreasonable; it’s a demagogic scare tactic unfit for a serious scholar."

Now that I reread what you wrote here, I have another thought. Krugman only said it's the worst since the depression - he never said it was as bad as the depression. And if you look at a collection of metrics, it is the worst since the depression (and if you consider global production, it's actually worse than the Great Depression - see the Eichengreen and O'Rourke work on that comparison).

Now that I reread what you wrote here, I have another thought. Krugman only said it's the worst since the depression

Based on what favorite metric of Krugman?

Based on the quote Don provides from Krugman: "the greatest economic catastrophe since the Great Depression"

I will make it clearer. This is how you understood Krugman...

Krugman only said it's the worst since the depression - he never said it was as bad as the depression.

Don's point is that it is no where close to being close to depression. My question is, on what basis does Krugman conclude that this is the worst since the great depression. I'm asking you since you seem to understand what krugman might be thinking off saying when he says something.

RE: "My question is, on what basis does Krugman conclude that this is the worst since the great depression"

Unemployment... GDP gap... deflation... change in industrial production (the post WWII recession actually beats the current one on this index... but that makes sense). Could be any number of things.

And look at the Eichengreen-O'Rourke work. If you take a global perspective rather than a US perspective it's as bad as the Great Depression.

So, you mean to say unemployment has not been this high since 1946?

What do you mean by deflation? falling prices? if so, why is that bad?

I am fascinated by these "concepts" like GDP gap. Tell me more. How is not reflected in the unemployment rate.

This is one of the best blogs on economics but the berating of Paul Krugman is becoming a little tiresome.

As any honest dissenter will tell you, the berating of misguided men with ginormous public pedestals is never tiresome.

Someone needs to be critical of the guy, since most everyone else quotes him as if he was Jesus himself.

Haha - who quotes him like that? He gets bandied around as the "liberal critic" but only because a lot of people don't agree with him. If more people did agree with him he wouldn't get that special "liberal critic of the president" status.

Hmm... most of his NYT blog audience?

Here's an amusing example from the China article that Don posted:
"Are you and Joseph Stiglitz invited to participate in the White House Jobs Summit? YOU BOTH DEFINITELY SHOULD BE! I am ready to march in the streets if you are not. I asked Mr. Douthat to see what he could do about making sure that you will be there! After all, the Republicans might as well be helpful about something!"

If I'd have known you would be the one to respond I would not have commented.

Six of twenty one comments by DK.

CafeKuehn?

Please take a break dude, you don't need to respond to every post.

Don't waste your time blogging on my blogging. Of the ten posts on their roll right now, I've only commented on two of them.

I agree. How many of his columns haven't been met with a post on this blog?

You all would have liked Jagdish Bhagwati's keynote address to the Southern Economic Association Saturday night. It was a good talk on free trade, except every five minutes he punctuated it with a jab at Krugman.

Krugman comes in for much fire because unfortunately he's become something of the public face of economics, not unlike Milton Friedman in the late 1970s and 1980s. And his economics (if that's what it really is) is riddled with errors.
@ Curious, government "workers" are anti-employed New Class parasites.

Agreed. Government employees are worse than unemployed because:
1. they cost more
2. their "work" makes life harder for the real wealth creators (private sector)

So every government employee should be counted as more than 1 person on welfare and thus unemployment today is much, much worse than during the Great Depression.

His economics predicted this market collapse as libertarians cheered it on.

"Between 1930 and 1933, real U.S. GDP fell by 29.3 percent. Compare this figure with today’s: from its all-time high in the second quarter of 2008, real U.S. GDP is now (as of the third quarter of 2009) down by 3.0 percent.*"


Wow thank goodness for the FDIC, social security, unemployment benefits and the stimulus.

Of course this libertarian tainted economy has far to go before we are out of the woods.

Comparing a cumulative 4 year result with a one year result doesn't make sense. And again the point is to prevent having a similar 4 year results.


THIS IS the difference between having a Hoover versus an Obama. If anything Obama has been far too timid. We need to do a lot more to reverse the libertarian influence that has made ours an economy for elitist only.

The libertarian gazillionaire elites like George Soros, Warren Buffet, Ted Turner, Steve Jobs, Bill Gates, Sergey Brin, Larry Page, Larry Ellison, Al Gore etc. are the only ones benefitting from this economy. Wall Street has been pouring money into the libertarian party's coffers. It is such a shame. It is insane.

Government employee = unemployed person.

People who receive money from the government are people on welfare. The fact that some are called government employees and everybody pretends that their activities have some meaning, makes no difference.

Thus, today's unemployment is much worse than during the Great Depression.

Agreed. The idea during the Depression was to save people by turning them into government dependents. The idea during this recession is to rescue the government dependents by borrowing money. So what happens next time?

Krugman has been GD demagoguing this from day one. Of course, he hasn't mentioned his 2202 plea for Easy Al to stimulate a housing bubble.

The other misleading thing about the comparison is that we didn't even run a budget deficit until 1931, and we didn't run a notable one until 1932, and we didn't run a deficit comparable to the one we're running now until the 1940s. So when we compare now to the Great Depression (and I think there are a lot of important parallels when it comes to things like the liquidity trap situation we're in), we need to remember that we learned from the Great Depression about how to respond.

Also keep in mind, Don, that you're comparing 4 depression years to 2 years that we've been in the current recession.

The real Phantom Menace is George Lucas' directing skills.

Come on Don! Remember how bad the Depression of 1921 was when the government reacted to an even more sever downturn than that of 1929 with laissez faire policies? Why for several months people had trouble finding work!

We need to keep doing what FDR did namely taking Hoover's attempts to maintain asset prices at unsustainable levels and expand them! Obviously nothing says prosperity like chronic decades long unemployment!

Where were interest rates and inflation at during 1920? What caused the 1920 recession?

Answer those two questions and you'll realize why (1.) 1920 bears no resemblance at all to 1929, and therefore should not be drawn on for policy implications, and (2.) 1920 bears more resemblance to the early 1980s, we did the right thing in 1920 and we did the right thing again in the 1980s, but again - it doesn't speak to the conditions now or the conditions in 1929.

Not all recessions are created equal. They don't all have the same causes, qualities, or solutions.

World War II inflation/lose money created an economic bubble that burst in 1920. Austrian Theory of business cycles can quickly explain it.

The low interest rate policies of the 1920s caused another economic bubble that burst in 1929. ATBC could explain this to anyone with common sense.

Well, 1920 was burst by the New York Fed - it's not like it was a bubble that just happened to burst. It was a manufactured recession, just like in the 1980s. If you want to call that ABCT, I suppose you could. My impression of ABCT has always been private interests unloading malinvestments - not the Fed deciding to pop a bubble by raising rates. Certainly you don't think the unique insight of ABCT is that loose money causes bubbles.

Either way, this doesn't offer a "what we should have done" policy perscription for 1929 or 2008. Interest rates were high the 1920s and inflation was high. Deficit spending doesn't make sense at all under those circumstances. In 1929 and 2008 inflation was low and interest rates were low. With differences that stark, I don't understand why anyone would think that "it worked in 1920" is reason to try it now - especially when we CREATED 1920 deliberately to end the inflation.

Either way, this doesn't offer a "what we should have done" policy perscription for 1929 or 2008. Interest rates were high the 1920s and inflation was high.

does that make the interest rate hike "manufactured"?

Which interest rate hike? The NY Fed 1920 increase in interest rates was "manufacutred" in the sense that it was deliberate policy - it wasn't a market rate, just like Volcker's hikes. But the point was they were higher even before these guys raised them. They created their own recessions to solve an inflation problem. If they wanted it any differently they could always be good standard monetarists (or New Keynesians, for that matter) and lower interest rates. I don't know why you expect them to lean on fiscal stimulus, so long as inflation was high and they had breathing room in their interest rate policy. It's apples and oranges.

But the point was they were higher even before these guys raised them.

Higher than what?

They created their own recessions to solve an inflation problem.

What caused the inflation?

Now we're going in circle - like I said, higher than 1929 or 2008. And loose monetary policy caused the inflation problem.

Was the loose monetary policy manufactured?

like I said, higher than 1929 or 2008

nominal interest rates or real interest rates?

CAN YOU JUST GOOGLE IT YOURSELF

nominal interest rates, and yes - any "policy" is manufactured if you want to use that word - certainly as manufactured as the rate hikes, at least

any "policy" is manufactured

Aha, we can agree on that much. LOL.

But seriously Kuehn, I want to convince myself with your sort of philosophy. It is very practical. As I'm becoming more successful, I think it's more practical to be wishy-washy, than take a principled stand. I would love to give a "humane" face to my enterprise, so that I can keep myself and my enterprise protected from harassment by the militant left. I'm dead serious.

Funny how not sharing your principles gets interpreted as not taking principled stands, and it's also funny how accepting my own uncertainty and the fact that most choices (not all) are trade-offs rather than right/wrong choices gets interpreted as being "wishy-washy".

I'm glad you at least agree with me on the artificiality of policies.

Yes, you are always misunderstood as being wishy-washy. Thanks for the tip. I'll keep that in mind as I embark on the journey to become more like you.

Didn't they measure unemployment differently in the 30's? I thought the 25% statistic you used counted discouraged workers and some part time workers.

Didn't they measure unemployment differently in the 30's? I thought the 25% statistic you used counted discouraged workers and some part time workers.