Kindred Winecoff

Obvious Headline Award of the Day Goes to...

What you just described was an argument over how to share the costs of cutting emissions.

Paul Krugman vs. Milton Friedman

My site traffic at IPE@UNC has quadrupled.

Essay on Macroeconomics: Where Krugman Fails

Bob -

Great comments. I am also an admirer of Minsky (and before him, Wicksell), but I read him maybe a bit differently. The Minsky I know was a strong backer of the Fed as regulator and lender of last resort, and was less sanguine about ad hoc fiscal policy (though he favored automatic stabilizers). This is basically my view, and I think it has been borne out by this crisis. Meanwhile, it's instructive that Krugman is underwhelmed by Minsky (or any of the other post-Keynesians or New Keynesians); he prefers old-school Keynes, which I called "paleo-Keynesianism" but is really just "true" Keynesianism:

krugman.blogs.nytimes..../

In short, I'm quite happy to accept Minsky's advice, at least in part; Krugman is not. He prefers actual Keynes. So we're not quite in the same boat.

Essay on Macroeconomics: Where Krugman Fails

Robert -

Nice straw man, but I'm not "implying" anything. I said quite clearly that Fed policies (including QE) have so far been sufficient to arrest the downturn and begin the recovery. So far as I know, no one disputes this. So any case for fiscal stimulus (including tax cuts, which I oppose) has been severely weakened. That doesn't mean that fiscal stimulus can't have positive effects (i.e. the multiplier is probably greater than 1), but it does mean that it is probably unnecessary, so the negative aspects of stimulus (inflation, the debt burden, deadweight loss from future taxation) should be given greater weight.
The rest of your comment makes even less sense. We have debt problems... so we should engage in more deficit spending? Fiscal stimulus (in the form of tax cuts) doesn't work... so we should enact more fiscal stimulus? We face deflation... AND stagflation? Financial markets are all screwed up... so we should set public policy based on day-to-day market fluctuations in Europe and Asia? These are all non sequiturs.
You're right about one thing: my comparative advantage is in examining the links between politics and economics, and most of my posts are oriented towards that nexus. But that requires having an understanding of basic economic theory; apparently that's not a prerequisite for finance professors.

Essay on Macroeconomics: Where Krugman Fails

Rosey -

That's one definition of insanity, but not a very good one. Quite frequently doing the same thing has different results. Of course I'm not advocating doing the same thing, I didn't say anything about regulation (neither did Krugman), and since I'm a political scientist (not an economist) I don't have any dog in the fight over economic ideologies (unlike Krugman). If you think the Krugman piece was "free of his usual ideological spiel" then you didn't read it properly. That was the entire point of that piece.

But while we're at it, in many ways our regulatory structure now is *much* stricter than it was from 1945-1987. Our capital adequacy standards are higher, our accounting rules were standardized by Sarbanes-Oxley, we have the Basel protocols, etc. Not even Krugman argues that regulation is weaker than in the past. What changed was the nature of the financial industry.

It may be true that regulation has not kept up with the times, but that's a very different argument.

Essay on Macroeconomics: Where Krugman Fails

QE is not fiscal policy, it is monetary policy. Its effectiveness in stabilizing the financial sector effectively renders any discussion of a "liquidity trap" pointless. And the Fed didn't even use other tools at its disposal, like eliminating positive interest on reserves (or even taxing them).

Krugman's whole defense of paleo-Keynesianism rests on the liquidity trap argument, and QE basically disproves that.

Krugman Misreads Data Proving Paradox of Thrift

Tracing -

I'm not wrong at all, and I perfectly understand it.The paradox of thrift states that if people save in a recession and aggregate demand decreases, then total *savings* will also decrease because of the lessened economic activity. The paradox of thrift is not so much about recovery but about savings. Which is why it's a paradox.

Jaume -

My point wasn't that rational expectations was right or wrong. It was that Krugman is trying to play it both ways as it suits him -- citing rational expectations at some points and denying it at others -- and that that is intellectually dishonest. Of course, an intellectually dishonest person may know what they are talking about but willfully ignore it. Which is what I think Krugman is doing.


On Jul 09 09:34 AM TracingError wrote:

> You clearly do not understand the paradox of thrift. It states:
> the economy turns bad, and the savings rate goes up. If people save,
> then there is no basis for recovery in a consumption-driven economy.
>
>
> That's what the graph shows. That's your big "a-ha"--that without
> the government, saving has gone up. And that's the entire point
> of counter-cyclical government spending.

How Much of an Outlier Was 2008?

Allan -

i don't "presume" anything.

American -

nothing you said contradicts anything i said.

geoff -

look at the graph. we had high debt/deficits and unemployment in the 1930s and 1970s as well, and we came out of it okay. my post is about long-term trends, not short-term pains.

Learning from the Japanese Experience

i didn't mean to say that subsidized employment is the cause of all Japanese ills. basically, i was just tying two recently-published articles together, and briefly look at why Japan may have low unemployment despite a terrible economy, and what the unintended consequences of their policy choices might be. all in the context of trying to understand what we can learn from Japan as we make our way through this recession.

you suggest that i focus on reliance on exports, red tape, and domestic protection. well, employment policies are certainly tied into those things, aren't they?

Happiness Is Keeping Poor People Away

Will -

i actually thought about those two before posting this. Australia and Canada do have high immigration rates. But over 80% of Canada's population is of British, German, French, or Italian descent. The next highest ethnic group (Chinese) has about 4% of the population. Recently, they have been getting many more Chinese and E. European immigrants, but they still represent fairly small slices of the population when compared to the influx of the Latin Americans into the U.S. Even if you split the French Canadians from the non-French Canadians, the country looks much more like Belgium than the U.S.

Australia is over 90% European, and pretty much all of that is W. European (U.K., Italy). Again, they are letting more SE Asians in lately, but the country is still overwhelmingly European.

The U.S. is about 65% European and that number is falling rapidly. We have something like 35 different ancestry groups with one million or more citizens in the U.S., and these tend to be geographically centered; that'd be the entire population of Canada.

Canada and Australia's immigration policies are remarkably open, so maybe it should be said that they are bastions of openness. But not, I think, diversity. I know you're nuts for Canada, but honestly: demographically speaking, do you think Canada has more in common with Belgium or the U.S.?

But even if an exception was made for Canada & Australia/N. Zealand, given that the happiest countries tend to be the northern OECD countries, the story works quite nicely, doesn't it?


On May 19 10:19 AM willwilkinson wrote:

> Australia and Canada have foreign-born populations around 20%, and
> are in fact bastions of diversity. Compare the U.S. at about 11%
> foreign-born.

Cognitive Dissonance and the Financial Crisis

Carey -

This was originally published on my blog (IPEatUNC.blogspot.com), where I've discussed many of these issues in more depth. But briefly:

1. counter-cyclical regulation would give banks and financial institutions more latitude during downturns by, e.g., lowering reserve requirements and capital adequacy ratios.

2. I didn't mean to say that regulation would make exchange rates more flexible. What I meant was that states should allow structural adjustment through the exchange rate rather than artificially rigging currency prices to achieve other goals (like boosting exports).

3. Maybe today, but publics do not like debt. I think that there will be a large push towards paying down some debt within the next decade.

4. This has actually occurred quite a lot: it's the job of the Fed and other central bankers. And generally speaking, they do a very good job. We didn't have a significant recession or excessive inflation for 25 years until the current one; that's the longest in modern economic history. What I'm calling for is the application of that to financial booms and busts that are exacerbated by external forces: i.e. a trade deficit that pumps tons of cash into the financial system from abroad.

5. Transparency is not naive, nor is it unachievable if we recognize that harsh regulations lead to shadow banking and regulatory arbitrage.

6. It wasn't just China, but instead a lot of countries that rely on exports for economic growth. These included the Asian exporters, but also commodity exporters in the MidEast and elsewhere.

Hope that helps!

Will Ireland Be Luckier than Iceland?

yeah. 'unlikely' should be 'likely'.

What Is This 'Politics' of Which You Speak?

Ferdinand -

you'll never see me question Krugman's skills as an economist, even though i agree that his Nobel should have been shared. But Krugman's skills as a political commentator are certain open to question.

Obama's 'Aggressive Attitude' Towards China Is Nothing New

Teutonic Knight -

i answered your question at IPE at UNC's home site. The post is here:

ipeatunc.blogspot.com/...

Seeking Alpha chooses which of our posts they wish to reprint, and doesn't pick all of them, so no guarantees that it ends up here.

The Break Up of Chimerica

Have I misread? Did you read the last part of my post? "Chimerica" refers to more than just the U.S., which seems to be Ferguson's whole point. Chimerica could collapse at the same time that America gains relative economic power.

Ferguson uses the past tense to speak of the "Chimeric" relationship between China and America, viz.: "The crucial mechanism that bound the two halves of Chimerica together was currency intervention." He is trying to convey that the old system of massive imbalances was always unsustainable in the long run, as we are now seeing. The U.S. will still have a large, perhaps dominant, role moving forward but its economic relationship with China must mature.

I do agree that readers should click through to the original piece. That is, after all, what I linked to it in the first place and complimented it in my opening line.

On Dec 22 10:17 PM HaavBline wrote:

> Readers are better off reading the original article by Niall Ferguson
> then this article. This author seemed to have missed the real conclusion
> from the original Ferguson thesis.
>
> Most importantly, Niall Ferguson was NOT predicting "The Break Up
> of Chimerica". On the contrary, "it is much too early to conclude
> that in geopolitical terms the American century is over, or that
> China solo is about to take over from Chimerica.". Inn other words,
> Ferguson saw it more likely that Chimerica continues.