03 Apr 2013

For Krugman, the Size of a Deficit Depends on the Point He’s Trying to Make

Krugman, Scott Sumner 73 Comments

This is barely worth blogging about, since I know exactly what Krugman’s apologists will say, but what the heck? I love it when Landsburg criticizes Krugman, so this post is for his psychic enjoyment…

In a March 28 post, Krugman wrote: “Back in the Reagan years two unprecedented things began happening to the US economy. For the first time ever, we began running large peacetime budget deficits; and for the first time ever we began running large trade deficits.”

OK, so mark that down: Whatever the budget deficits were in the Reagan era, Krugman is saying they were (a) unprecedented (for peacetime) and (b) “large.”

Now, I am not even going to bother finding quotes to back this up, but I hope no one will challenge me when I say that Krugman has referred to Herbert Hoover’s ill-fated presidency as an example of fiscal austerity, the kind of tight-fisted budgeting that we want to avoid.

In that context, it is interesting to look at the budget deficits (as a share of GDP) of Hoover vs. Reagan. This compilation, in my opinion, is one-year off in their apportionment of presidential responsibility in the 1930s (because of differences in when presidents were sworn in and when the fiscal year began). So note I am actually hurting my case, by taking (what they claim is) Hoover’s biggest deficit and giving it to FDR. Anyway, here’s how I assign the fiscal year deficits:

Hoover FY 1930 Surplus 0.8% GDP
Hoover FY 1931 Deficit 0.6% GDP
Hoover FY 1932 Deficit 4.0% GDP
Hoover FY 1933 Deficit 4.5% GDP

Reagan FY 1982 Deficit 4.0% GDP
Reagan FY 1983 Deficit 6.0% GDP
Reagan FY 1984 Deficit 4.8% GDP
Reagan FY 1985 Deficit 5.1% GDP
Reagan FY 1986 Deficit 5.0% GDP
Reagan FY 1987 Deficit 3.2% GDP
Reagan FY 1988 Deficit 3.1% GDP
Reagan FY 1989 Deficit 2.8% GDP

Note that Hoover’s final year–the one suffering the brunt of Krugman’s ire, when Hoover tried to balance the budget through massive tax hikes and (very modest) spending cuts–the budget deficit as a share of the economy was higher than in 4 out of Reagan’s 8 years.

Like I said, I know full well what the response is going to be: “Bob you moron, can you possibly be this ignorant, after you’ve read Krugman for this many years? The economy was still awful in 1933, so obviously Hoover was running woefully inadequate deficits. In contrast, Reagan’s deficits were unjustified given the conditions in the economy. Contrary to popular belief, Krugman isn’t always for deficits; he’s for them, but only when the situation demands it.”

Great, I get it. My point is, it is extremely unhelpful to a debate over economic policy when comparable fiscal records can simultaneously be described as monstrous austerity versus unprecedentedly large deficits.

This is a similar beef I have with Scott Sumner. If he said, “Yes, Bernanke has engaged in unbelievably loose monetary policy, but I think conditions require that it be even looser still,” then fine let’s talk. Yet when he defines tightness or looseness in a way that crucially depends on his policy proposals being right–the very thing under discussion, after all–then it’s almost impossible to have a rational discussion. It would be like physicians arguing over whether a patient needed a higher dosage of a certain drug, and quantifying the units of the dosage on the basis of the patient’s symptoms (as opposed to the volume of liquid that had been injected so far).

73 Responses to “For Krugman, the Size of a Deficit Depends on the Point He’s Trying to Make”

  1. joe says:

    How is the FY 1989 deficit 2.8% of GDP? The national debt increased 4.6% of GDP in FY 1989. Pretty sure the 2.8% of GDP is the on-budget deficit which pretends that the money borrowed from the govt trusts is income tax revenue. Social security and Medicare were not generating a surplus to borrow from under Hoover (neither program existed). Reagan raised the social security tax so that social security would generate a surplus in 1983. Then due to an accounting gimmick adopted under LBJ, the deficit looked lower than it really was.

    National Debt increased 255 billion in FY 1989
    nominal GDP Q3 2009 = 5,532.9

    255 /5532 = 4.6% of GDP

    National DEBT
    09/29/1989 2,857,430,960,187.32
    09/30/1988 2,602,337,712,041.16

  2. Jonathan Finegold says:

    I don’t think this follows from the mistake you catch Krugman making,

    My point is, it is extremely unhelpful to a debate over economic policy when comparable fiscal records can simultaneously be described as monstrous austerity versus unprecedentedly large deficits.

    If someone thinks that austerity/stimulus is relative to the output gap, or something similar, then a hypothetical deficit of 3 percent in 1933 isn’t comparable to a deficit of 3 percent in 1988. In Krugman’s worldview, it makes perfect sense to consider Reagan’s deficit too large and Hoover’s too little (and one overspending and the other austerity). The reason you find it unhelpful, I think, is because you don’t share this worldview.

    • Bob Murphy says:

      JFC wrote:

      In Krugman’s worldview, it makes perfect sense to consider Reagan’s deficit too large and Hoover’s too little (and one overspending and the other austerity). The reason you find it unhelpful, I think, is because you don’t share this worldview.

      Right Jonathan, that’s my point. Krugman isn’t sending an email to DeLong, he’s trying to persuade the world of the need to run big deficits. He specifically argues against the policy recommendations of “the austerians.” So if the very units of measurement are defined by Krugman being right and the austerians being wrong, this is a bit confusing.

      I think 90% of Krugman’s readers would have had no idea that Hoover had comparable budget deficits to Reagan.

      Switch to something else. People argue over the primal diet. One MD says it makes sense, and another says it doesn’t. They start looking at various studies of how many carbs the test subjects consumed on a daily basis. How should we measure the carbs? If the amount of intake is defined such that “losing fat” is operationally equivalent to “restricting carbs” and “gaining body fat” is taken as the same thing as “eating a lot of carbs,” then do you think this is a good way to figure out if the primal diet works?

      • Jonathan Finegold says:

        I can see how Krugman’s wording can be misleading sometimes (especially with regards to Hoover), but at the same time this is a complaint that his blog posts don’t explain his worldview in detail — they are blog posts and columns. I think it’s really a case-by-case thing, but I don’t see anything wrong with declaring Hoover’s deficits and Reagan’s non-comparable. But, again, I agree with you that Krugman can oftentimes be misleading.

        • The Narrator says:

          one interesting question is how Krugman would react if an Austrian and/or Austerian would do something similar (saying something is such and such in one case but not such and such in another case when there are good reasons (as in Krugman’s own case, as you rightly point out) to do so.

          Would Krugman object or not?

          • Jonathan Finegold says:

            His objection to ABCT may be an example. The shrinking of the capital structure as a result of ABCT results in a bust, but its lengthening doesn’t.

  3. Lord Keynes says:

    “Note that Hoover’s final year–the one suffering the brunt of Krugman’s ire, when Hoover tried to balance the budget through massive tax hikes and (very modest) spending cuts–the budget deficit as a share of the economy was higher than in 4 out of Reagan’s 8 years.”

    That is because GDP collapsed in 1933. Can’t you distinguish between the deficit as a % of GDP due to

    (1) increased discretionary spending by bond issues or money printing (which is stimulative), and
    (2) collapse of GDP with either zero increase in spending or actual contraction in spending (contractionary)?

    The fiscal policy of 1933 is contractionary. In 1982-1986 it was considerably expansionary.

    • Bob Murphy says:

      Right Lord Keynes. And since I think government budget deficits hurt economic growth, it’s even more scandalous to run a deficit of a given absolute dollar amount when the economy is collapsing. So I think Hoover’s deficit of 4.5% in FY 1933 was much more scandalous and profligate than Reagan’s comparable deficits. You see how Orwellian this gets if we refer to a deficit as “big” or “small” based on our policy prescriptions?

      • Major_Freedom says:

        That is a good point.

        I don’t know how many times I have seen LK use those size-related terms as if he believes he is saying something factual, rather than restating his existing ideology and political desires.

        “Small deficit” really means “I want the deficit to be higher.”

        “Large deficit” really means “I would be OK if the deficit were smaller.”

        • Bharat says:

          I like how if I don’t completely understand the point Murphy is trying to get across, I can just look below in the comments and wait for someone to explain it to LK.

      • Lord Keynes says:

        “And since I think government budget deficits hurt economic growth, it’s even more scandalous to run a deficit of a given absolute dollar amount when the economy is collapsing. So I think Hoover’s deficit of 4.5% in FY 1933 was much more scandalous and profligate”

        What you are saying is that you want immediate budget balancing and no deficit ever?

        First, if the government cut taxes radically during a recession (without increasing spending) and ran a deficit to create a stimulus, do you think that would stimulate the economy or not?? You would oppose this as scandalous and profligate?

        Secondly, since Hoover was not a Keynesian, your moral outrage at his “scandalous and profligate” deficit in 1933 is misplaced.

        • skylien says:

          You completely sidestepped Bob’s question…

        • Bob Roddis says:

          What you are saying is that you want immediate budget balancing and no deficit ever?

          One would always want immediate tax and spending cuts. Further, as you repeatedly explain, the concept of “the gap” is preposterous because the concept of the “trend line” is also preposterous because the world is “non-ergodic”. Past data cannot provide any reliable information about future probability distributions:

          “Keynes … rejected this view that past information from economic time-series realizations provides reliable, useful data which permit stochastic predictions of the economic future. In a world where observations are drawn from a non-ergodic stochastic environment, past data cannot provide any reliable information about future probability distributions. Agents in a non-ergodic environment ‘know’ they cannot reliably know future outcomes.

          http://socialdemocracy21stcentury.blogspot.com/2011/03/uncertainty-and-non-ergodic-stochastic.html

          Then there is the other problem with “the gap” which is the unproven and phony assumption that government “spending” is generically the same as adding up the sales prices of all of the various voluntary exchange transactions. Further, as LK is fond of telling us, the market really consists of “administered prices” and “fixprices” (which is LK’s latest final definitive attack on the concept of “economic calculation”). Therefore, to be consistent, it would be impossible to calculate exactly how much government spending should correlate with those types of prices.

          • Lord Keynes says:

            “Further, as you repeatedly explain, the concept of “the gap” is preposterous because the concept of the “trend line” is also preposterous because the world is “non-ergodic”.”

            I never say any such thing, and I’ll bet you have no idea what non-ergodic even means.

            • Bob Roddis says:

              I thought it was derived from some ancient language and is translated to roughly mean “heads I win, tails you lose”.

              • Major_Freedom says:

                Close.

                It means you’re subject to a curse if you aren’t wearing a government badge.

                With the badge, you can deflect the non-ergodic germs, see through the swarm, and make decisions that are superior to the decisions of those non-badge wearing cursed folk.

                Without the badge, you’ll be unable to accept lower paying jobs and you’ll likely die from starvation.

              • Bob Roddis says:

                MF:

                In case you missed it, our hero Lord “Amelia Bedelia” Keynes has a new and improved devastating critique of the concept of economic calculation: Firms change quantities instead of prices* in the REAL WORLD and fringie Austrians didn’t know and cannot accept that. It’s devastating.

                http://mikenormaneconomics.blogspot.com/2013/04/lord-keynes-mises-flunks-evolution-101.html?showComment=1365065115509#c6574924790753156755

                *Isn’t that just another form of price changing?

              • Major_Freedom says:

                I’ve made it a rule for myself not to visit blogs full of thugs and morons.

              • Lord Keynes says:

                Yes, no doubt that is right, Captain Freedom, or is it Sage_Advice, or Waaah, or George, Pete, David, Christof, Pete PetePete, or Private_Freedom?

                lol..

              • JSR08 says:

                LK,

                I clearly remember reading M_F’s explanation on why he sometimes chooses to assume a different alias on blogs like yours. In case you forgot, it is in the hope that people will actually debate the content of his post and not just fling insults at him as a distraction to their ineptitude, at least for a little while. It seems this tactic does not work on smarter-than-average trolls, such as yourself.

                It would be nice though if you could at least hold a candle to M_F in terms crafting convincing arguments, as that would make his smackdowns of you a bit more enjoyable.

              • Bob Roddis says:

                Somehow I’m fascinated by the MMTers but I’m avoiding watching the Kevin Ware leg break or the Wenzel/Kinsella fight to the death.

                My daughter hates carrots. I love carrots. The division of labor, and all that (the things LK hates).

              • Richie says:

                Yes, no doubt that is right, Captain Freedom, or is it Sage_Advice, or Waaah, or George, Pete, David, Christof, Pete PetePete, or Private_Freedom?

                lol..

                A cultist that goes by the alias “Lord Keynes” LOLs at a person with different aliases. Now that is rich.

            • Major_Freedom says:

              “I never say any such thing”

              Yes you did:

              “Certain types of phenomena in our universe are what mathematicians call non-ergodic stochastic systems. The concept of radical uncertainty applies to such systems, like medium term weather events, financial markets, and economies, and other natural systems studied in physics.”

              “In these systems, past data is not a useful tool for predicting the future state of the system and the problem of induction is particularly acute.”

              If economies are non-ergodic, and if past data is not a useful tool for predicting the future, then there is no such thing as a trend line induced from past data, and thus no such thing as an output gap induced from past data, which is what you nevertheless continue to contradict yourself over by inferring historical drops and rises in output and employment from past induced trends!

              In other words, if the economy is non-ergodic, and if the past is not useful as a guide to predicting the future, then how in the world can you treat a rise or fall in unemployment of say 5% as something other than what happens in a non-ergodic system, why do you continue to treat double digit unemployment as “high” and worthy of government response to lower back down (to trend!)?? No trends exist!

              You would, by your own account, have to regard changes in employment and output as a form of natural occurrence, not to be regarded as “too high” or “too low”, and certainly not to be regarded as signals that the “trend” of the economy is “off” and that requires government violence to “correct.”

              Your whole worldview is one giant smorgasbord of contradictions.

              • Lord Keynes says:

                “If economies are non-ergodic, and if past data is not a useful tool for predicting the future, then there is no such thing as a trend line induced from past data, and thus no such thing as an output gap induced from past data”

                False. That is an absurd non sequitur.

                No, as usual, you’re incompetently unable to understand basic ideas.

                The issue here with non-ergodicity is that you cannot construct an objective probability score for the likelihood of a specific market outcome in the future in a process subject to pure Knightian uncertainty , e.g, the price of certain stock x in 10 years time, the returns on an specific investment 4 years from now, etc, etc.

                That does not exclude identification of general trends or underlying regularities in economic life at all, such as bear or bull markets or business cycles.

                Also, the degree to which an economy has stabilising interventions also reduces uncertainty.

                Obviously, in a real world economy, as, e.g, France or Germany in 2013, you have many government interventions that mean that the overall economy is not a pure nonergodic, stochastic system.

                E.g., when the central bank controls the base rate, and credibly announces that it will keep the base rate at a certain level for a year, you have ceased to have a nonergodic, stochastic system in the way the base rate is set, a sin a pure laissez faire system. The base rate is clearly being controlled and the central bank has indeed provided certainty in that particular variable.

              • Bob Roddis says:

                I finally get it! Having the rate of interest set arbitrarily now and as far as the eye can see into the future by Keynesian government hacks is obviously the best way to reduce and eliminate the natural uncertainties of life that afflict average unenlighted folk like us, especially for complex and long term projects, right?

                $200,000 loan at 3% for 15 years:

                $1,381.16 Monthly Principal & Interest

                $248,609.39 Total of 180 Payments

                $48,609.39 Total Interest Paid

                $200,000 loan at 7% for 15 years

                $1,797.66 Monthly Principal & Interest

                $323,578.18 Total of 180 Payments

                $123,578.18 Total Interest Paid

                http://www.amortization-calc.com/#loan-200,000-15-7-6-2013-2

              • Bob Roddis says:

                You know, there just isn’t enough uncertainty in life. That’s why it’s really important for Keynesians to inject some really neat uncertainties into our boring lives, like theft of purchasing power through money dilution, asset bubbles, the necessity of finding inflation hedges (that could collapse at any time), the funding of brutal wars and the grand prize, catastrophic business cycles.

              • Ken B says:

                Yup. You cannot accept a theory about how economies work without committing to all those things. That’s why Beelzebub starts his sales pitch with Mein Kampf or Malleus Maleficarum; most people just don’t have the stomach for the pure pulsing evil of The General Theory.

              • Major_Freedom says:

                LK:

                “If economies are non-ergodic, and if past data is not a useful tool for predicting the future, then there is no such thing as a trend line induced from past data, and thus no such thing as an output gap induced from past data”

                “False. That is an absurd non sequitur.”

                No, it is not false. It is true. It follows. You can only deny it or accept it.

                “The issue here with non-ergodicity is that you cannot construct an objective probability score for the likelihood of a specific market outcome in the future in a process subject to pure Knightian uncertainty , e.g, the price of certain stock x in 10 years time, the returns on an specific investment 4 years from now, etc, etc.”

                That isn’t what you said. You attributed non-ergodicity TO WHOLE ECONOMIES.

                That means by your own account, you cannot “construct an objective probability score for the likelihood of…” aggregate economic trends.

                “That does not exclude identification of general trends or underlying regularities in economic life at all, such as bear or bull markets or business cycles.”

                You contradicted yourself.

                You said non-ergodicity applies to whole economies, as I quoted you. You said that for such non-ergodic systems, “past data is not useful for constructing predictions”, and “the problem of induction is particularly acute”.

                Now you’re saying that trends CAN be identified in the aggregate economy.

                Well, your worldview is up the creek there too, because if it is possible to identify trends in the whole economy, then the economy is not non-ergodic, and hence it is possible to induce, and hence the notion that Keynesian intervention can allegedly move non-ergodic systems to ergodicity, via “powerful activity” (read: violence) is by your own account a bunch of BS.

                “Also, the degree to which an economy has stabilising interventions also reduces uncertainty.”

                It doesn’t need that by your own admission. Trends can be identified. Investors can base their investment decisions and pricing decisions on those trends, and the market will tend towards clearance.

                “Obviously, in a real world economy, as, e.g, France or Germany in 2013, you have many government interventions that mean that the overall economy is not a pure nonergodic, stochastic system.”

                Circular logic, and no true scotsman.

                Circular logic because the non-ergodic trends that are manifested by government activity are not the same trends as would prevail on an unfettered free market, which means you’re conflating the non-ergodic intervened market with the non-ergodic non-intervened market.

                No true scotsman because you added the word “pure”, as if there is a middle ground between ergodic and non-ergodic after you realized that you lose with choosing one or the other. If you say the free market economy is ergodic, then no intervention is required. If you say the free market economy is non-ergodic, then Keynesian policy makers cannot identify any trends by which to plan their interventions to “close the gap”, because to do so would necessarily require observing past events, which non-ergodic theory says you can’t do. So Keynesian policy making is either superfluous, or it is groping the dark and arbitrary.

                “E.g., when the central bank controls the base rate, and credibly announces that it will keep the base rate at a certain level for a year, you have ceased to have a nonergodic, stochastic system in the way the base rate is set, a sin a pure laissez faire system.”

                A free market determined base rate, a sin in Keynesian doctrine, would by your account be part of an non-ergodic system and hence the central bank cannot know if the rate it sets via intervention moves the economy towards its potential or away from it, because like you said, one cannot induce from past data. Turning a non-ergodic system into an ergodic one is not the same thing as moving the system towards full potential rather than away from it.

                You’re worshiping the concept of ergodicity without realizing that humans use it as a tool, they aren’t enslaved by it.

              • Lord Keynes says:

                lol.. you have not the slightest understanding of what a non-ergodic process even is.

                Definition of “trend”
                -A general direction in which something is developing or changing.
                – Bend or turn away in a specified direction.

                Not only do non-ergodic systems have trends, but also they can have cycles. E.g., limit cycles; long term climate is probably non ergodic but has clear trend and cycles.

              • Mike Sax says:

                So what you’re claiming basically is total nihilism about the economy. We supposedly can’t even say if unemployment or output are high or low/

                Ie, return to 19th century economics prior to the use of economic aggregates. It’s an extreme version of methodological individualism

              • Major_Freedom says:

                LK:

                “lol.. you have not the slightest understanding of what a non-ergodic process even is.”

                Haha, I love it how you’re desperately trying to take a page out of Roddis’ handbook. “You don’t understand it!”

                Fortunately, I do understand ergodic theory. I seriously doubt that you do however, because you don’t seem to even grasp the implications of it when integrated into basic arguments.

                “Definition of “trend”
                -A general direction in which something is developing or changing.”

                In order to know how something “is” changing, you have to know where it’s been and you have to know where it’s going to go. That is an induction problem, and as you conceded earlier numerous times, you cannot induce from past data in non-ergodic systems.

                “Not only do non-ergodic systems have trends, but also they can have cycles. E.g., limit cycles; long term climate is probably non ergodic but has clear trend and cycles.”

                Long term weather trends cannot be induced from past data. Edward N. Lorenz basically demolished the possibility of making such long term weather predictions.

                At any rate, the point is going over your head as usual. If there exists trends in non-ergodic systems, and you regard the economy as such a system, then it contradicts your claim that you cannot induce from past data and that “the problem of induction is particularly acute”.

              • Lord Keynes says:

                And now you’ve proven my point.

                You cannot predict with an objective probability score
                some specific state of the non ergodic system in the future or precisely when it will turn, but the system can certainly have trends and cycles. By admitting climate is nonergodic, you are now either a liar or mad to deny that climate has cycles and trends (i.e., “general direction in which something is developing or changing” or “Bend or turn away in a specified direction”).

              • Major_Freedom says:

                LK:

                “You cannot predict with an objective probability score some specific state of the non ergodic system in the future or precisely when it will turn, but the system can certainly have trends and cycles.”

                This contradicts your claim made in your blog here, where you said:

                “Certain types of phenomena in our universe are what mathematicians call non-ergodic stochastic systems. The concept of radical uncertainty applies to such systems, like medium term weather events, financial markets, and economies, and other natural systems studied in physics.”

                “In these systems, past data is not a useful tool for predicting the future state of the system and the problem of induction is particularly acute.

                You claim in these passages that no trends can be constructed, since past data is not a reliable guide to making future predictions.

                You keep responding to this contradiction by continuing to focus on the “objective probability score” for individual stocks. But that isn’t evading what you have already written.

                Which is it? If you claim trends can be induced from non-ergodic systems, like the economy, then you have completely nullified your own perceived justification for state intervention.

                “By admitting climate is nonergodic, you are now either a liar or mad to deny that climate has cycles and trends (i.e., “general direction in which something is developing or changing””

                No, you are a liar or mad, because by your own account, no trends can be induced in non-ergodic systems, like the weather and like the economy.

                You keep making the same contradictory claim. You say the economy is non-ergodic and thus requires state intervention, but then when you’re presented with the implication of that, which is that no trends can be induced in such a system in order to make state intervention an improvement, you then switch gears and say that there are trends in non-ergodic systems.

                Contradictions abound in your worldview. Not just ethical, not just economic, but basic logic too.

              • Major_Freedom says:

                “…that IS evading…’

        • Major_Freedom says:

          Aaaaand as usual, the point went over your head.

    • Jonathan Finegold says:

      LK,

      Read two paragraphs below the deficit info. listing.

      • Lord Keynes says:

        I already read those paragraphs and they only underscore his illogic.

        • Richie says:

          LOL no they underscore the fact that you have no reading comprehension.

  4. Brent says:

    The fact that people explain to you in the comments precisely what you zeroed in on as the problem should be very disconcerning, Bob.

    • Bob Murphy says:

      Brent I’m not sure if you’re criticizing them or me. Can you clarify?

      • Brent says:

        Them. But it makes me (because I agree with you, see your point, and note that you’ve made the sane point before) feel like I am losing my mind.

  5. Tom says:

    Can you help me understand why you disagreed with your sources fiscal year listings?

    Hoover was sworn in on March 4, 1929. Which 3 months before fiscal year 1930 started. So the 1930 FY budget was put together by the prior administration. Which means that his first FY budget was 1931.

    I suppose it makes sense to just avoid the discussion since you can make your point without it. But it seems that the 1934 FY deficit of 5.9% of GDP is on Hoover. Which is essentially on par with the worst year of the Reagan administration.

    • Bob Murphy says:

      Tom, right, I get why they did it that way. But FDR somewhat famously enacted a bunch of legislation in his first 100 day etc., closed the banks, confiscated gold, etc., so I think FDR had a lot to do with FY 34. But you’re right, we could say at least half of it was on Hoover’s watch, so I guess the real test would be to break it up into first-half of FY 1934 if we knew those numbers.

  6. William Anderson says:

    There are a few things to remember. While I am not giving Reagan a free ride for the huge deficits he ran, nonetheless the economy was bad his first three years in office, including the worst recession since the Great Depression, with unemployment hitting low double digits.

    According to All Good Keynesians, Reagan did the right thing by running large deficits during that time. (In fact, Keynesians have argued that Reagan’s deficits WERE the reason for the recovery. Krugman seems to be arguing against himself, but that is not unusual.)

    As for the trade deficits, the Volcker-led monetary tightening at the Fed raised the value of the dollar relative to other currencies, which stimulated imports and discouraged exports. And everyone knows (or at least those who worship Krugman) that the ideal economy is one in which everyone has jobs making goods that others will enjoy, given that the workers cannot afford to purchase what they are creating.

    So, Americans got to use all of the fabulous stuff the Japanese were making, while Japanese had to do without. Given Krugman’s proclivity to spending, one would think he would praise Reagan to the hilt for such policies.

    On another point, Krugman has claimed that all of the impetus toward deregulation — and especially financial deregulation — all came from conservative, ideological Republicans. You see, I had no idea that Jimmy Carter, Ted Kennedy, and Ferdinand St. Germain were conservative Republicans! That is why I am thankful for Krugman’s history lessons, because I had been duped by Goldstein — Goldstein! I tell you! — into thinking those people were liberal Democrats.

    • Daniel Kuehn says:

      William –
      Could you quote me where Krugman is saying here that the Reagan deficits are bad? I think he’s just citing the emergence of the “twin deficits” phenomenon.

      • Bob Murphy says:

        DK wrote:

        Could you quote me where Krugman is saying here that the Reagan deficits are bad?

        He doesn’t literally say it in this particular post Daniel, but come on. He repeatedly explains on his blog that our deficit problem is from the Republicans. In fact, I think he just explained it (again) the other day in response to Stockman. Krugman shows charts of debt/GDP that spike under Reagan and Bush I, then fall under Clinton, then spike again under Bush II, and then (according to Krugman’s narrative) yes go up in the last few years too, but that’s because of the Great Recession. (I actually think he pulled back from using Obama’s name, such was Krugman’s desire to make sure his readers knew whom to blame for the national debt.)

        • Daniel Kuehn says:

          Mmmm… no… how about you “come on”.

          So when Republicans blame liberals as the ones that run-up deficits, sure, he points to Bush and Reagan vs. Clinton. And why not. People who say stupid things about liberals and deficits should have that pointed out to them.

          But when I think of Krugman evaluating Republican deficits I think of his column “Reagan was a Keynesian” talking about how unemployment was high in the 80s and his various columns on Bush criticizing him for running big deficits for reasons other than high unemployment.

          Here, he is talking about the historical emergence of “twin deficits” with no value judgements that I can pull out.

          And yet William Anderson is convinced there’s a judgement.

          And I’m not quite sure where he gets that.

      • Mike T says:

        How about reconciling these 2 posts, Daniel:

        From the last paragraph of each:
        “So as I said, it’s sad: Ponnuru hopes to get Republicans to accept policies they’ll never accept, and the only way he knows to make his case is to invoke the memories of a politician from the quite distant past whose policies weren’t all that successful in the first place.”
        http://krugman.blogs.nytimes.com/2013/02/18/the-myth-of-reagans-miracle/

        “The point, then, is that we’d be in much better shape if we were following Reagan-style Keynesianism. Reagan may have preached small government, but in practice he presided over a lot of spending growth — and right now that’s exactly what America needs. ”
        http://www.nytimes.com/2012/06/08/opinion/krugman-reagan-was-a-keynesian.html

        So, basically Krugman’s conclusion when referencing Reagan era policy , “is that we’d be in much better shape if we were following Reagan-style Keynesianism” which is “exactly what America needs [right now]” which happens to be “… policies [that] weren’t all that successful in the first place”

        Krugman is such a joker.

          • Mike T says:

            I really don’t know what else Daniel needs to see from Krugman who has fully engulfed himself inside the political arena with a clear, blue pom-pom waving partisan agenda, probably in an attempt to appeal to a lower common denonominator in hopes of reaching a wider audience. Good for him. I hope he’s making bank. But it’s a futile exercise confusing him with someone employing any kind of intellectual rigor, honesty, or consistency.

            • Major_Freedom says:

              Accurate analysis.

              Pundits ought not be confused for economists.

              If Krugman admitted tomorrow he’s a partisan pundit and no longer an economist, because he was likely brainwashed by his feminazi wife, then there would be no reason for any economist to take him seriously.

            • Daniel Kuehn says:

              I don’t know why I try Mike T. If you’re just going to prance around calling people you disagree with dishonest I shouldn’t even be answering your questions.

        • sandre says:

          Krugman and his apologists – comical as always.

        • Daniel Kuehn says:

          Mike T –
          It seems to me your first link and your second link are talking about completely different issues. Whether a set of policies gets us out of a depression and whether a related but different set of policies addresses inequality (what Ponnuru was worried about) seem to be two very different questions, don’t you think?

          If your argument is simply “Krugman likes one thing about Reagan but not another thing – how do you reconcile that!!!” then I’d simply ask what there is that needs to be reconciled.

          • JSR08 says:

            “…whether a related but different set of policies…”

            Krugman refers to Regean’s policies as “Reaganomics” in the first article and “Reagan-style Keynesianism” in the other. He speaks so generally about the results of Regean’s policies in those articles I do not know how you infer that he is talking about different sets of policies.

            “…then I’d simply ask what there is that needs to be reconciled.”

            How about the fact that Krugman generally describes Reagan’s economic policies as a relatively “good thing” in one article and in the other he trashes the the Republican belief that these policies (in general) were good for America?

            • Daniel Kuehn says:

              re: “How about the fact that Krugman generally describes Reagan’s economic policies as a relatively “good thing” in one article and in the other he trashes the the Republican belief that these policies (in general) were good for America?”

              He is talking about different policies and very different outcomes in the two links. I really don’t understand why this is so hard.

              • JSR08 says:

                Because, generally speaking, he’s not! His final conclusions in both articles completely contradict each other. Bob takes great pains in his posts to clarify the context of what his statements of opinion apply to. Krugman does not, and he ends up with contradictory conclusions about (in this case) Regean’s economic policies as a whole.

          • Mike T says:

            Daniel –

            “If you’re just going to prance around…”
            >> Sorry Daniel, but I don’t prance.

            “calling people you disagree with dishonest”
            >> No, I did not call him dishonest and inconsistent because I disagree with him. I didn’t even mention whether I agreed or disagreed with his assessment. How could I? He made two contradictory judgments about policy during the Reagan administration.

            “Whether a set of policies gets us out of a depression and whether a related but different set of policies addresses inequality (what Ponnuru was worried about) seem to be two very different questions, don’t you think?”
            >> That’s not what Krugman wrote, Daniel. He makes a general reference to the economic climate while Reagan was in office and gives two contradictory assessments of “Reaganomics” and “Reagan-style Keynesianism.” So, please help define the difference between those two.

            But ya know what? I’ll bite. So, Krugman mentions tax policy in the inequality post and government spending in the how to “get us out of a depression” post. His contention (I assume you’d agree) is that tax cuts led to greater inequality (or at the very least didn’t help) and increased government spending got us out of the sharp recession in the early 80’s. Ok, so how would you refute the opposite claim that it was the tax cuts that got us out of the recession and the increased govt spending that led to greater inequality?

          • Mike T says:

            Daniel –

            “He is talking about different policies and very different outcomes in the two links. I really don’t understand why this is so hard.”

            Even if that’s the case, it’s equally lame. How can Krugman possibly isolate variables to conclude the following:

            Policy A caused Bad Result Y
            Policy B caused Good Result Z

            If you suggest he’s not arguing causation, then what was the point of those two posts?

            • Richie says:

              As many economists have pointed out, America is currently suffering from a classic case of debt deflation: all across the economy people are trying to pay down debt by slashing spending, but, in so doing, they are causing a depression that makes their debt problems even worse.

              Ask Daniel why he thinks Krugman believes this.

    • Mike Sax says:

      The recession in Reagan’s early term was Fed induced. Keynesians didn’t like the allocation of the deficit-huge tax cuts for the rich and the huge military buildup-star wars, etc. You could argue that he practiced a kind of Keynesianism but of a dstinctly military kind. The arguments of the Reaganites were not Keyensian but “supply side.”

      Things are not always black an white. IN reality it’s been the Republicans who have had a wholly schizophrenic attitude to deficits: they don’t matter when a Republican is President, they matter more than anything else in the world when a Democrat is President.

      Compare what they say with Reagan and the Bushes and Clinton and Obama.

      • Mike T says:

        Mike –

        “Keynesians didn’t like the allocation of the deficit-huge tax cuts for the rich”
        >> In what terms were these “for the rich”? During Reagan’s 2 terms, the top 10% of income earners paid an increased share of income taxes and the bottom half of income earners paid a reduced share.

        “Keynesians didn’t like … the huge military buildup-star wars, etc. You could argue that he practiced a kind of Keynesianism but of a dstinctly military kind. The arguments of the Reaganites were not Keyensian but “supply side.”
        >> Is Krugman not a Keynesian? As I posted above in another comment, it seems like he liked Reagan era spending:

        “The point, then, is that we’d be in much better shape if we were following Reagan-style Keynesianism. Reagan may have preached small government, but in practice he presided over a lot of spending growth — and right now that’s exactly what America needs.”
        http://www.nytimes.com/2012/06/08/opinion/krugman-reagan-was-a-keynesian.html

        “Things are not always black an white. IN reality it’s been the Republicans who have had a wholly schizophrenic attitude to deficits: they don’t matter when a Republican is President, they matter more than anything else in the world when a Democrat is President.”
        >> Who on this blog defends Republican policy or rhetoric, Mike? William didn’t seem to be. Seems like you’re building a strawman here.

        • Mike Sax says:

          I’m talking about Reagan’s tax cuts which were highly regressive

          • Mike T says:

            How so? As I mentioned, during Reagan’s administration after these tax cuts were implemented, the top 10% were contributing a higher percentage of total income taxes than before and the bottom 50% were contributing less. Doesn’t sound progressive to me.

          • Mike T says:

            “Doesn’t sound progressive to me.”

            should obviously have been

            “Doesn’t sound regressive to me”

  7. Daniel Kuehn says:

    So I agree with you entirely that the Hoover/deficits thing is often fudged badly by Krugman.

    But I also agree with your clarification that what matters is what it looks like relative to the macroeconomic conditions (and I’d add that the absolute spending matters in addition to the deficit). Which is why I’m a little confused about this:

    “Great, I get it. My point is, it is extremely unhelpful to a debate over economic policy when comparable fiscal records can simultaneously be described as monstrous austerity versus unprecedentedly large deficits.”

    Wouldn’t your acknowledgement of different macroeconomic conditions imply that these are not necessarily comparable fiscal records?

  8. Gamble@aol.com says:

    Perpetually escalating debt from here on out…

  9. Wonks Anonymous says:

    Standard measures of monetary “looseness” go out the window when interest is paid on reserves. Most of the ballooning money supply is the result of excess reserves kept at the Fed, rather than transmitting through the broader economy. The decision to pay interest on reserves was a contractionary, “tight” money decision. And of course, low interest rates have never been a good indicator of a loose money supply (since they were higher during 70s stagflation or Weimar Germany).

  10. Mike Sax says:

    “Great, I get it. My point is, it is extremely unhelpful to a debate over economic policy when comparable fiscal records can simultaneously be described as monstrous austerity versus unprecedentedly large deficits.”

    Bob you say you get it but I don’t know that you do. You seem to be complaining that context matters. You want a kind of meta economic discussion where what we say would apply to any conditions whatever.

    If I tell a kid he’s tall enough for the height requirement on a roller coaster but later that he’s not tall enough to play in the NBA is this unhelpful? Of course not, what’s helpful is to actually consider the context so we can have an apples to apples discussion.

    The whole point of Krugman’s discussion of deficits and debt is it’s pointless to have these discussions without reference to the part of the business cycle you’re in.

    For more on the question of debt-see my adjudicating a discussion between Krugman and MIles Kimball.

    http://diaryofarepublicanhater.blogspot.com/2013/04/miles-kimball-evoking-evils-of-debt.html

    • Mike Sax says:

      Bob did you ever hear the fable of the woman with hot and cold from one mouth? A superstitiuos old man ran away screaming because she first blew her hands from the cold and then blew her soup to warm it up?

      • Richard Moss says:

        Mike,

        Well, if the soup was gazpacho, and she was blowing on it to cool it, that that would be weird, wouldn’t it?

        Krugman is acting like we all agree it is better to blow on the soup.

        Bob is saying, no, we don’t. If blowing on the soup is supposedly better for it, we are assuming a certain kind of soup. But, the kind of soup it is is exactly what is at issue.

        • skylien says:

          Soup parable…sounds delicious.

    • Mike T says:

      “Of course not, what’s helpful is to actually consider the context so we can have an apples to apples discussion.”

      and then…

      “The whole point of Krugman’s discussion of deficits and debt is it’s pointless to have these discussions without reference to the part of the business cycle you’re in. ”

      >> It seems to me part of the problem is trying to draw conclusions from an “apples to apples discussion” when using an “apples to oranges example.”

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