Consulting by RPM || Free Advice Blog

Krugman Digging Himself Deeper

Wow this is getting hilarious. A Krugman quote from 2002 has been flying around the Internet, in which he seemed to advocate that Greenspan replace the Nasdaq bubble with a housing bubble.

Now Krugman outdoes himself and posts this (HT2 von Pepe):

One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.

Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.

Look closely at the parts I’ve put in bold. In the first one, he is acting like the claim is so absurd, that he has difficulty even understanding how his nutjob critics could come up with it. The very idea, that Krugman would be recommending a housing bubble?! Ha!

Then the second part in bold shows that I know how Krugman thinks. When I blogged about this yesterday, I said that Krugman seems to be predicting a housing bubble, but not really. Some of you doubted my interpretation, but look, that’s exactly how he tried to spin it. (And right, Krugman didn’t actually predict the housing bubble, but that’s why I ended with “but not really.”)

If all we had to work with were the 2002 article in question, we wouldn’t have enough evidence to convict Krugman. After the money quote about Greenspan needing to cause a housing bubble, Krugman wonders whether Greenspan “can do this.” (Actually, this is the worst of all worlds: It seems that Krugman really was saying, ‘Yes Greenspan ought to cause a housing bubble to fix the economy, but I don’t think he can.’ !!)

Fortunately, we have a lot more evidence. Assuming the below quotes and links are legit, Krugman really ought to have a short blog post saying, “OK I screwed up.” (I may have to show him the way in a few days when my summer gold call doesn’t pan out.)

Von Pepe originally alerted me to this follow up material, and as best as I can trace it back, it first appeared on Reason, posted by “Ben.” Here it is in all its glory:

If you think what he wrote in 2002 was offensive, then you’ll really get annoyed reading what he wrote in 2001.

German Interview, undated

http://www.pkarchive.org/global/welt.html

“During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”

July 18, 2001

http://www.pkarchive.org/economy/ML071801.html

“KRUGMAN: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).

DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?

KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know.

“

August 8th 2001

http://www.pkarchive.org/economy/ML082201.html

“KRUGMAN: I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture.”

August 14, 2001

http://www.pkarchive.org/column/81401.html

“Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.

October 7, 2001

http://www.pkarchive.org/economy/ML071801.html

“Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.

In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package.

“

Dec 28, 2001

http://www.pkarchive.org/column/122801.html

“The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”