16 Jun 2009


All Posts, Potpourri No Comments

* Von Pepe sends me this 2002 Krugman piece (via Arnold Kling). The money quote:

The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

I realize there’s a danger of playing “gotcha!” with the Nobel (Memorial) laureate. Fortunately only Silas Barta combs through my past writings with the same effort and cynicism, and I’m not sure I like it.

But come ON. A bunch of us have been saying for more than a year that Krugman’s prescription for fixing the current mess, is exactly what caused the housing bubble and would only cause another crisis down the road. Doesn’t the quotation above seal the deal? What more do we need? Oh wait, here’s more evidence that, despite all the formal models with their bells and whistles, Krugman has the crudest of business cycle theories. At the end of his 2002 article he says: “But wishful thinking aside, I just don’t understand the grounds for optimism. Who, exactly, is about to start spending a lot more?”

Incidentally, this is pretty weird, now that we have Krugman in 2002 predicting the housing bubble, but not really. The only thing like it is Tyler Cowen in early 2005 predicting the housing crash from an Austrian point of view, but not really.

* Here’s an odd article from Charles Hugh Smith (HT2 Tim Swanson) that says: “The idea that the super-wealthy and super-influential folks who own the politicos will benefit from inflation does not hold water.” Right, they don’t benefit from the price inflation per se, but they do benefit from the trillions in bailouts financed by the Fed and Treasury. Be careful: I think Smith just “proved” that Caesar would never have debased the coinage.

* Tyler Cowen responds to my charge the he flipped on carbon taxes. If you go read the post, maybe you can help me out: Is Tyler saying I need to lose weight?

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