Is Krugman Chiseling Out His Escape Chute?
In late August I was glad that Krugman had definitively said we were in a recovery. That way, if I turn out to be right and we are currently in the analog of 1931, then Krugman will be demonstrably wrong. (In much of his posts he has wiggle room, so even if things turn out the opposite of what everyone thought he was saying, he can parse it to death.)
So it was with great interest that I read his latest post:
Michael Shedlock has an awesome takedown of ECRI’s claim that its indicators (a) have successfully predicted turning points in the past (b) point to a sold [sic] recovery now. I’d add that this is a really, really bad time to be relying on conventional indicators.
Why? Basically, because in a zero-interest rate world — the three-month rate was .066% last I looked — especially one that’s suffered from a collapse of the shadow banking system, conventional indicators don’t mean what they usually mean. Increases in the monetary base aren’t especially expansionary. The yield curve more or less has to slope up, even if no recovery is expected. And so on.
So historical correlations, to the extent that they exist — and as Shedlock points out, ECRI is claiming a much better record than it really has — can’t be counted on to prevail. There’s really no alternative to making fundamental analyses of the macro situation.
More Chauncey-ism from Krugman–and yes I picked that comparison for irony. If the economy is in the tank for the next eight years, he will say: “See, I told you so. Real GDP kicked up by 2q2009, so that technically was a recovery. But I knew it was feeble, because the stimulus hadn’t been big enough. Why, I even called it as not a solid recovery as early as October 2009–when plenty of other ‘experts’ were assuring the world that everything was fine, much to the delight of the deficit hawks.”
But even if it’s smooth sailing from here on out, Krugman can say, “See, I told you so. The ECRI people were wrong to look at past correlations, which are irrelevant. In a sense, they got lucky. But what their correlations didn’t tell them–while my Keynesian models did–was that the recovery would be a jobless one, because the stimulus wasn’t big enough. Even though unemployment fell much more quickly than most other people thought possible–especially those Republicans who aren’t afraid of global warming but are afraid of deficits–we still had a period of prolonged misery, due to misguided fiscal fears and simple callousness. For those of us who saw all this coming, it wasn’t much comfort to be proven right, amidst such hopelessness.”
I’m actually pleased with the above. I think I could ghostwrite a Krugman column if he ever gets in a pinch.
