11 Jun 2010

Krugman Has Booted the Hackers From His Blog Account

Economics, Financial Economics 4 Comments

[UPDATE below.]

OK I finally figured it out: Hackers must have left the CRU scene of the crime, and had temporarily gotten control of Krugman’s NYT blog account. But now things are back to normal. Today Krugman writes:

So here’s where we are: China has done nothing to change its policy of massive currency manipulation, and its exports are surging. Meanwhile, Europe is going wild for fiscal austerity. Angela Merkel says that budget cuts will make Germany more competitive — but competitive against whom, exactly?

Exactly! Who in his right mind would think that European fiscal austerity would somehow boost European exports? Well, I guess this guy:

Some thoughts on the fiscal austerity mania now sweeping Europe: is anyone thinking seriously about how this affects the rest of the world, the US included?

We do have a framework for thinking about this issue: the Mundell-Fleming model. And according to that model (does anyone still learn this stuff?), fiscal contraction in one country under floating exchange rates is in fact contractionary for the world as a whole. The reason is that fiscal contraction leads to lower interest rates, which leads to currency depreciation, which improves the trade balance of the contracting country…

Note the exasperated tone of Krugman (writing 48 hours ago): Not only does he know that a country implementing fiscal austerity will gain a competitive advantage vis-a-vis the rest of the world, but it is so OBVIOUS that he asks rhetorically, “Doesn’t anybody read this stuff anymore?”

So clearly, the person writing that couldn’t have been Paul Krugman. Either that, or in 48 hours Krugman forgot the time he read the Mundell-Fleming model.

I know we’ve all chuckled about Krugman voting against the housing bubble after he voted for it, etc. etc., but I actually think he has committed an even more extreme contradiction on this issue. The two differences are:

(1) This is a lot more technical so the layman can’t really say one way or the other, and

(2) This reversal happened in 48 hours, whereas most of Krugman’s other contradictions take at least a few months to manifest themselves.

UPDATE: *sigh* OK Gene Callahan in the comments calls my bluff and says that Krugman’s latest post is consistent with his post of 48 hours ago. I actually don’t think it is–i.e. I still think Krugman is contradicting himself–but Gene is right, you wouldn’t know that for sure if you just read these two posts in isolation.

Specifically, what happens is that after Krugman asks (quoted above) “competitive against whom, exactly?” he goes on to explain that it’s competitive against the US. So Gene thinks Krugman is being perfectly consistent with his post from 48 hours ago, in which he said the Mundell-Fleming framework shows us that fiscal austerity in Europe will lower their budget deficits, lower interest rates, and stimulate their exports.

However, Gene should read one paragraph more, where Krugman says, “This isn’t going to work.” I am 95% sure Krugman says this, because he has been arguing for at least a year that we are in a liquidity trap and so budget deficits don’t raise interest rates. Thus, I claim that Krugman is saying in today’s post, that Merkel is wrong for thinking fiscal austerity will help Germany even in the short-run. (And then on top of that, it will hurt the rest of the world too.)

However, Krugman is very confusing at the end of today’s post, when he says Europe can’t export its problems to us.

So all in all, Gene is right that Krugman is not “clearly” contradicting himself here. That’s one of the advantages of writing in such a mysterious manner. At this point I don’t even know what the heck his argument is, and I really do try to understand where he is coming from.

4 Responses to “Krugman Has Booted the Hackers From His Blog Account”

  1. Gene Callahan says:

    “Exactly! Who in his right mind would think that European fiscal austerity would somehow boost European exports?”

    Bob, did you read the next paragraph? In it, he answers the question — against the US. He’s not sarcastically doubting this could boost exports — he’s saying it will boost exports at the expense of US exports.

    So what he says today is perfectly in line with what he said two days ago. (And I also didn’t see any sarcasm in his “Does anybody still read this stuff, but that’s a minor point.)

  2. Daniel Hewitt says:

    I see another contradiction in the same two posts.

    Krugman blames China’s undervalued currency for scalping our aggregate demand. Yet in the earlier post he praised Canada’s loose monetary policy in the 90’s, which increased their exports to USA, and erased their national deficits. But there was no lack of aggregate demand in the 90’s, which according to Krugman is the single driver of economic expansion. The 90’s were a period of relative prosperity in USA. How could that be, with those evil, currency manipulating Canadians eating away at our aggregate demand?

    So what’s OK for Canadians to do, is not OK for Chinese to do. Krugman must be a racist 🙂

  3. Gene Callahan says:

    Thanks for the clarification.

    ‘However, Gene should read one paragraph more, where Krugman says, “This isn’t going to work.”’

    Now, this is obvious unclear, but what I read that as saying was analogoous to a situation where you and I are on a trip, and I say “Bob, you’re going to pay for all my meals,” and you say, “This isn’t going to work” — because you won’t let it happen.

    But I admit that is far from obvious in Krugman’s post.

    • bobmurphy says:

      Right I agree it’s very unclear. So you are right that he is not blatantly contradicting himself on the surface; I think he still is, but only because this latest post seems consistent with everything else he’s written in the last year.

      Scott Sumner in email said (I’m paraphrasing) that Krugman just picked a sloppy way of making his point in the post from “48 hours ago.” Krugman could have gotten his desired results–that Germany’s austerity will hurt the rest of the world–not by citing falling interest rates, but through some other mechanism.