14 May 2012

Krugman Acquitted of One Count of Perjury, Brought Up on New Charges

Federal Reserve, Krugman 34 Comments

OK I want to prove that I am a fair guy, so first let me say that Krugman in this Bloomberg video didn’t deny that the Fed caused the housing bubble. If you start playing the video around 19:35, it’s clear that the interviewer is asking about federal government programs like Fannie Mae and the Community Reinvestment Act, and Krugman says “the feds” (plural) didn’t cause the housing bubble. I bring this up because a lot of my readers in the comments thought this was a total smoking gun proving Krugman is a big fat liar, since Krugman has been on record saying the Fed (not the feds) caused the housing bubble.

However, Krugman in this blog post says:

But an interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on this case [JP Morgan’s $2 billion trading loss–RPM] (actually I don’t wonder — they won’t).

The obvious objection is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they? And it was the only loss.

OK so it’s that part I put in bold that is problematic. Beacon Power had received a large taxpayer-backed loan (and perhaps a loan itself, I need to review the details before I write this up formally) and went bankrupt last year. This was a huge deal in these circles; people were saying it was the next Solyndra. At the time, Beacon settled with the Department of Energy, saying it would sell its plant in order to raise the money to pay back its loan.

Well, back in February they found a buyer, and in this news report a DOE official estimates taxpayers will get back 70 cents on the dollar.

So, do Krugman fans want to explain to me the sense in which Solyndra already lost taxpayers money, but Beacon Power didn’t? Are you willing to say, “OK Krugman was just wrong on this point, nobody’s perfect,” or is there some loophole I’m missing?

(I’m asking partly because I am indeed going to write up this episode formally, and I want to cover possible objections.)

34 Responses to “Krugman Acquitted of One Count of Perjury, Brought Up on New Charges”

  1. Daniel Kuehn says:

    You provide the answer yourself, I think. You said “this was a huge deal in these circles”. I’m guessing Krugman just isn’t “in these circles” (or he is, heard the first bit of news, and then didn’t hear that the sale only covered 70%).

    As someone who is not in these circles, I’d personally be interested in whether the failures that are on the books for this loan guarantee (Solyndra, Beacon) require that as an honest empiricist I rule the guarantee program a failure. Or are they what we’d expect in any risky venture. Or is it less failures than we’d expect in any risky venture (implying the government may not be pushing this strongly enough out of risk aversion). That’s the real interesting question to me, and I’m personally not qualified to answer it.

    Every criticism I’ve heard of Solyndra seems to be an indictment of the entire loan guarantee program.

    I’m personally curious whether there is justification for that interpretation.

    • Bob Murphy says:

      Daniel, you and stickman are something else. Whether it’s Nordhaus or Krugman, it seems you are awfully comfortable with people saying demonstrably false things, and when someone points this out, you want to change the subject to “the big picture” in terms of the policies you think are the best.

      Do you not notice that you are doing that? Have I been doing that with my icons? (I’m being serious.)

      It really sounds here like you’re saying, “Well sure what Krugman said was wrong, but give him a break–why would he be expected to know what he was talking about?”

      • stickman says:

        Okay, since you’re dragging me into this, let’s focus on the Tol paper.

        Bob, you keep playing the victim here and making out as if I’m blindly trying to defend Nordhaus’ verbatim quote. No, and I’m actually on record as saying that — contra Nordhaus — “you highlight an important point regarding the net benefits associated with modest warming”.

        What I did stress, however, is that you were arguably even more misleading in your framing, since you failed to discuss how these are actually “sunk” benefits that will accrue no matter what policy choices we make today. Where we can make a difference is by taking action to limit the temperate rise above the (foregone) two degree rise that takes us into negative territory.

        And, of course, I’m not the only one that feels this way; Richard Tol himself was compelled to clarify the issue underneath your post.

      • Daniel Kuehn says:

        I don’t think either of us have denied your point on Krugman or Nordhaus (I hedged a little bit on Nordhaus because I honestly hadn’t read Tol so I couldn’t really say if he was being misleading). I don’t think it’s about that, Bob. I think it’s more that these are either really really inconsequential errors (Krugman) or that they’re just on the ambiguous side (Nordhaus), and we mention some other issues at hand that we think are of greater consequence. And insofar as they get some things wrong they seem to get a whole lot more right.

        Take the Paul v. Paul debate the other week. You posted a bunch on it. I don’t remember you posting anything on any of Paul’s stunningly wrong statements. Those, I think were a lot worse than anything Nordhaus or Krugman said – and they were actually substantive (unlike the mistakes and ambiguities from Nordhaus and Krugman). Maybe you thought Paul had a deeper underlying point? I don’t know. We all have our reasons not to dwell on certain things.

        This isn’t to be a he-said/she-said or anything. You asked for examples and that came to mind. I don’t think stickman or I are trying to defend the indefensible. Nobody’s trying to deny the Beacon thing or anything like that.

        Put it this way: if you emailed Krugman the information on Beacon, do you think he’d do anything other than post the next day “OK – two losses, one of which was paid off – my point still stands”? Probably not.

        • Bob Murphy says:

          DK wrote:

          Take the Paul v. Paul debate the other week. You posted a bunch on it. I don’t remember you posting anything on any of Paul’s stunningly wrong statements.

          Are you sure? I don’t think I posted anything on that except linking to it once? I had planned on doing a blow-by-blow but I never got time, and if I had, I would have admitted that Ron Paul completely reversed Friedman’s point about the Fed and the Depression.

          (Anyway, I’m not here asking you to volunteer your outrage over Krugman. I’m wondering why, when you yourself admit he said something that shows complete ignorance on a topic, that you brush it off like it’s nothing.)

          • Daniel Kuehn says:

            I guess I just think the ignorance is partial rather than complete (and Nordhaus isn’t ignorant at all).

            Perhaps its easier to just ask – how angry ought I to be?

          • Ash says:

            I would have admitted that Ron Paul completely reversed Friedman’s point about the Fed and the Depression.

            Not to derail this conversation, but could you elaborate on this? I just looked up the part about the Depression, and I have Ron Paul saying that “Bernanke apologized to Friedman because the Federal Reserve was responsible for prolonging the agony of the Great Depression”; to which Krugman came back with “he [Friedman] said the Federal Reserve was responsible for the Great Depression because it didn’t do enough.” Paul came back with “I know, it’s ironic”, and “the point is, the Fed either does too much or too little”.

            So to me, Ron Paul’s whole point was that the Fed prolonged the GD. Was this not exactly Friedman’s general thesis?

            • Bob Murphy says:

              Ash I didn’t watch the whole debate; I didn’t see the follow-up you are referring to here. I just saw RP apparently cite Friedman in support of the claim that the Fed money printing caused the Depression.

              If his position is as you describe it, then yes, that’s fine. But the snippet I saw, it made it sound like he was saying, “Friedman agrees with me that the Fed causes boom-bust cycles by generating a boom.”

              • Ash says:

                No, he definitely never said that.

                In this video,
                Ron Paul first brings up Friedman at the 7 minute mark.

                Later in the debate (at the 9 minute mark), the host asked him what should be done with the Fed, and brought up the fact that Friedman said to replace it with a computer. To that point, Ron Paul said, “I’m with him,” then went on to advocate competition in currencies. (Krugman then responded to this with bafflement that there are legal barriers preventing people from using other forms of money.)

      • Daniel Kuehn says:

        Also keep in mind I’m always happy to publicly disagree with Krugman – I’ve done so a lot. So there’s nothing about Krugman per se that I fly to the defense of.

    • Major_Freedom says:

      Actually, an “honest empiricist” can always explain away and minimize any falsifications to a particular theory, and remain fully consistent with empiricism.

      For there are no conclusive refutations or verifications possible in empiricism. In practise, the empiricist can always say “While the given theoretical relationship was falsified as it is written, if we just control for some other previously omitted variables, or use a Garch process with cross sectional volatility and 3 period lag as opposed to 2, THEN we might observe the hypothesized relationship.” And if that new model is falsified, then the same thing can be said again. In other words, empiricism allows for perpetual skepticism, and thus safeguards ANY program, however wasteful, from criticism (see monetarism).

      As such, there could be a thousand “Solyndra” like outcomes, and the “honest empiricist” can always remain skeptical against the hawks, and still believe loan guarantees “work”, if only more variables are controlled for (i.e. more regulations), or if another model type is used altogether (i.e. re-estimate in accordance with comparable risk adjusted project in the market). Then when there are more failed individual outcomes, the same skepticism can be elicited once again.

      Of course to someone who is open to pointing guns at innocent people in order for “powerful” people to accomplish “noble” ends, there is no conclusive justification for indicting federal loan guarantees. They are justified. The only question is which powerful person(s) get to have their subjective desires satisfied using the state, and which person(s) get exploited.

      Those who get what they want will say the ends justifies the means, or the benefits exceeds the costs.

  2. Yosef says:

    Isn’t a potential loophole that Solyndra was part of a loan guarantee program, as Krugman says, while Beacon Power received an actual loan, as you say? Krugman could maneuver around that difference.

    • Bob Murphy says:

      Yosef, I’ll be sure to dot my i’s before writing this up, but off the top of my head I think DOE had both types of things for both companies. So I don’t think that’s what Krugman is getting at, but even if it were, that would be incredibly misleading of him to write.

      I’m guessing he just didn’t know what he was talking about.

  3. stickman says:

    I can’t speak for Krugman and my own knowledge of the US Loans Guarantee Programme is mostly cursory.

    However, I did read this article a while ago, which suggests that — despite the stink kicked up about Solyndra — the overall portfolio remains in a pretty healthy state: http://bit.ly/y456d3

    Of course, that was towards the end of last year and things may have developed since then.

    For the record, I strongly favour investments in clean tech R&D above any kind of Solyndra-esque production subsidization. In an ideal world, this production activity would be coordinated via market signals inclusive of a carbon price, but I guess you can’t have everything…

    • Major_Freedom says:

      You don’t have to speak for Krugman, but you can speak of Krugman.

      Will you admit he was wrong to say that Solyndra was the only loser?

      • stickman says:

        M-F, I’m more than happy to “admit” he got it wrong on Solyndra. I don’t have a dog in this fight. See my opening and final paragraphs.

        • Major_Freedom says:

          In my experience, someone who says they don’t have a dog in the fight, are still involved in the fight in some way but just don’t want others to know about it because of a fear of being stigmatized, or labeled, or in some other way put into a straw man box.

          Thanks for “admitting” he got it wrong. I will “remember” that for “future” refer”ence.” PS I don’t “know” why I am “quoting” these “words”, but it is rather “fun.”

          • stickman says:

            You’re still not getting it.

            Quotation marks around “admit” because it is an entirely unnecessary choice of phrasing. It implies guilt or loss, neither of which is remotely the case here.

            Most curiously, it seems that you have convinced yourself that I am some kind of Krugman acolyte that will defend his honour at any price. I’d love to know how you have arrived at that notion.

            • Major_Freedom says:

              Woah, let’s back up here. I never accused you of being a Krugman acolyte who will defend his honor at any price, or the same thing but in different words.

              It seems you have convinced yourself that you feel a need to defend non-existent accusation that you are a Krugman acolyte, which tells me that maybe you feel guilty about something.

              I used the word “admit” only because you said you can’t speak for Krugman, as if that is even an issue, and it seemed like a diversion to me.

              You remind me of the lady who doth protested too much.

              • stickman says:

                Typically, when I’ve offered “dissenting” opinion on this blog, the response by other commentators has been to question my motivations rather than engage my arguments. E.g. You, MF, have specifically claimed that I “share Krugman’s worldview”, which I blindly think is “grander than it really is”.

                That said, I’ve no desire to perpetuate the matter. I’m happy to take your word on this and apologise if I mistook your position.

              • Major_Freedom says:

                Typically, when I’ve offered “dissenting” opinion on this blog, the response by other commentators has been to question my motivations rather than engage my arguments. E.g. You, MF, have specifically claimed that I “share Krugman’s worldview”, which I blindly think is “grander than it really is”.

                Actually that was my response to your accusation that Austrians are suffering from delusions of grandeur for calling out Krugman for not debating them in a platform of ideas, which of course is not addressing the arguments Austrians are actually making but questioning their motivations.

                Isn’t that doing the very thing you chastise Austrians for allegedly doing?

                I interpreted your weird defense of Krugman’s behavior as a cult of personality like mentality, because I know the Austrians want to get their ideas out vis a vis Keynesianism by using Krugman as the means. That is why they want to see a Krugman-Austrian economist debate. But you see this as an obsession with Krugman the man. The only reason I can think of for why you would see things in this way is if you yourself had some form of obsession with Krugman the man.

                Krugman could have been anyone else, and Austrians still would have wanted to see Murphy debate that person for the sake of watching counter-ideas clashing and showing what is wrong with Keynesian ideas.

                I really want to see the debate happen, not because I want Krugman to look like a fool, but because I want to see Austrian ideas spread amongst the populace and a great way to do that is to have an Austrian debate the de facto champion of the nemesis school of Austrianism, i.e. Keynesianism.

  4. Max says:

    Daniel, read William Black’s articles on Solyndra. When you make loans without rigorous (and non-political) standards, losses are guaranteed. And you are a subsidizing the *worst* companies (those willing to commit fraud in their loan applications!!!)

    • Major_Freedom says:

      I think it’s more accurate to say losses are otherwise more likely. Guaranteed is too strong a word.

    • Daniel Kuehn says:

      Right. But everybody agrees about that part (the problems with how Solyndra got the guarantee). Aside from the insiders that pushed it because of affiliation with Solyndra, there are no cheer-leaders here for corruption.

      We can have a debate over whether the risk of corruption is worth moving forward with a program. You may think that risk is substantial enough that we shouldn’t have anything like this ever. I’m in the camp that says if we didn’t do things just because there’s going to be corruption every once in a while, we’d never make any decisions or get anything done – in the public or in the private sector.

      • Gee says:

        There is no “we” Daniel. They do corrupt things with your money without consulting you, and you try to rationalize those things to make yourself not feel so helpless.

  5. Gee says:

    “But an interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on this case [JP Morgan’s $2 billion trading loss–RPM] (actually I don’t wonder — they won’t).”

    Who are these “people” exactly? Am I the only free-market fan who got worked about by both Solyndra *and* JP Morgan? Yes, in an actual free market I wouldn’t give a hoot, but in TBTF-world all bank losses are eventually paid by tax-payers one way or the other.

  6. Tel says:

    It’s a bit of a dodgy statement to being with, “the only loss”, because all it really says is, “the only loss so far”.

    The real question should be how many of those loans have been paid back, and how many are likely to be paid back? In most cases it’s a bit to early to tell, so saying “the only loss” is highly misleading anyhow.

    Consider that controversial Crescent Dunes Solar Energy Project, so the government is on the hook for $737 million and so far they have just finished building the tower. No energy produced yet, but probably will develop into an interesting research project, but let’s do a quick back of the envelope. If it costs $737M to build, and typical business loan interest is about 6% PA and they don’t start operation until December next year (i.e. it takes two years to build the plant) after which time they start earning revenue… so their balance looks like:

    ( 737000000 * 1.06 * 1.06 ) = 828093200

    And their yearly interest payment at that point are: ( 828093200 * 0.06 ) = 49685592

    Let’s round that off and say they need at least $50M per annum to pay interest on the loan.

    Wikipedia lists the plant at 110 Megawatt and says they are selling at a fixed price of 0.135 per kilowatt hour. So we presume 8 hours of good sun every day, and presume there are no cloudy days and they are running at full capacity all the time 365 days per year:

    ( 110000000 * 365 * 8 * 0.135 / 1000 ) = 43362000

    So they are only pulling in $43M per annum in gross revenue. Not even enough to pay the interest on the loan. But they will have maintenance to do, cost of doing business, employees, insurance, pension plans, something for the directors, etc, etc, yadda, yadda. That’s presuming there are no unexpected hiccups and everything goes exactly to plan, which is highly unlikely with such a new technology.

    Now Crescent Dunes Solar Energy Project is run by SolarReserve with links to: Anthony Podesta, Ronald Pelosi, George Kaiser, James McDermott, and Lee Bailey… all linked on one way or another to Democrat Party fund raising, and/or campaign contributions, and/or Obama’s 2008 election campaign. It’s very hard to believe that this project would have been attempted without direct government involvement.

    I’ll repeat what I said, it’s an interesting research project, and it will no doubt make some revenue, but it’s not going to be profitable. Worst than that, the $0.135 per kWh is about market rates anyhow, so there’s yet another backdoor subsidy built into the project, and I’ll let you guess who is paying for that one.

  7. Seth says:

    Doesn’t Krugman moot his post with the obvious objection?

    BoA didn’t make a bad trade because government guaranteed it, did it? Solyndra did spend $500 million because government guaranteed it. What am I missing?

  8. von Pepe says:

    Nice post Tel.

    That list of ‘investors’ turns the stomach.

  9. Tel says:

    Could we please start a topic about the Greeks and their Euro? Also Krugman has made some concrete predictions regarding Greek exit strategy. Without even reading what he wrote, of course I think he must be wrong, but when it comes to swinging around big brass balls in public, it’s only fair if everyone makes at least equally concrete predictions on what they think is going to happen.

    That’s what all this theory is for right? Making predictions and that…

  10. That depends on what definition of the word "feds" is says:

    I just double checked one more time to make sure I wasn’t remembering what happened incorrectly. Prior to Krugman referencing” the feds,” there was a discussion about his belief that there should be equal fiscal and monetary stimulus from both bernake and the white house/congress. Then after discussing the unemployment situation for recent college grads, the host asked krugman what can be done.

    Krugman continues the trend of combining the reference of fiscal and monetary policy by saying at around the 19 minute mark that it was the job of the Fed to launch higher inflation targets and do whatever it takes to get the economy moving, and reversing the “austerity” at the state and local levels in a combined effort.

    Then the host responds by saying that the criticisms is that the federal government made getting housing and student loans too easy. Then Krugman states that the feds weren’t responsible for the housing bubble. So you are right that Krugman does state “feds” instead of “The Fed” about the housing bubble, but he had just been speaking for the last several minutes about the need for fiscal and monetary policy to be combined in its efforts as one policy.

    So to be fair to both sides, a lot of it comes down to how the bloomberg host meant for the question to be interpreted. Was he responding directly to Krugman’s efforts for a joint fiscal and monetary policy from the government for the last few minutes and advocating the Fed do whatever it took to get the economy back? Most people I know who don’t specialize in monetary econ frequently refer to the Fed and the federal government as pretty much being one and the same, which is what I would bet the tv host was doing. And was Krugman interpreting that question to be just about fiscal related policies, despite his last few minutes of dialogue merging the two?

    I will grant you it is possible for one of them, but I personally doubt it after watching the previous two segments not really separating fiscal and monetary aspects. If it was done, as I mentioned earlier, it was probably an intentional thing by Krugman capitalizing on the host interchanging federal government and the Fed with his questioning about complaints. In any case, Krugman has pretty obviously lied about some of his other claims, so i am sure he would claim that is not what he meant anyway — though in the past he has denied the Feds created the housing bubble anyway, so he might not even disagree with the theme of this article to begin with.

    Anyway, that is way too much effort to try and figure out what is going through the mind of Krugman at this point! No more for me! Maybe it is good you spotted this, Murphy, just in case he ever does agree to debate you. That way you can be prepared for some Clinton style word parsing — “that depends upon what your definition of the word “feds” is, Bob” in the debate 🙂

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