29 Oct 2012

Keynesians Believe In Confidence Fairy–Provided He’s a Democrat

Krugman 36 Comments

Christina Romer apparently doesn’t keep tabs on Krugman’s blog. She often refers to the jump in GDP after the election of FDR as a sign that stimulus spending works–even though Krugman has, on at least two separate occasions, specifically used this “hypothetical” argument to show how silly right-wingers are, for gauging recessionary policies relative to the trough and not the previous peak. Now, she recently came out swinging in favor of the Obama stimulus package, with the following argument (among others):

[T]here’s little question that policy makers — myself included — should have worked harder to earn the public’s support for the act. One frustrating anomaly is that many of its individual components routinely received favorable reactions in polls, while the overall act was viewed negatively.

That is more than a simple public relations problem. Recovery measures work better when they raise confidence — as Franklin D. Roosevelt understood. His fireside chats, and his inaugural address proclaiming he would fight the Great Depression with the same resolve he would muster against a foreign foe, were aimed at reassuring Americans. Recent research suggests that New Deal programs may actually have had their primary impact on the economy by influencing consumer and business expectations of future growth and inflation.

Partly because of fierce political opposition, and partly because of ineffective communication and imperfect design, the Recovery Act generated little such rebound in confidence. As a result, it didn’t have that extra, Rooseveltian kick.

I’m not going to bother looking it up right now, but suffice it to say, when Mitt Romney recently suggested that above and beyond his better policies, his personal gravitas might develop an extra Romneyeseque kick–Krugman was a bit skeptical.

36 Responses to “Keynesians Believe In Confidence Fairy–Provided He’s a Democrat”

  1. David R. Henderson says:

    I bet she doesn’t keep tabs on Krugman’s blog. That’s kind of reassuring.

  2. Major_Freedom says:

    One frustrating anomaly is that many of its individual components routinely received favorable reactions in polls, while the overall act was viewed negatively.

    That’s socialism in a nutshell folks!

    Who wants free education!

    Yay!

    Who wants free healthcare!

    Yay!

    Who wants free roads!

    Yay!

    Who wants an act that will make these things happen, at a cost of $800 billion to you taxpayers!

    Boo!

    Partly because of fierce political opposition, and partly because of ineffective communication and imperfect design, the Recovery Act generated little such rebound in confidence. As a result, it didn’t have that extra, Rooseveltian kick.

    If, according to Romer, it’s not merely government inflation and deficits that can re-invigorate economies, if it requires ideological acceptance, then did she not just throw Keynesianism under the bus?

    Or does she believe the ARRA “would have worked if it were bigger“, she just doesn’t come out and say that?

    • Jason B says:

      “If, according to Romer, it’s not merely government inflation and deficits that can re-invigorate economies, if it requires ideological acceptance, then did she not just throw Keynesianism under the bus?”

      Yes. Romer, here, parallels the Lakoffian progressive style worldview where it’s not the policies per say that are the problem, it is that progressives are unable to properly communicate their policies. So both Romer and Lakoff are smart enough to structure large scale central planning, just too stupid to explain to everyone why they should do it.

      In Romer’s case it might even be worse. Romer and Co. actually implemented their policies, and yet they didn’t work. But it’s still the same reason according to these people, poor communication. So initially they complain they can’t get their policies implemented because of poor communication. Then they’re finally able to get them implemented, the policies fail, and then they blame the failure on poor communication. See, how can anyone refute their central planning ideas where it always comes down to communcations failures?

      • Major_Freedom says:

        Can you imagine the reactions of folks like Romer if Austrian policies were fully implemented, and Austrian apologists argued that the less than perfect outcomes was a result of Austrians not communicating their policies clearly enough?

        They would probably have a cow.

        • Bob Murphy says:

          MF wrote:

          Can you imagine the reactions of folks like Romer if Austrian policies were fully implemented, and Austrian apologists argued that the less than perfect outcomes was a result of Austrians not communicating their policies clearly enough?

          Yes, and if they said, “Calvin Coolidge reassured people in the 20s with his tax cuts, budget surpluses, and above all his low-key attitude. Businessmen and workers knew that ‘Silent Cal’ wouldn’t waste taxpayer dollars, and had confidence to expand investment accordingly.” Daniel K. if you don’t think Krugman would actually hurt himself laughing so hard at such a claim, then something is wrong.

          • Daniel Kuehn says:

            You don’t think confidence in a restrained government in non-depressionary times is different from in depressionary times?

            I seem to remember Krugman complaining a lot about Bush’s deficits, which suggests to me that Krugman would be satisfied if Bush had acted more like Coolidge.

            Again, I’ve only ever seen him criticize the idea that austerity in a depression will boost confidence in a way that will lead to growth. Without alternative information I’m not going to just assume he abandons the (I thought) universally held idea that consumer and investor sentiment are important.

        • Major_Freedom says:

          Or just imagine the everyday defenders of folks like Romer, who post on blogs, write newspaper articles, etc, who are currently NOT challenging Romer on this “communication” defense, but who would speak up if, right now, some ideological opponent used it as an excuse.

    • Tel says:

      If, according to Romer, it’s not merely government inflation and deficits that can re-invigorate economies, if it requires ideological acceptance, then did she not just throw Keynesianism under the bus?

      Not all the way under the bus, what she really said was that Keynesianism is a confidence trick.

      Indeed.

      • Major_Freedom says:

        I wonder if there is a “multiplier” to this Keynesian confidence trick.

        My guess is that they would believe it is higher when a Democrat is in office.

    • Lord Keynes says:

      “Who wants free education!
      Yay!
      Who wants free healthcare!
      Yay!
      Who wants free roads!
      Yay!”

      Correction: who wants healthcare, education and roads free at the point of delivery, but paid for by progressive taxation?.
      The answer: a majority.

      There is considerable support for that:

      http://www.americanprogress.org/issues/public-opinion/news/2010/02/22/7310/public-opinion-snapshot-public-says-tax-the-rich-regulate-the-banks-and-end-the-filibuster/

      In contrast:

      (1) Who wants mass financial sector collapse and mass loss of bank deposits under Austrian liquidationism?

      (2) Who wants mass unemployment from a debt deflationary depression from (1)?

      (3) Who wants to watch people starve because they can’t find work on the market or bed for private charity?

      Yes, I am sure masses of people would just *love* these latter things.

      • Richie says:

        who wants healthcare, education and roads free at the point of delivery, but paid for by progressive taxation?.
        The answer: a majority.

        Duh. Of course most people would want those things if they believe someone else is paying the bill.

        That was M_F’s point. You’re just pointing it out again.

  3. Daniel Kuehn says:

    So I thought the confidence fairy Krugman talks about is that businesses supposedly being reassured by austerity and getting that Musl… err… Democrat out of office was completely mythical.

    Certainly no one has denied that consumer and investor sentiment is important. Has anyone ever claimed that?

    Really?

    That would surprise me, but I think you follow Krugman’s blog closer than I do.

    • Bob Murphy says:

      Daniel please park your sarcasm at the door. You’re saying you don’t think Krugman has ever, say, ripped Trichet for citing confidence in government solvency as the way to achieve expansionary austerity in Europe? There’s a post at Krugman’s blog literally today I believe on this very subject.

      And it has nothing to do with Obama being a Muslim.

      • Daniel Kuehn says:

        1. I find it funny that you’re telling me not to be sarcastic on this blog of all places, and

        2. I WASN’T MEANING TO BE SARCASTIC! (and here’s a couple more exclamation points just for you !!!!!!!).

        I’m being totally honest here. We can throw in Trichet here too. It’s the same argument in Europe. People find debt and big government super-scary and just getting rid of that is supposed to bring in the confidence fairy.

        Yes we can find lots of instances of criticism of that idea. I don’t think we can find cases where Krugman says investor or consumer sentiment is not important or that seeing nominal spending boosts won’t be viewed as a positive sign.

        • Major_Freedom says:

          I don’t think we can find cases where Krugman says investor or consumer sentiment is not important

          Perhaps, but I am sure you can find many, many, many, many cases where he ridicules others who bring confidence up (hence Krugman saying “comfidence fairy” all the time).

          Is that not the same thing? Or does its passive aggressiveness allow him to hold a rather contradictory position?

          PS Love those punctuation marks!!!!!!!!

          • Daniel Kuehn says:

            No it’s not the same thing and it’s not passive aggressive and its also not contradictory at all. See previous comments.

            If he’s only ever criticized a specific sort of appeal to confidence and he’s never claimed that confidence in general isn’t important then you really have no ground to stand on in arguing that he’s ever dismissed confidence in general.

            The punctuation marks are for Bob… he was exasperated on facebook the other day over multiple punctuation marks. Seems appropriate here – I wasn’t being sarcastic at all after all.

            • Major_Freedom says:

              No it’s not the same thing and it’s not passive aggressive and its also not contradictory at all

              Your post reminds me of stubborn mule on an episode of Family Guy.

              “no, No, NO!, NO!, NO!, HEE HAW!, HEE HAW!”

              If he’s only ever criticized a specific sort of appeal to confidence and he’s never claimed that confidence in general isn’t important then you really have no ground to stand on in arguing that he’s ever dismissed confidence in general.

              Oh so THAT’S why Krugman always calls it “[Specific name] confidence fairy”, rather than just “Confidence fairy” all the time. It’s also why he never contrasts these “confidence fairies” as against his perpetual insistence of the importance of incomes and deficits instead. It’s because income and spending are more important than only some types of confidence fairies.

              Oh wait.

              Do you know why lots of people say you carry the water for Krugman? Post like the one you just wrote.

              The punctuation marks are for Bob… he was exasperated on facebook the other day over multiple punctuation marks. Seems appropriate here – I wasn’t being sarcastic at all after all.

              Fair enough, but for what it’s worth I too thought you were being sarcastic. I think it was your first sentence in your second post. For me it was the “err” you used.

              • Daniel Kuehn says:

                What can I say. When people actually make the mistake of replying to you they usually have no choice but to serve up a string of negations. It’s inherent in the very act of conversing with you, I’m afraid. Don’t shoot the messenger.

              • Daniel Kuehn says:

                If “sarcastic” just means biting criticism, then I guess I’m being sarcastic. But I’m not going to leave that at the door – it’s realistic.

              • Major_Freedom says:

                What can I say. When people actually make the mistake of replying to you they usually have no choice but to serve up a string of negations. It’s inherent in the very act of conversing with you, I’m afraid

                I think by “people”, you mean “those who tend to be wrong”.

                Don’t shoot the messenger

                You mean you weren’t making any positive arguments as per generally accepted principles of debating, but rather you were just parroting some “negations” from others against me? You mean your only purpose of responding to me was to sound like some of those “people” who disagree with me?

                Talk about disregarding traditionally accepted mores of discourse and instead wanting to fit in via parroting talking points! Goodness. What can you say indeed.

                PS Just so you know, the reason why my interlocutors are almost universally in disagreement with me, which has created the appearance of “negations” on the part of “people” who debate with me, is because I CHOOSE to engage those who I think are wrong as a matter of course.

                Imagine a single minority guy who constantly visits KKK owned territory to “converse” with the locals. This guy would have a reputation of making “people” upset, and garnering almost universal rejection from “people”. But does that mean he is likely wrong, or the locals?

                What can I say, I pick my battles, and you tend to avoid them.

    • Beefcake the Mighty says:

      I’m surprised, I thought the lawyer-who-wants-to-be-an-economist would be the first one to post.

      DK is the kind of person who doesn’t think Jon Corzine committed any wrong-doing. Yet, Bob kisses his ass. What does that tell you?

      • Major_Freedom says:

        What does that tell you?

        That you are an emotional trainwreck?

        • Tel says:

          We all react to our present predicament in different ways I suppose. At least we all agree there is a problem.

          *shrug*

          Start by agreeing on something I suppose.

        • skylien says:

          I fear I might get an inferiority complex if Beefcake insults quite everyone within this blog but me…

          • Major_Freedom says:

            Just disagree with him about something. That’s how he went from being my number one fan to Cape Fear guy.

            • Richie says:

              There’s hope still M_F. He didn’t insult you in his comment. Has he turned a corner?

              • Major_Freedom says:

                Maybe he ran out of puppies and went to the pet store.

            • skylien says:

              Seemed relatively random to me of who he attacked..

              Didn’t know that movie. I guess I have to watch it. Description sounds interesting, thanks!

    • Matt Tanous says:

      “Certainly no one has denied that consumer and investor sentiment is important.”

      They just don’t care about it so much with their wild spending plans and huge regulatory overhauls that introduce regime uncertainty.

      Of course, if such sentiment is important, then stimulus seems entirely useless. It’s virtually guaranteed to diminish their assurance of the future through uncertainty and indications of necessary future tax hikes to pay for it. And certainly, it isn’t included in the useless aggregates based on equivalence between poor people digging up buried banknotes and productive investment in desired goods.

      Oh, and as Keynes said, “There are no inherent reasons for the scarcity of capital.” If it weren’t for the capitalists, capital goods – and thus consumer goods – would be superabundant. I’m surprised that after three or four generations of Keynesian policies, we don’t have that Garden of Eden Keynes promised. (Seriously, the most powerful way to dissuade someone from being a Keynesian is to have them actually read Keynes.)

  4. skylien says:

    I thought Keynesians just as well believe in the Confidence Fairy or why is it they want to see the wealth effect reassure people to spend/invest/consume with both hands? Only a Fairy can do this without bad side effects, and only if an actual Fairy does it I am willing to believe it might work. I am just bewildered that the Fairy is called Ben and has a lot of facial hair…

    • Major_Freedom says:

      I think Keynesians believe confidence fairies exist, as long as they are carrying bags not of pixie dust, but paper bills, ready to thrown at every problem.

    • Major_Freedom says:

      Still a problem, DK.

      Krugman is always saying that confidence does not work when the “demand problem” is too great. Ok fine, let him make that argument.

      But why is Romer allowed to make the confidence argument during this recession, the worst since the Great Depression? Wouldn’t the demand problem be too great as well?

      Even more compelling, Romer argued that FDR’s confidence fairy worked because of his charisma, and that was during the WORST depression in US history.

      You are making a mistake by claiming that Krugman always held confidence fairies are valid, as long as they are “demand side”. But, if you can find an article of Krugman where he talks favorably about a demand side confidence fairy working APART from its typical “multiplier” mechanistic Keynesian manner, then I will concede.

  5. Keshav Srinivasan says:

    Bob, here’s the post where Krugman criticizes Romney for saying that he can boost the economy simply by becoming president:

    http://krugman.blogs.nytimes.com/2012/09/22/mitt-romney-says-i-am-the-confidence-fairy/

    He shows how Mitt Romney’s probability of winning according to Intrade does not seem to have any effect on the stock market.

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