Krugman Joins the Club
Back on June 29, Krugman had a post called “The Always-Wrong Club,” which covered familiar ground for our hero:
Aha. Floyd Norris reminds us of the 23-economist letter from 2010, warning of dire consequences — “currency debasement and inflation” — from quantitative easing. The signatories are kind of a who’s who of wrongness, ranging from Niall Ferguson to Amity Shlaes to John Taylor. And they were wrong again.
But that won’t diminish their reputations on the right, even a bit.
This is ironic, since Krugman also made a totally-wrong call about inflation in 2010, which soon enough blew up in his face.
But don’t take my word for it. On July 5 Krugman admitted with not a trace of embarrassment:
First of all, I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation — and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates. We can probably have high unemployment and stable prices in Europe and America for a very long time — and all the wise heads will insist that it’s all structural, and nothing can be done until the public accepts drastic cuts in the safety net. [Bold added.]
So, if I understand things correctly:
==> When Allan Meltzer explains away the failure of his accelerating inflation prediction, without changing his overall policy recommendations, Krugman says that “[t]his has long since stopped being merely an analytical issue; it has become a moral issue, a test of character. And almost everyone on that side of the debate has failed.”
==> When Krugman explains away the failure of his accelerating deflation prediction, without changing his overall policy recommendation, it proves how IS-LM analysis has come through this crisis with flying colors, and is proof that people should be listening to Krugman’s spot-on advice.
Inflation is there, people just call rising prices for financial assets “wealth”. It all gets deflated or turned into inflating consumer goods prices at some point.
Good point. I don’t consider rising prices wealth though. What you sell something for is the real value, not the equity at any given point in time. A huge decrease in money velocity has kept inflation, as measured by the BLS, very low.
Here is reporting fraud and ignorance taken to an extreme. Look at the chart, it claims to source the BLS.
http://www.wallstreetdaily.com/2013/04/22/food-inflation-myth/#comment-314122
I replied in the comment section exposing the fraud, and even sent an email to the editor. My comment was removed and email went unanswered.
Here is a piece of my email
“I went to the source, http://www.bls.gov/ro3/apmw.htm, and checked most of the food items he referenced. He claimed butter was down 34.8 % 1982-2012. Using the BLS data it shows that actually butter went from 2.019 in Jan 1982 to 3.18 in April 2012. He claimed peppers were up 34%. They actually were .85 in Jan 82′ and 2.35 in Dec 12′.”
I checked at least 20 random agricultural goods and almost all of them are up 2-3 x over the 30 year period in reference.
Now actually read the comments section in the fraud article. Everyone is just accepting the reported “data” blindly. BLS is actually very user friendly. One can also go to this (awesome) site.
http://www.indexmundi.com/commodities/?commodity=robusta-coffee&months=360
Krugman, when “debating” the blowhard Bill O’Reilly back in 2004 on a show with Tim Russert (not MTP), claimed, “My forecasting record is not that great.” So, should that diminish his reputation with those on the left?
I really hate all of this “predicting” non-sense. Nobody, even those with fancy mathematical models, knows what is going to happen. Give it up.
If economic theory provides no predictive power, then might as well admit it serves no purpose other than a curio to pass the time of day.
Does geometry serve a purpose Tel?
Good response 🙂
I guess “serves a purpose” is a subjective evaluation, but geometry provides a toolkit that allows cause and effect relationships to be examines more easily than by simple enumeration.
In my subjective estimation, that’s what it is — a means to an end, a thing that helps you do your work.
It could of course be argued that there is beauty and elegance in geometry as an art unto itself, which I think does fit into the “curio to pass the time of day” category… and if you want to spend your days writing theorems or drinking or playing football or painting, that’s your entitlement.
Have you ever considered a preview button? I’m a bit mash handed with the typos.
So understanding things well/right is not good enough. Predictive power is the sole determinant of the worth of a theory.
Interesting perspective.
On what objective basis do you decide whether your understanding is right?
The very simple theory, “God wanted it that way” is an explanation for anything and everything. Keep using that and there is nothing you cannot understand.
Deductive reasoning properly applied to axiomatic propositions yields propositions that are necessarily true. To the extent that I am certain about the correctness of the axiomatic propositions I start with, I am certain that my understanding is right.
Your example “God wanted it that way” isn’t exactly an axiomatic statement. There is nothing self-evident about it. “Man acts,” on the other hand, is axiomatic. So I have no problem asserting that propositions derived by a train of logic starting from that proposition are necessarily true and explain reality.
I believe the comparison being drawn here, between (1) a prediction of deflation, which turned out to have been incorrect in that instead the country has experienced essentially no real inflation, and (2) the predication that the country would experience explosive inflation resulting in economic catastrophe, is not really a fair one. Whatever one thinks of Krugman, if he was wrong, he was barely wrong, whereas Ferguson and others were wildly, profoundly wrong.
Here is what the letter signed by 23 economists that Krugman referred to said;
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.
We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.
The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
Where is the prediction of “explosive inflation”?
Richard Moss, Krugman can be forgiven for predicting accelerating deflation, but when it comes to right-wingers,
The planned asset purchases risk currency debasement and inflation, = “we predict CPI inflation above 50% by 2013.”
Oh, I see.
So We … worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.” = “we predict economic catastrophe by 2013”?
Yes, because it can’t mean that investors will be sucked into leveraged purchases of bonds funding a bond asset bubble or that money will flee to foreign shores chasing higher interest rates creating emerging market inflation or that it will go into longer term projects that won’t be sustainable instead of shorter term projects. Being sarcastic, of course.
Those aren’t absolute catastrophes, but they aren’t a good thing either.
I hope (fingers crossed) that the Fed is targeting stable commodity prices (i.e. PPIACO hovering around 200) in which case tapering off QE probably assists this target. There’s a lot the Fed can do to reign in inflation should they make a conscious decision to do that… however, at some stage it would involve choking federal spending in the process.
When the other shoe drops, or how large the debt will be then is anyone’s guess. But to pretend that it “can’t happen” shows a remarkable lack of foresight — akin to middle-of-the-pack lemmings that follow the crowd over the cliff to their own demise.