18 Dec 2013

Krugman on the Bubble Economy

Economics, Federal Reserve, Inflation, Krugman 48 Comments

I really like these chats Paul Krugman has with Joe Weisenthal, because you can get his news-you-can-use take on something without all the hemming and hawing, and lack of body language, from multiple blog posts. Also, Weisenthal adds to the clarification because he will make sure Krugman gets a chance to clear up any possible misconception.

Go ahead and watch this short clip. Then I’ll offer some observations.

First, Krugman admits that he really doesn’t know why the US economy apparently “needs bubbles” in order to grow, not just since 2008 but indeed for the last decade and going forward as far as the eye can see.

Second, Weisenthal and Krugman are both clear that he doesn’t want bubbles, it’s just that the economy right now needs some major changes to avoid the “need” for them. And–even though Krugman has admitted he doesn’t know exactly what’s causing it–he is knowledgeable enough to offer the following recommendations to help right things:

(1) Weaker dollar.

(2) Stronger social safety net.

(3) Somewhat permanent government fiscal stimulus (though he hedged himself on this one).

(4) Permanently higher price inflation target of 4% annually.

To repeat, everybody, the above isn’t something he wants to get us through to 2015. No, this is the new normal in Krugman’s (and Larry Summers’) world.

48 Responses to “Krugman on the Bubble Economy”

  1. Beard Face says:

    Okay… after watching this interview, I’m now incredibly frightened. Did Krugman lose weight?

  2. Ken B says:

    Of, can you predict what I meant to say now?

    I think you gave a fair summary.

  3. JohnB says:

    Whenever I actually watch Paul Krugman talk, I remember why some kids were always picked on in middle school. There is something about him that just makes you want to give him a swirlie.

    • Bob Roddis says:

      Paul Krugman is a lonely man. That he is comfortable in his solitude, that he emphasizes its virtues, that his intelligence gives it a poetic gloss, none of this diminishes the poignancy of his isolation. Krugman grew up an only child and is deeply self-conscious. He will list his shortcomings as though he’d been preparing for the chance: “Loner. Ordinarily shy. Shy with individuals.” He is married but has no children nor—rare for a Nobelist—many protégés. When I asked him if there were any friends of his I could talk to in order to understand him better, he hesitated, then said, “That’s going to be hard.” One colleague at Princeton, where Krugman has taught since 2000, says the economist will avert his eyes when circumstance places the two of them alone in an elevator, his nose stuck in the corner, so as to avoid conversation.


      • Lord Keynes says:

        And Mises, by some accounts, was an obnoxious SOB. But that does not disprove his economics, any more than these amateur psychological ramblings disprove Krugman’s economics.

        • Bob Roddis says:

          His “economics” as been disproved for a century. The interesting question is what makes someone spout such obvious lies and distortions for the purpose of inflicting a regime of surreptitious theft and authoritarianism upon his fellow citizens.

          • Bob Roddis says:

            His “economics” HAVE been DISPROVEN for a century.

            • razer says:

              Longer than that, since the 1850’s actually.

          • Mule Rider says:

            FA Reader: What makes a man like Krugman, Doc? What makes him do the things he does?
            Bob Roddis: A man like Krugman has got a great big hole, right in the middle of him. He can never kill enough, or steal enough, or inflict enough pain to ever fill it.
            FA Reader: What does he need?
            Bob Roddis: Revenge.
            FA Reader: For what?
            Bob Roddis: Bein’ born.

          • Bob Roddis says:

            Wyatt Earp: What makes a man like Ringo, Doc? What makes him do the things he does?
            Doc Holliday: A man like Ringo has got a great big hole, right in the middle of him. He can never kill enough, or steal enough, or inflict enough pain to ever fill it.
            Wyatt Earp: What does he need?
            Doc Holliday: Revenge.
            Wyatt Earp: For what?
            Doc Holliday: Bein’ born.


        • Major_Freedom says:

          “But that does not disprove his economics, any more than these amateur psychological ramblings disprove Krugman’s economics.”

          This is really about protecting Keynes’s theory, isn’t it.

      • JohnB says:

        His mannerisms just make me angry completely outside of his smug presentation of destructive economic views. I’ve only seen that ability to inspire instant anger in a few people in my life and they all spent a great deal of time stuffed inside school lockers growing up.

        • Harold says:

          Saying some people have the ability to inspire anger in others, and these are the people who get bullied at school seems close to blaming the victim.

  4. JohnB says:

    Krugman’s economic platform

    1) Transfer purchasing power by robbing people who save money

    2) Transfer purchasing power to the government away from people who earn money

    3) Ditto

    4) See number 1

    I must be an uneducated rube to think that discouraging people from earning and saving money might be a problem. Evidently you need an economics PhD to see why this is good.

    • Mule Rider says:

      Not an economics PhD but rather a twisted far-left authoritarian worldview and a vendetta.

    • Bob Roddis says:

      The answer to the question “why” is actually more mundane and depressing than that. Thanks to Tom Woods’ magnificent radio show, I was introduced to Richard M. Gamble and his book “The War for Righteousness: Progressive Christianity, the Great War, and the Rise of the Messianic Nation”.

      I was unaware that the liberal mainline protestant churches were constantly preaching both domestic and foreign interventionism during WWI and were instrumental in agitating for US entry because the USA was a Christian nation and intervention is how a Christian saves the world. That Congress declared war on Good Friday 1917 was not a coincidence. While the “Christian” part of the “progressive” plague has faded away, “progressives”, including Krugman, see themselves as saving a sinful world. Debating them is seen as heresy. It appears that both the Republicans and Democrats have their own special version of this quasi-religious outlook which is derived from the same source.

      In The War for Righteousness, Gamble reconstructs the inner world of the social gospel clergy, tracing the evolution of the clergy’s interventionist ideology from its roots in earlier efforts to promote a modern, activist Christianity. He shows how these clergy eventually came to see their task as world evangelization for the new creed of democracy and internationalism, and ultimately for the redemption of civilization itself through the agency of total war. World War I thus became a transcendent moment of fulfillment. In the eyes of the progressive clergy, the years from 1914 to 1918 presented an unprecedented opportunity to achieve their vision of a world transformed–the ancient dream of a universal and everlasting kingdom of peace, justice, and righteousness. American sacrifice was necessary not only to save the country, but to save the entire world.


    • Bob Roddis says:

      Gamble writes that the primary original source for this world view was Lincoln and his Gettysburg Address.


  5. Lord Keynes says:

    “First, Krugman admits that he really doesn’t know why the US economy apparently “needs bubbles” in order to grow,”

    No, that is untrue:

    “Weisenthal: to be clear, this is not an endorsement of a bubble …

    Krugman: the word “need” is being used not to say this is what I want to have happen but as currently consisted we don’t seem to be generating enough demand to have adequate employment, except when we have bubbles.

    I.e., bubbles are caused by lack of aggregate demand from private investment, consumption and government spending. The gap in AD has been filled by private debt.

    Of course, Krugman is only partly right: the other cause is the changes to the more effective system of financial regulation that existed before the 1980s.

    • Ken B says:

      No. He’s not saying that this is what causes bubbles. He is saying that for some reason we don’t have aggregate demand at a sufficient level except during bubbles.
      He is further suggesting that the real problem is a lack of aggregate demand and is proposing policies which he believes will boost it in the hopes that we will move into a kind of economy which does not “need” bubbles in order to grow, but will grow from other sources of aggregate demand.

      • Bob Murphy says:

        I appreciate you having my back Ken B., but below I suggest an even more efficient answer to LK: Quoting Krugman explicitly saying that we don’t know why the US economy needs bubbles to grow right now.

        But I’ve found from past experience that even literally quoting Krugman saying/writing something is not sufficient to convince people that that’s what he meant.

        • Ken B says:

          How odd! I found exactly the same thing when I quote him. Sumner too!

          Anyway I agree that Krugman said he doesn’t know why, and in lieu of a specific understanding of why is falling back on his usual “if we boost aggregate demand it may not matter”.

          I don’t know why your son has that rash but if he sticks to my pro-biotic high tofu diet it probably won’t matter, he’ll be so healthy the problem will go away.

    • Bob Roddis says:

      A “lack of aggregate demand” simply means that “the masses” are too poor or are otherwise disinclined to buy all the junk people want to make and sell to them. They need to save up sound money and get richer.

      A program of universal artificial funny money purchasing power theft for the benefit of the masses is still purchasing power theft with its attendant price distortions and would continue to cause the very problems it is intended to solve. Plus cause Global Warming.

      People tend to spend more in a bubble because everyone thinks that they and everyone else is truly richer than before. However, they are really all being misled by distorted price signals that Keynesians are desperate to deny actually exist, Keynesians being desperate liars and all.

      I think we have collected sufficient evidence of Keynesian Kluelessness to take our case to the people and simply demonstrate to the them that the Keynesians really believe that funny money dilution and unpayable government debt cause prosperity. I don’t think average people realize this.

    • Bob Murphy says:

      LK you are just restating the claim THAT the US economy needs bubbles in order to grow. Krugman is clearly saying that he doesn’t know WHY this “fact” is true.

      Start the video at 0:40, and he says:

      “Now the question is, why might that be the case? …[Lists some possibilities.]…So, the bottom line really is that we don’t know.”

    • Major_Freedom says:

      “I.e., bubbles are caused by lack of aggregate demand from private investment, consumption and government spending.”

      That isn’t what he said, and that isn’t even true anyway.

      If you want to say that the central bank has to positively act, in order to reverse what otherwise would have happened, i.e. fall in aggregate demand, then that isn’t the same thing as saying bubbles are caused by “insufficient demand.” You would in fact be saying bubbles are caused by central banks trying to reverse insufficient demand.

  6. skylien says:

    Those who know least are usually the quickest with providing “answers”..

  7. Eduardo Bellani says:

    I’ll ask to see if I’m right, but is that poster behind Krugman the austrian economists poster[1]?

    Pretty cool.

    [1] https://mises.org/store/Austrian-Economists-Poster-P289.aspx

  8. Austrian Economists Photobomb Krugman says:

    […] Bellani in the comments of my previous post tells us to look at the poster hanging over Krugman’s shoulder at his […]

  9. Innocent says:

    Wow, just wow…

    Okay how about this instead.

    1 ) Increased natural resource extraction. Drive prices of energy down, this will give the ability, without killing wages, to stimulate growth as energy is need to produce goods almost as much as you need labor to do so as well.
    2 ) Encourage business to produce ‘dirty’ electronics. One of the horrible things that has occurred is we have simply not gone into the electronic production phase of the economy. It is where most of consumers money is being spent outside of ‘durable’ goods.
    3 ) Rather than support a welfare state support a job state. Create an environment where you are allowing business to approach and sell and grow their customer base rather than limiting it.
    4 ) Kill Fractional Reserve Banking. Or at least ham string it to the nth degree. This will hurt initially but will change the structure of bubbles.
    5 ) Understand that population growth has driven economic growth and that there will be transitional phases to the economy as we discover how to best adapt to the changing needs of the populace. If I know hove half my economy being people over the age of 60 then it looks very different the kinds of goods and services that are needed in comparison to one in which the economy is 70% forty and under.

  10. Matt Tanous says:

    The biggest problem is the circular reasoning of Keynesian logic. Nominal GDP is equivalent to aggregate demand. Inflation and bubbles increase aggregate demand. This is unsustainable, so it falls eventually. But GDP is always deemed better if it is a higher number, regardless of actual economic conditions.

    Really, it’s like pumping a person full of adrenaline, and then repeating the process every time it starts to wear off because you’ve somehow confused the increased level under the influence of the drug with the normal and desired level.

    • Matt Tanous says:

      Eventually, you’ll kill the individual (country).

  11. Major_Freedom says:

    It’s interesting that Krugman says that there has been hardly any inflation. Obviously, he’s suggesting price inflation is not much greater than 0%. But as free market economists know, a healthy market economy would almost certainly have price deflation, as production tends to exceed the rate of money production and increase in spending. So compared to a market standard, we can argue that even a 0% price inflation, or modestly positive price inflation of 2% or 5%, that is brought about by a non-market central bank institution, would actually entail very significant monetary intervention. For the central bank would be reversing what would otherwise be a, for example, -5% price inflation (i.e. deflation), and bringing about a positive 5% price inflation.

    It’s not actually “normal” for price changes to remain positive, in a market economy. Krugman seems to be suggesting that because price inflation is modestly positive, despite the large intervention of the central bank, that there is something odd about money now. But there isn’t, if you recognize that we’re likely not supposed to be having any positive price inflation at all.

    • Matt M (Dude Where's My Freedom) says:

      “But as free market economists know…”

      A category that excludes Krugman and the vast majority of the public at large.

      The Keynesians have done a magnificent job in convincing the average Joe on the street that inflation is not only good, but normal. That prices “naturally” go up. It’s just a thing that happens, irrespective of any government policies. Krugman might know this to be a lie, and he might not, but it doesn’t really matter either way. The point is, he can easily write columns in the NYT claiming we have “abnormally low” inflation of 1% and virtually nobody will question it.

      • Major_Freedom says:

        Did you notice how he suggested that rising price inflation is needed for the economy to “barely stay up” (paraphrased), as if economic health is defined as rising prices?

      • Matt Tanous says:

        ” It’s just a thing that happens, irrespective of any government policies. ”

        Well, of course. It’s because businesses are greedy.

        • Matt M (Dude Where's My Freedom) says:

          I’m not sure that’s quite right though. Blaming it on “corporate greed” would then make it a problem that government could theoretically solve.

          But to them, it’s not a problem, and they know they can’t solve it.

          They don’t want inflation to be anyone’s “fault.” They just want it to be a fact of life, like the sun rising in the morning.

    • Gamble says:

      Hi MF.

      If not for inflation, none of this would be possible. Follow this link to learn how some of us see the world. I could not of explained it better myself.


      • Major_Freedom says:

        I am not able to view that link due to a restriction.

        Could you summarize it? Also, could you explain what you mean by “none of this”?

        • Gamble says:

          Hi MF,

          None of this means all of this government, socialism, interventionism, etc. Inflation makes it all possible. Taxes don’t even come close to funding leviathan. Inflation is more than government funding. So much more. More as in trickery, slavery, anti freedom.

          The article I linked to further explains “none of this.”

          I cannot summarize because it is lengthy. Enter burning platform in your search window or http://www.burningplatform.com. Scroll down to the second article, May the odds ever be in your favor, hope and defiance.

          The article will make much more since if you watched the Hunger Games Movie.

          ON a side note: I just noticed the first article, which is new, it is another great article regarding real inflation.

          A really terrific site I knew nothing about till LewRockwell.com featured it just the other day.

          Not sure why the restriction? I just clicked the link and it worked for me. Use your search window.

          • Major_Freedom says:

            I think it’s more accurate to say that inflation makes it easier to enforce socialism, rather than making socialism possible.

            The restriction is due to my employer banning certain websites.

          • Samson Corwell says:

            You have no clue just how much in assets the fed is sitting on.

            • Major_Freedom says:

              How do you know that?

  12. Gamble says:

    What to Allen Greenspan and Paul Krugman have in common?

    They are both socialist masquerading as economist…

  13. Rick Hull says:

    The economy is not a big truck. It’s a series of bubbles.

Leave a Reply