20
Feb
2014
More Krugman Re-Writing of His Stimulus Views
I really had decided I was going to lay off Krugman for a while, but this one was too much. In light of the 5th anniversary of the Obama stimulus package, Krugman is claiming that he never understood the Christy Romer’s team’s rosy forecast of a quick recovery back in early 2009. Greg Mankiw winces with pain…
Details here.
Bob, what is the contradiction in saying that even if the Romer estimate is right, the stimulus package is still too small, and saying that the Romer estimate is overly optimistic? And Krugman was just giving peaking at 9% as an example, he wasn’t saying that’s necessarily the worst case scenario or anything.
Keshav, the contradiction is:
(1) Going ballistic when Mankiw in early 2009 says the CEA is being too optimistic and that the slump might last years,
and
(2) Now saying that he never understood why the CEA in early 2009 was predicting a quick recovery.
I wasn’t commenting on the Mankiw part of your post, I was commenting on the “let me address one possible worry…” part of your post. I don’t think the fact Krugman thought that the stimulus package would be insufficient even if the Romer estimate was correct says anything about his acceptance of the Romer estimate.
But as far as Mankiw point, I don’t think Krugman is criticizing Mankiw merely for doubting that we’ll have a quick recovery. Rather, he’s criticizing him for using the unit root hypothesis to reach that conclusion.
Keshav,
I agree that it’s logically possible that everything Krugman wrote is kosher. But do you think more than 0.1% of his readers on the Mankiw piece came away thinking, “Paul is very skeptical of the CEA’s growth forecast, and when he linked to DeLong his point was ‘Brad is totally wrong, I can’t believe he thinks we’ll have a strong recovery anytime soon.'”?
No, I don’t think readers would be able to gleam Krugman’s skepticism of the Romer estimate from that post, but that’s just because his intention in the post was not to assess the plausibility of the CEA estimate, but rather to criticize what he perceived to be bad reasoning on the part of Mankiw. And that’s why he seconded Delong’s sigh, because he was concurring with Delong’s assessment that Mankiw’s analysis was “deliberately obtuse”.
Keshav, would you agree that readers of Bob’s post a few days ago agreeing with Krugman wouldn’t come away with the impression Bob disagrees with Krugman agreeing with DeLong disagreeing with Mankiw disagreeing with Romer?
That’s funny. Is it accurate though? Too many disagrees.
Bob,
It is just very, very difficult to kick the Krugman habit. It took a huge family crisis for me to stop writing on my Krugman blog (and I wish I could blame Krugman for it, but, alas, the fault, dear Bob, is not in our stars or our Krugmans, but in ourselves).
I can stop whenever I want Bill! Don’t judge me!
You need to admit you are powerless and your life has become unmanageable;)
I used to follow your blog regularly, Dr. Anderson. I miss it but totally understand the need for a hiatus….hope you and your family are doing well.
I miss your blog too, Dr. Anderson. I miss the intellectual butt whippings that LK and some MMT loudmouth would regularly get over there. Plus I think you were a better critic of Krugman than Bob to the laymen.
When are you coming back?
Technically on that Mankiw thing back in 2009 Krugman was attacking the claim that GDP has a unit root not supporting any specific growth forecast.
Not “technically”. That”s what he was doing.
That’s what technically means.
Technically implies there is something not immediately obvious about it. No need to equivocate, though I agree with him on the main point.
Tough love for one of my favorite bloggers: http://factsandotherstubbornthings.blogspot.com/2014/02/krugman-back-in-2009-on-downturn.html
Where did we get this idea Krugman thought the administration was too optimistic? I don’t know… maybe that time he literally said the administration was being too optimistic?
You were begging to be smacked down on this one, Bob.
I’m a masochist.
And I just feed it which makes me feel dirty.
http://m.youtube.com/watch?v=EtWQGtgrC90
Your post has a really clear quote from Krugman: “One more point: the estimate of what would happen to the economy in the absence of a stimulus plan seems kind of optimistic. The chart above has unemployment ex-stimulus peaking at 9 percent in the first quarter of 2010 and coming down through the year; the CBO estimates an average unemployment rate of 9 percent for 2010, so the Obama people are more optimistic than the CBO, and a lot more optimistic than I am.”
Nonsense Keshav. Krugman is rewriting history!!
Obama Council of Economic Advisors was heavily criticized for “bad mouthing the economy” and making it worse. Their rosy forecast was a response to this. It was obvious to everyone who understands the US economy that a strong recovery is not possible when there is over investment in residential real estate. Residential real estate investment has lead every recovery since WW II. Look at 1983 for example where residential real estate increased 43% and then real GDP grew 7% the following year.
Krugman in 2009 was very pessimistic about the prospects for economic recovery. However, he also carries water for the Obama administration. Any quote that suggests he was optimistic about the recovery in 2009 was probably Krugman carrying water for Obama I was reading Krugman in 2009 and he was pretty much in agreement with Bill McBride who runs the Calculated Risk blog. Until the housing market recovers, expect a sluggish recovery.
Bob,
Krugman isn’t overturning his well known predictions about the Obama/Romer stimulus here. His is simply heaping crap on Mankiw. I see it as a “no one can hit my brother but me” kind of reaction from someone who believes his conscience is simply more swollen, and his cause more just, than everyone else’s. Krugman’s post on Mankiw is titled “Roots of Evil”, after all.
If there is anywhere to ding Krugman here, it’s that his post really does not do justice to the temper and thought put into the Mankiw post. Oh, and that Mankiw looks to have been right, and therefore Krugman wrong for criticizing him, about when to start counting on those “better than average” years.
Krugman’s jumping on the secular stagnation bandwagon is quite ironic, given that he explicitly dismissed “the protracted effects of debt overhang” that he now frets about.
“Contrary to what some think, we’d actually expect growth over the next decade to be somewhat above trend, as the economy picks up some of the current slack. That’s what the historical record tells us actually happens.”
http://krugman.blogs.nytimes.com/2009/08/28/the-burden-of-debt/
First of all, the “protracted effects of debt overhang” that Krugman talks about are not about the effects of the national debt, but rather about the effects of private debt on the spending habits of individuals who are credit constrained. This post, on the other hand, is about whether federal deficits and debt are too high.
Second of all, the quote “we’d actually expect growth over the next decade to be somewhat above trend, as the economy picks up some of the current slack” is the same as what he said in the post Bob linked to: “How can you fail to acknowledge that there’s huge slack capacity in the economy right now? And yes, we can expect fast growth if and when that capacity comes back into use.” He’s saying that as idle capacity comes back into use, we’ll have faster growth. That says nothing about what happens if that capacity does not come into use.
To understand better what is going on with our economy and whether Prof. Krugman and his supporters recommendations can boost the economy read the following papers by C.Yanushevsky and
R .Yanushevsky “ Spending and Growth: A Modified Debt to GDP Dynamic Model “ and “Is Infrastructure Spending an Effective Fiscal Policy?”