Been out of town for awhile without much opportunity to read the latest delusions from The New York Times’ most respected blogger.
But, here’s just a few thoughts on what I’ve skimmed:
In “Sources of the Budget Deficit,” Krugman makes the argument that the economic slump is the main driver behind the deficit, which he then supports with some cooked mystery numbers he’s based on already useless CBO numbers.
We all know that the economic crisis is the overwhelming source of today’s budget deficit (except for those who have a political incentive to believe otherwise).
Obviously, we don’t all know that. If a deficit is the result of the slump, what explains the deficit during the bubble? Washington has run a paper deficit each of the past ten years (and a real one for the past 50+). While we can all agree that the economic crisis has hurt federal revenue, the “deficit” is the result of “those who have a political incentive” to maintain the excessive spending.
The point is that more than 90 percent of the rise in the deficit relative to pre-crisis projections is related directly to the crisis — and probably that’s true of the other bit too, although it’s harder to show.
Okay great. But this is still a useless exercise. It’s subjective whether or not the slump is responsible for 90 percent of the deficit, especially when measured using subjective projections. We all should know by now how accurate the CBO projections are:
In “Types of Prediction” Krugman basically writes-off people who warns of massive inflation because it hasn’t happened (…yet).
For the most part, however, the economists who got it wrong didn’t make that kind of prediction; what they said was more along the lines of “if we have a massive increase in the monetary base and continue running trillion-dollar deficits, we’re going to see soaring inflation and interest rates”. So it was more a statement about the implications of their model than a prediction of what would happen in any event.
But here’s the thing: the conditions for their prediction have been met. The monetary base has more than tripled; trillion-dollar deficits have gone on for years. I suppose you could offer some explanation in terms of other factors for the failure of these events to produce the predicted results — but I don’t see the Cochranes etc. doing that.
My response to this is what it’s been each time he repeats this same claim - market timing is difficult. Let’s see what happens, especially after Europe (which has better financials than the U.S.) has stopped being the sole focus of worry.
The point is that it’s not a very good excuse to say that you didn’t specifically predict runaway inflation if you gave an “if-then” story and your if came to pass without your then.
This is puzzling because Krugman is constantly arguing for “more inflation,” which he expects as the result of actions taken by the central banks. Soooooo….if tripling the monetary base doesn’t lead to inflation, why does Krugman want to have Ben Bernanke increase the monetary base to provide more inflation? If Krugman believes what he writes about people who fear inflation, then the “if” in his “if-then” argument for advocating inflation isn’t even true.
Glad to see that while I’ve been gone, Krugman has remained self-contradictory and absurdly insincere.
The more things change….