Take out the garbage <rant>

In a comment below, this guy said:

Normal economists worry about the fact that deficits lead to inflation or higher taxes. Neither’s good. Normal economists care about the so-called multiplier in which government expenditures magically increase GDP by a multiple of their value. Normal economists have measured the multiplier and found it to be close to 1, i.e. there is no magic.

Krugman’s basically argues we’re not in normal times so all those normal results don’t apply. We’re living with so-called “depression economics”. With lack of sufficient evidence about what happens with government expenditures in abnormal times — depressions are relatively rare— we’re just suppose to believe Krugman’s conjectures are right. Also, he ignores the few data points we do have and that are contrary to his conjectures, e.g. the fact that Japan had been stimulating the crap out of its economy during its “lost decade” or the fact that when Roosevelt fixed monetary policy the economy started recovering from the Depression (i.e. fiscal stimulus doesn’t do much).

Krugman and team social democrats want a “green economy” and they want nationalized medicine. This crisis has people crying for government to do something. Using Krugman’s depression economics as psuedo-intellectual backing, social democrats have a political window to bring those things about.

As political cover, “depression economics” is brilliant. As a scientific theory, Krugman’s conjectures have little going for them.

Can we all agree that after we’ve spent a few trillion on “green” industries and we’ve got nationalized medicine, we can throw Krugman’s “depression economics” out with the rest of the scientific trash? There’s no solid theory, the evidence for its conjectures is weak at best and there’s not systematic way to test it. The only reason economists are even talking about it is because a prominent social democrat just won the economics Nobel and not because its an idea with merit.

“Depression economics” is brilliant politics… as is mercantilism and nativism. That which politicians use to prey on the ignorance of the masses doesn’t make for interesting topics of scientific economic inquiry.

6 thoughts on “Take out the garbage <rant>”

  1. Great pose!

    You are very anti-Krugman these days…

    I’m curious to see what are your views on short-term macro and the zero lower bound on the nominal interest rate…

  2. Thanks. I think this post is me giving my anti-Krugmanism to the universe (as my hippie ex-boss might have said). Their policies are going to be implemented whether or not Krugman is right about depression economics.

  3. I have to admit – there’s something vaguely cargo-cultish about some of the fiscal stimulus proposals.

    I don’t get your rant about green industry though. Is cutting pollution more of a burden than suffering it? (Or is there some totally different definition of “green” that you’re referring to?

  4. Regarding the zero lower bound: I think other people have suggested that monetary policy can still work because not all interest rates are zero. Keep expectations of inflation by buying up asset classes other than treasuries. If the problem is that banks want liquidity (rather than low investment demand), it has to be liquidity preference is less than infinity. Sooner or later, when leverage ratios (or whatever they’re called) are at the desired levels, banks will stop making deposits at the fed and they’ll start making loans again.

    Its more likely that reserves are increasing because their’s temporarily low demand for investment. Bosses are saying, “let’s wait a few months on those projects while the economy shakes itself out” and so they’re not taking out loans. In this case, all this expansionary monetary policy will just lead to inflation after investment demand recovers. They net effect of policy will have been to increase uncertainty in a time of already high uncertainty. Yeah!

  5. Regarding “green”: I’m saying some politicians ideas of “green” may not correspond to projects that are actually, you know, good for the environment. More likely, “green” projects will those that hand money over to corporations that the politicians owe favors to.

  6. Its awful when you’re in that hole with depression, but I believe you can climb out of it, its a long journey but boy is it worth it, as the suffering and the experience in the long term becomes an asset. Would you agree?

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