Did Mish Try to Mislead Us?
June 16, 2009
– Comments (30)
CAPS player Dwot, whose posts I never skip, linked to this article by Mish Shedlock who is a "registered investment advisor for SitkaPacific Capital Management".
In his article Mish suggests that Nobel Prize winning Economist, Paul Krugman was in favor of Greenspan's policy of inflating the housing bubble post 9/11, and therefore is discredited as an economist because of the failure of Greenspan's policy.
Dave in Qatar (Whereaminow) saves us the time of reading Mish's article, but makes sure we get the full extent of Paul Krugman's "blunder" by reposting this quote;
#2) On June 16, 2009 at 9:02 AM, whereaminow (76.64) wrote: In case people don't read the attached article that dwot posted:
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.- Paul Krugman, 2002
David in Qatar
Being the skeptical person that I am, I recently became concerned about Mish's writings when he posted about Maryland millionaires leaving Maryland because of increased taxes. I don't think they left the land of Maryland. I think they left the land of Millionaires because of decreased home and 401k values and they are just not Millionaires anymore.
In his post about Krugman, Mish supplies this Krugman quote from 2002, a little more than what David offered us and also highlighting the part David made sure we did not miss.
A few months ago the vast majority of business economists mocked concerns about a "double dip," a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured?
Now I don't think that Mish accurately represents Paul Krugman's views on Alan Greenspan's policy. Neither do I think David does. In fact I think Paul Krugman is being blatantly misrepresented here.
In the past I have encouraged you all to read President Obama's entire campaign speeches rather than rely on the descriptions of those who would "drown America in a bath tub" if they could make her small enough.
In the very same article that Mish pulled his quotes from, Krugman also wrote these additional lines,
A few months ago the vast majority of business economists mocked concerns about a ''double dip,'' a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.
On the surface, the sharp drop in the economy's growth, from 5 percent in the first quarter to 1 percent in the second, is disheartening. Under the surface, it's quite a lot worse. Even in the first quarter, investment and consumer spending were sluggish; most of the growth came as businesses stopped running down their inventories. In the second quarter, inventories were the whole story: final demand actually fell. And lately straws in the wind that often give advance warning of changes in official statistics, like mall traffic, have been blowing the wrong way.
Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured?
Bear in mind that business forecasters are under enormous pressure to be cheerleaders: ''I must confess to being amazed at the venom my double dip call still elicits,'' Mr. Roach wrote yesterday at cbsmarketwatch.com. We should never forget that Wall Street basically represents the sell side.
Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.
But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
That is the end of the 2002 NY Times article wherein Krugman certainly was not supporting Greenspan's attempt to inflate the housing bubble, regardless of Mish's assertions otherwise.
If you are like me and believe that Mish was trying to misrepresent Krugman, then like me, ask yourself why.
And rather than answer that question for you, I encourage you to actually read Paul Krugman's column or weblog, and read for yourself what he writes, and what he supports, that Mish might not.
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