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Krugman is the bane of my existence

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September 06, 2009 – Comments (17)

This article made me want to vomit. 

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=1&_r=2

A Nobel Prize?? Really??

I've noticed that Krugman never really gives rational arguments in his articles; he just says, they are obviously wrong and we are obviously right, and he usually pulls some ridiculous argument made by some no-name economists to "prove" how ridiculous anyone who doesn't believe in Keynesian economics is.  In this article he quotes an economist who thinks people are unemployed because they want to be.  One guy out there thinks that, and Krugman uses it as a pro-Keynes argument?  Weak. 

First of all, you would have to be an idiot or an academic to believe that the market is efficient.  I'm 22 years old, and I've been actively investing for about a year.  From the moment I started , I've understood that the market is irrational.  It's not hard to see, and it's very easy to prove.

The funny thing is, we have a school of economics, the Austrian school, that works very well and that has done a much better job of explaining what is happening than all of this other used dogfood economic theory.  Krugman has never admitted in any of his columns that this school of thought even exists.  That's how he can continue to ignore the real problem, a lack of savings and excessive debt, and continue to champion increased deficits and wasteful government spending.  How about instead of trying to create a new theory of everything that will ultimately fall apart again, we just use some common sense?

Thank god I'm out of school and no longer have to listen to my economics professors drone on about defunct theories that don't work in the real world.

17 Comments – Post Your Own

#1) On September 06, 2009 at 3:49 AM, speedybure (< 20) wrote:

I hate that bonehead with a passion. He is an absolute moron and just goes to show even the nobel prize goes to those who endorse government propaganda. I'm an austrian and read his latest book along with he refutations of capital theory in austrian economics and it is so blaintly clear this guy is as dumb as they come. He talks about idle resources which is uttr nonsense as resources don't remain idle ( in terms of ownership) as when an entrepreneur say in the oil industry goes belly up, krugman presupposes it will remain idle. But in reality that insinuates there is no market, because someone would buy these assets at some given price to make them proftiable. This guy is dumber than a bag of hammers

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#2) On September 06, 2009 at 5:16 AM, kaskoosek (44.06) wrote:

I second both your opinions. He makes my blood boil.

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#3) On September 06, 2009 at 9:32 AM, XMFSinchiruna (27.14) wrote:

He just regurgitates more and more nonsense at every opportunity.

Here's a great exchange between Krugman and Niall Ferguson from a panel discussion taped by C-Span in May.

 

Niall Ferguson: This is the end of the age of leverage, which began, I guess, in the late 1970s, and saw an explosive rise in the ratio of debt to gross domestic product, not only in this country, but in many, many other countries. Once you end up with public and private debts in excess of three and a half times the size of your annual output, you are Argentina. You know, it's funny that people refer all the time back to the collapse of Lehman last September. Let's remember that this crisis actually began in June 2007. It fully became clear in August of 2007 that major financial institutions were almost certainly on the brink of insolvency to anybody who bothered to think about the impact of subprime mortgage defaults on their balance sheets.

But we were in denial. And we stayed in denial until September, more than a year later, of last year. Then we had the breakdown. Notice how psychological terms are very helpful when economics fails as a discipline. After the breakdown, we came out of denial and we realized that probably more than one major bank was insolvent. Then in September and October the world went into shock. It was deeply traumatic.

Now we're in the therapy phase. And what therapy are we using? Well, it's very interesting because we're using two quite contradictory courses of therapy. One is the prescription of Dr. Friedman—Milton Friedman, that is —which is being administered by the Federal Reserve: massive injections of liquidity to avert the kind of banking crisis that caused the Great Depression of the early 1930s. I'm fine with that. That's the right thing to do. But there is another course of therapy that is simultaneously being administered, which is the therapy prescribed by Dr. Keynes—John Maynard Keynes—and that therapy involves the running of massive fiscal deficits in excess of 12 percent of gross domestic product this year, and the issuance therefore of vast quantities of freshly minted bonds.

There is a clear contradiction between these two policies, and we're trying to have it both ways. You can't be a monetarist and a Keynesian simultaneously—at least I can't see how you can, because if the aim of the monetarist policy is to keep interest rates down, to keep liquidity high, the effect of the Keynesian policy must be to drive interest rates up.

After all, $1.75 trillion is an awful lot of freshly minted treasuries to land on the bond market at a time of recession, and I still don't quite know who is going to buy them. It's certainly not going to be the Chinese. That worked fine in the good times, but what I call "Chimerica," the marriage between China and America, is coming to an end. Maybe it's going to end in a messy divorce.

No, the problem is that only the Fed can buy these freshly minted treasuries, and there is going to be, I predict, in the weeks and months ahead, a very painful tug-of-war between our monetary policy and our fiscal policy as the markets realize just what a vast quantity of bonds are going to have to be absorbed by the financial system this year. That will tend to drive the price of the bonds down, and drive up interest rates, which will also have an effect on mortgage rates—the precise opposite of what Ben Bernanke is trying to achieve at the Fed.

One final thought: Let's not think of this as a purely American phenomenon. This is a crisis of the global economy. I'd go so far as to say it's a crisis of globalization itself. The US economy is not going to contract the most this year, even if the worst projections at the International Monetary Fund turn out to be right; a 2.6 percent contraction is far, far less than the shock already being inflicted on Japan, on South Korea, on Taiwan, to say nothing of the shock being inflicted on Europe. Germany is contracting at something close to 5 or 6 percent. So we are faced not just with a problem to be dealt with by American policy, we are faced with a crisis of global proportions, and it's far from clear to me that the prescriptions of Dr. Friedman and Dr. Keynes together can solve that massive global crisis.

Paul Krugman: Let me respond to that a bit. Let's think about what is actually happening to the global economy right now. On the one side there has been an abrupt realization by many people that they have too much debt, that they are not as rich as they thought. US households have seen their net worth decline abruptly by $13 trillion, and there are similar blows occurring around the world. So the people, individual households, want to save again. The United States has gone from approximately a zero savings rate two years ago up to about 4 percent right now, which is still below historical norms; but suddenly saving is occurring.

That saving ought to be translated into investment, but the investment demand is not there. Housing is flat on its back because it was overbuilt; housing bubbles collapsed not only in the United States, but across much of Europe. Many businesses cannot get access to capital because of the breakdown of the financial system. But even those that do have access to capital don't want to invest because consumer demand is not there. Between the housing bust and the sudden decision of consumers to save, after all, we have a world with lots of excess capacity. The GDP report that just came out says that business-fixed investment, non-residential fixed investment, essentially business investment, is falling at a 40 percent annual rate.

This causes a problem. There are lots of people who want to save, creating a vast increase in savings, not only in the US but around the world, combined with a sharp decline in the amount that the private sector is willing to invest, even at a zero interest rate, or rather even at a zero interest rate for US government debt, which is what the Federal Reserve has the most direct impact on.

One way to think about the global crisis is a vast excess of desired savings over willing investment. We have a global savings glut. Another way to say it is we have a global shortage of demand. Those are equivalent ways of saying the same thing. So we have this global savings glut, which is why there is, in fact, no upward pressure on interest rates. There are more savings than we know what to do with. If we ask the question "Where will the savings come from to finance the large US government deficits?," the answer is "From ourselves." The Chinese are not contributing at all.

Those extra savings are, in effect, the savings that America has wanted to make anyway, but that US business is not willing to invest under current conditions. That is the way Keynesian policy works in the short run. It takes excess desired savings and translates them into some kind of spending. If the private sector won't do it, the government will. There is actually no contradiction between the Federal Reserve's actions and the actions of the US government with a fiscal stimulus. It's very much necessary to do both. By buying a lot of private securities, the Federal Reserve is essentially going out there and playing the role that the private banking system is no longer playing properly; by engaging in investment, the federal government is playing the role that businesses are not now willing to play. All that debt-financed spending on infrastructure by the Obama administration is basically filling the hole left by the collapse in business investment in the United States. There is not an excess demand for savings that is going to drive up interest rates. The only thing that might drive up interest rates—and this is a real concern—is that people may grow dubious about the financial solvency of governments.

Now, the great concern I have is that although we understand these things fairly well, there are thirty-eight Republican senators who say that the answer for the crisis is another round of Bush-style tax cuts that will reduce revenues by $3 trillion over the next decade.

This crisis has been so large and the political process has been so sluggish that the difficulties have been greater than expected. And yes, there are some green shoots. Things are getting worse more slowly, but we have not managed to head off a crisis that could turn out to be self-reinforcing, and leave us in this trap for many, many years.

Then, later...

Ferguson:

Well, if you listened carefully to what Paul Krugman said, he actually agreed with me. Because what he said was that everything is just fine as long as the financial credibility of the United States isn't called into question, but my point is that it will be called into question. Of course it will. According to the administration's crazily optimistic forecast for a recovery, it's going to be a 3 percent growth rate next year, 4 percent the year after that, 4.6 percent the year after that. If you believe those numbers, you'll believe absolutely anything, but they are there in the administration's budget document. Even if those numbers turn out to be true, the federal debt will rise over the next five to ten years to around 100 percent of gross domestic product.

But since those numbers are clearly wrong, and the trend growth rate of the US will be much closer to 1 percent than to 4, it seems reasonable to anticipate a much more rapid explosion of federal debt to somewhere in the region of 140 or 150 percent of gross domestic product. Even if the private savings rate rebounded to its highest point in the postwar period, it would still account for no more than 5 percent of gross domestic product. But this year's deficit, as I said earlier, is likely to be north of 12 percent of gross domestic product. So it doesn't quite add up.

The Fed has committed itself to buying $300 billion worth of treasuries this year, but clearly it will have to buy a great many more than that. Remember, $1.7 trillion or so are coming onto the market. And you assume that the credibility of the United States in the eyes of Americans, as well as foreign investors, is going to withstand this? At some point the United States does start to look like a Latin American economy, not only to people abroad but maybe to people at home. If the Fed's balance sheet explodes to up to $3 or $4 trillion, who knows how big it could get. At what point do people stop believing in the US dollar as a reserve currency, or even as a store of value for their own savings?

    After this exchange, Paul Krugman gets visibly agitated, and pleads with Ferguson to take the discussion of current account balance numbers OFFSTAGE! Ha! That's no way to win a debate, Mr. Krugman! 

 

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#4) On September 06, 2009 at 10:39 AM, starbucks4ever (98.54) wrote:

Too much honor for a retarded NY times columnist who received a Nobel prize by accident. I don't see why you would want to spoil your existance because of some most ordinary Krookman, especially when the Austian school is practically as full of krookmans as the Dems are.

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#5) On September 06, 2009 at 10:53 AM, gembree (99.90) wrote:

Here is Krugman on Austrian economics: http://www.slate.com/id/9593

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#6) On September 06, 2009 at 11:08 AM, kaskoosek (44.06) wrote:

pure and utter dribble.

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#7) On September 06, 2009 at 11:30 AM, PMarosi (< 20) wrote:

This is a DEBATE between two highly intelligent and well regarded people - I personally read what I can from both of them. As such, the purpose of a debate is called "comparative analysis". Very seldom is one single person correct/right. The good decisions are made by listening all relevant ideas, and  thus making an informed and educated decision.

Either way, the US Gvnmt, and most others as well, are still way behind these two.

 Rgds,

 Peter Marosi

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#8) On September 06, 2009 at 11:42 AM, throwerw (29.46) wrote:

"And some people probably are attracted to Austrianism because they imagine that it devalues the intellectual pretensions of economics professors."

he does have a point there.   

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#9) On September 06, 2009 at 12:08 PM, Teacherman1 (29.02) wrote:

As someone with only a Batchelors Degree in Economics, obtained a long time ago from a non-prestigeous university, I would not dare to criticize someone with such exalted credentials, but anytime I read an article from someone like him, I remember the punch line from an old joke about a group of people stranded on an island trying to figure out how to open a can of beans.

Each one in turn offered their solution to the problem, based on their own background and training. 

When it came time for the economist to offer his solution, he started with "Assume a can opener".

The basic premis of economics is that you assume all other things as being equal, while you try to understand the impact of the one area you are studying.

As we all know, all other things are never equal.

To take them all into account would require the computing power of a bank of "Big Blues".

Economics is best used to study, understand, and explain how and why a particular event will likely have a particular outcome.

It is these specialized models, used to try and explain and predict a specific event, that the PHD's win their prizes for.

The problem comes when they then try to use the prestige that comes with that prize to purport that they are all wise and all knowing.

While there is still some usefulness to be derived from looking at their opinions, that is all they are for the most part. Opinions. 

JMO and worth exactly what I am charging for it. 

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#10) On September 06, 2009 at 12:25 PM, Deepfryer (27.90) wrote:

"The funny thing is, we have a school of economics, the Austrian school, that works very well and that has done a much better job of explaining what is happening than all of this other used dogfood economic theory."

Can you elaborate on this?

When exactly has Austrian economics "worked"? It seems to me that they are the ones with their heads in the clouds, who have never accomplished anything in the real world.

From Wikipedia:

"mainstream schools such as the neoclassical economists, the Chicago school of economics, the Keynesians and New Keynesians, adopt mathematical and statistical methods, and focus on induction to construct and test theories; while Austrian economists reject this approach in favor of deduction and logically deduced inferences."

later in the article:

"The main criticism of modern Austrian economics is that it lacks scientific precision. Austrian theories are not formulated in formal mathematical form, but using verbal logic. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, "what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics." This criticism of the Austrian school is related to its rejection of the use of the scientific method and empirical testing in social sciences in favor of self-evident axioms and logical reasoning."

So, while Keynesians try to analyze statistics and come up with real-world solutions to our problems, the Austrians prefer to "trust their gut" (much like George W. Bush or Sarah Palin), and throw out slogans like "big government is bad", "we need to cut taxes", etc.

It's extremely easy for people to agree with those statements, but I don't see much of an intellectual foundation for them.

One last thing, from the same article:

"There are also criticisms of specific Austrian theories. For example, Nobel laureate and neo-Keynesian economist Paul Krugman argued that Austrian business cycle theory implies that consumption would increase during downturns, and cannot explain the empirical observation that spending in all sectors of the economy fall during a recession. Austrian theorists argue a recession can result from a monetary contraction or a "credit crunch" that causes the investment boom not to shift but simply to disappear. Nobel laureate Milton Friedman, after examining the history of business cycles in the US, concluded that "The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false.""

How many more of their theories will be proven false, once the Austrians decide to look at evidence from the real world?

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#11) On September 06, 2009 at 12:46 PM, edbbear (< 20) wrote:

These economists have been so inaccurate I don't have much use for them.  I've never read anything from Krugman that I didn't already know. 

 You don't need a degree in economics to know that the private debt level in this country is choking the economy to death, and that only government deficit spending is keeping it where it is. 

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#12) On September 06, 2009 at 12:52 PM, eddietheinvestor (< 20) wrote:

I would like Krugman better--and start taking him seriously--if he left his political biases out of his commentaries.  He seems to base his critiques of economic developments and economic actions based on whether they were thought of an enacted by liberals or conservatives.  If Obama does something, Krugman says it's brilliant and great for the economy.  If Bush did it, it was a stupid idea.  I believe that tax cuts, the buying of treasuries, the future of the economy should be based on economic theory, not on whether the president is a Democrat or Republican.

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#13) On September 06, 2009 at 1:37 PM, JesseCornel (< 20) wrote:

It is amusing to watch the likes of you rail and scream about Krugman. As his comments prove more and more to be true, you appear to be more idiotic. His track record and credentials speak for them themselves. He is a winner.

Your track track also speaks for you - That is someone who is lying to themeself, and cannot stand the truth. So keep lying to yourself, and I will continue to profit in the market, where valid prediction is rewarded. You will benefit in the school of public opinion where the reward is poverty.

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#14) On September 06, 2009 at 1:49 PM, Ewok82 (29.46) wrote:

Nobel Prize winners:

Paul Krugman

Albert Arnold (Al) Gore Jr.

Mohamed ElBaradei

Jimmy Carter

Kofi Annan

And of course:

"for a new method to determine the value of derivatives"

Robert C. Merton

Myron S. Scholes

1/2 of the prize

USA

Harvard University
Cambridge, MA, USA

Long Term Capital Management
Greenwich, CT, USA

 

What do these people have in common besides the Nobel Prize?

 

 

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#15) On September 06, 2009 at 2:01 PM, whereaminow (< 20) wrote:

Krugman debunked

Links to several articles. Enjoy!

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#16) On September 06, 2009 at 2:06 PM, throwerw (29.46) wrote:

i've been thinking about this more today... perhaps my problem with Krugman is just that i find his commentary worthless from an investment standpoint.  Those whose economic commentary I do find useful for investment purposes, like Faber, Schiff, and Rogers, are Austrians and don't trust most government and mainstream economists.  The data that they look for and the way that they look at it is often completely different from Krugman.  Really, the main issue for me is the fact that America is the world's largest debtor nation, which is really the root cause of this crisis, and Krugman sees no problem with going deeper into debt. We'll see who was right ten years from now.

I'm mad that I am expected to pay into generational ponzi schemes like social security at the bottom of the pyramid, knowing that I may never collect it myself.  I wouldn't call myself a Republican by any means; I thought they were terribly irresponsible fiscally and otherwise when they were in office.  I just want some politicians and economists in charge who will start thinking about what will create sustainable growth for the country in the long term, not quick fixes that will get them reelected while passing the bag onto the next generation.   

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#17) On September 06, 2009 at 2:20 PM, throwerw (29.46) wrote:

i like this one

http://mises.org/story/3579 

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