Krugman Heckles His Audience

Classic Krugman:

I’m sorry to say that a large part of the progressive movement seems to have lost its sanity.

Do tell.

Comments

[anduril]

Hah! The Econ thread! Hot damn, I've got a link to dump, from the WSJ economics blog:

Economists and others weigh in on the the Fed’s expansion of its securities lending program.

Reading the comments--most of which I don't understand--you do get the impression of a certain desperation. As one commenter puts it:

The good news is this will help brokers and banks; the bad news is it will do nothing to help the Housing market, or stop the decline in House prices. Nor will it help resolve the inverted pyramid of derivatives that sits atop Housing. And, one has to believe it will only add to inflationary pressures. No recession at any cost seems to be the Feds’ philosophy in light of the latest massive cash infusion to banks.

[centralcal]

"...lost its sanity."

Does that include him?

[kim]

Big time cognitive dissonance is starting to seep into the ranks of the diehard believers in AGW, that's more than a few, as the realization dawns that carbon dioxide's role in climate regulation has been desperately exaggerated. Time to reread Leon Festinger's 'When Prophecies Fail'. 'Popular Delusions and the Madness of Crowds' is another worthwhile addition to your library.
=====================================

[BD]

How do he tell??????

[kim]

Actually, it is Krugman getting the rude reality check. His blog commenters are responding to his naked Clinton advocacy. He thought he was being more subtle.
==================

[kim]

On second thought, maybe I ought to read the thread first. On third thought, maybe not. Andy Revkin's commenters on DotEarth are enough masochism for me.
==============================

[Rick Ballard]

Flatline Krugman (a progressive pithed frog if ever one existed) is just showing a bit of galvanic response. He has no mond to change.

OTOH David Mamet Finds The Invisible Hand is worthy of long perusal and remark.

He's certainly not the first prog to come out of a coma but his description of the process is remarkable for its clarity and simplicity. It's a real kick to observe that the scales fell from his eyes as he listened to NPR - our national hemmorroid irritant. Or prog stimulant, depending.

[clarice]

That was a good article--would have been much better if he hadn't cited lies about Bush to create an equivalency with JFK.

[section9]

Wait a minute. Both Krugman and Brad DeLong have basically been singing off the same songsheet for the past seven years. Yet DeLong can't stand Clinton while Krugman is auditioning for a place on Clinton's CEA board. The only issue between them isn't principle, it's political opportunism: what's good for the Democratic Party.

BTW, anybody here got Spitzer's bar tab?

[ben]

Krugman is a mediocre economist who became "cause célèbre" due to his anti-Bush articles coated with pseudo-economic jargon, popular with left wingers who now had "a real economist" to hang their hat on. Exasperated that the economy kept growing, unemployment kept low and the stock market soared, his articles became just political diatribe, tired and repetitive. Faced with his own irrelevance, Krugman is now in existential crisis.

[Patrick R. Sullivan]

I always hated Mamet's plays, as well as his idiot wife's acting. Now I see why. He's got about a dozen sentences worth reading, but it takes him EIGHTEEN paragraphs to get to them:

I wondered, how could I have spent decades thinking that I thought everything was always wrong at the same time that I thought I thought that people were basically good at heart? Which was it? ....

And I began to question my distrust of the "Bad, Bad Military" of my youth, which, I saw, was then and is now made up of those men and women who actually risk their lives to protect the rest of us from a very hostile world. Is the military always right? No. Neither is government, nor are the corporations—they are just different signposts for the particular amalgamation of our country into separate working groups, if you will. Are these groups infallible, free from the possibility of mismanagement, corruption, or crime? No, and neither are you or I. So, taking the tragic view, the question was not "Is everything perfect?" but "How could it be better, at what cost, and according to whose definition?" ....

[anduril]

Agreed, Patrick. The article was sent to me and I kept reading to try to figure out why. I never did.

[Rick Ballard]

Patrick,

Is there a prog who doesn't suffer from chronic loghorrea? If one follows the trail back in time to, say, Locke and then trace forward through Hegel, slide into Marx and push on through Sartre et al, ad nauseum the distinguishing feature is the size of the manure pile which must be pecked through in order to come up with the few seeds of thought of any value whatsoever.

Reformed progs retain prolixity even upon conversion (vide Horowitz). It seems to be unextinguishable. Perhaps someday the equivalent of Immodium (Verbosium?) will be discovered and loghorrea will thus be conquered. I ain't counting on it though.

Clarice,

How can Mamet sell tickets in NY without at least a reflexive swipe at Bush? Or be published in The Village Voice, for that matter.

[Patrick R. Sullivan]

Actually, Krugman is a very good economist. He's not writing as an economist in the NY Times though, but as a political hack.

For an antidote to Krugman's rantings about stagnating middle class wages, the poor getting poorer, etc. etc. here' a WSJ piece by Brad Schiller:

First, we can easily dismiss the notion that the poor are getting poorer. All the Census Bureau tells us is that the share of the pie consumed by the poor has been shrinking (to 3.4% in 2006 from 4.1% in 1970). But the "pie" has grown enormously. This year's real GDP of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20% has increased to $476 billion from $181 billion. Allowing for population growth shows that the average income of people at the bottom of the income distribution has risen 36%.

They're not rich, but they're certainly not poorer. In reality, economic growth has raised incomes across the board.

The Census data originate from an annual survey of households. The data don't track individual households from year to year, but instead just take a snapshot of the households in existence in March of each year. From these annual snapshots, we try to infer what's happening to the typical household over time.

The "typical" household, however, keeps changing. Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, the married Ozzie and Harriet family was the norm: 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk to 2.57 persons from 3.14 -- a drop of 18%. The meaning? Even a "stagnant" average household income implies a higher standard of living for the average household member.

....A closer look at household trends reveals that the percentage of one-person households has jumped to 27% from 17%. That's right: More than one out of four U.S. households now has only one occupant. Who are these people? Overwhelmingly, they are Generation Xers whose good jobs and high pay have permitted them to move out of their parental homes and establish their own residences. The rest are largely seniors who have enough savings and income to escape from their grandchildren and enjoy the serenity of an independent household. Both transitions are evidence of rising affluence, not increasing hardship. Yet this splintering of the extended family exerts strong downward statistical pressure on the average income of U.S. households. Had the Generation Xers and their affluent grandparents all stayed under the same roof the average household income would be higher, but most of us would be worse off.

The supposed decline of the poor and middle class is exaggerated even more by the dynamics of population growth. When people look at the "poor" in any two years, they think they're looking at the same people. That's rarely true, especially over longer periods of time.

Since 1998, the U.S. population has increased by over 20 million. Nearly half of that growth has come from immigration, legal and illegal. Overwhelmingly, these immigrants enter at the lowest rungs on the income ladder. Statistically, this immigrant surge not only reduces the income of the "average" household, but also changes the occupants of the lowest income classes.

To understand what's happening here, envision a line of people queued up for March Madness tickets. Individuals move up the line as tickets are purchased. But new people keep coming. So the line never gets shorter, even though individuals are advancing.

Something similar happens with the distribution of income. People keep entering the distribution line from the bottom. Even though individuals are moving up the line, the middle of the line never seems to move. Hence, an unchanged -- or even receding -- median marker could co-exist with individual advancement. The people who were at the middle marker before have moved up the distribution line. This is the kind of income mobility that has long characterized U.S. income dynamics.

[anduril]

Holman Jenkins observes: The Fed Can't Fix Home Prices
Bad idea: Having a financial crisis during a presidential election

Is a housing bailout the solution for clogged-up credit markets and a faltering economy? What the Fed has been doing and did again yesterday hasn't really worked, notwithstanding the pops it produces in the stock market every time it shovels liquidity into the system. The Fed's latest move provides financial institutions another $200 billion in direct short-term lending against their unsaleable housing collateral. The Dow Jones jumped 416 points. But it won't restart markets for the underlying collateral.

Where are the speculators, vultures and hedge funds? Where are the big money players willing to buy the exotic but still substantial mortgage-backed securities for which markets have ceased? The Fed's liquidity rush seems only to have convinced them the time is ripe for staying on the sidelines.

To get to a real solution, speculators and investors need to believe that home prices are hitting bottom, that any mortgage debt they might buy today for 80 cents on the dollar today won't be worth 30 cents tomorrow. Then the vultures will pile in: The transfer of wealth from the overleveraged banks and hedge funds to those who kept cash handy will be shocking, ugly and cathartic -- but it will also be relatively quick. Credit markets will begin to function again. The economy will grow.

...

But we now have another problem. Nobody in their right mind would recommend having a financial crisis in the middle of a presidential campaign, but here we are. Warren Buffett, appearing at a Hillary Clinton event in December, spoke soothing words to the investor class on CNBC, saying no Democrat would be so foolish as to "kill the golden goose" of the U.S. economy.

He quickly amended his statement: Most were not so foolish.

Yes, exactly. It behooves us to recognize that bad economic times are not always uncongenial to every kind of political career. Bad times can be useful to those whose path to power is paved with demagoguery. Bad times can allow the aggregation of bureaucratic power at the expense of the private sector in ways that are not possible in good times.

Millions of Americans have negative equity in their homes, but did not bite off more mortgage than their incomes could support. These people are still paying their mortgages and never imagined doing anything else. Millions of others have positive equity in their homes despite seeing painful declines in their home value. Now all these homeowners are to be taxed to benefit more irresponsible borrowers?

This could be a nastier political fight than now foreseen, especially as Democrats try to soften up a big swath of the homeowning middle class for higher taxes by anathematizing them as the "rich."

And that's just the start. To the goal of forestalling foreclosure and keeping marginal borrowers in their homes at any cost, politicians are turning the full investigative heat of the states and FBI on the mortgage-lending and home-selling industries. This will not help the liquidity of the housing market and the $11 trillion in securities derived from it. And coming along are potential shocks on top of the housing shock: expiration of the Bush tax cuts, arrival of Democratic health-care promises, new taxes on energy consumption in the name of global warming. Pent-up demand from certain constituencies exists for these policies -- and usually faces healthy resistance from a public that believes it has a stake in the economic status quo.

Harder to calculate is how our politics will respond when the wish-list arrives on a wave "us versus them" demagoguery aimed at voters demoralized over economic setbacks and a crash in home prices. That's another reason Washington's real goal should be to accelerate foreclosures, making them cheaper and less onerous for all concerned, so the market can hit bottom and buyers and sellers can have confidence in prices. Otherwise, look out below.

These are potentially perilous times for conservatives.

[RichatUF]

Rick-

Read the article at the Village Voice-I'll second Mr. Sullivan. Also, I meant to get back to the dead thread yesterday, in regards to what you were saying regarding US institutional funds. Another tool that they might use to lance oil prices is tightening up the margin requirements-don't know exactly how, but I'm sure they can tinker around a bit.

Still reading up on all the Fed actions from yesterday.

Spitzer is resigning today, figured that he would try to stick it out.

[RichatUF]

Looking at the Spitzer resignation on tv and got to say, doesn't it have that OJ Bronco chase feel to it.

[Porchlight]

Mamet has created much dreck and yet has many moments of genius. If someone had told me he was a closet conservative for years, I would have readily believed it, based on his work.

His wife can be pretty wooden, but I liked her a lot in The Winslow Boy (Terence Rattigan play/Mamet screenplay).

[ben]

"Actually, Krugman is a very good economist."

I beg to disagree. Even if you believe in rabid Keynesian economics, where the government rules the economy and decides what's best for the private sector, Krugman was a very poor salesman for it. As a tireless advocate for higher taxes and bigger government and socialized medicine, and as a bought and paid for spokesman of big labor, he never provided any solid economic justification for any of the "political hack" side of his writings. As an economist Krugman is mediocre. As a political hack, he had his fifteen minute.

[RichatUF]

Rick-

Sorry to pester you, but I had an insight regarding the dollars fall and the euro when I was reading the links anduril posted up (especially the comments thread at the WSJ editorials).

Don't know if I'm in the right area, but I was poking around and found that the Iranian Oil Borse is up and running (as of Feb 08) and that the Russians might be flexing there muscle by saying in the circles they run in that they are going to start pricing in euros. Could dollar-euro-oil be in a massive arbitrage just based on some rumor-mongering? I'll have more later, but interested in any insight you may have.

[Neo]

“hope is not a plan”

He really hit a nerve.

I wonder if McCain read this ?

[Rick Ballard]

Rich,

The Schiller piece that Patrick linked above has a key element that most people may overlook:

Since 1998, the U.S. population has increased by over 20 million. Nearly half of that growth has come from immigration, legal and illegal.

How much has the European population grown in the Eurozone since '98? How much "real" economic growth is possible, absent population growth?

It's possible that the oil bubble is an arbitrage situation but would conversion to the euro actually change anything? The "weak" dollar, if left alone, is going to wreak a level of economic havoc in the Eurozone that will put it in a deflationary spiral from which there will be little hope of escape.

A few limit down openings on oil contracts will make the oil speculators wish they had invested in Carlyle Capital or Thornburg Mortgage - or some nice Vaporware IPOs in '99.

Supposedly, the new jumbo limits will show up in the mortgage market next week. I'm really curious to see how they'll be priced. Eventually demand is going to overcome buyer's reluctance and the residential market will start moving again.

[glasater]

Rick--What happened to that French Banker from a day or so back--that said they would defend the dollar?

[Rick Ballard]

Dunno - I just got a glimpse of that and it seemed to disappear. The dollar can't be defended or "strengthened" without a series of rather draconian proscriptions against hedge funds and other money "creators". That's what the Fed was telling the world when they tossed M-3.

I'm not exactly sure why people don't spend more time looking at the interest rate on US bonds when chatting about "weak" v "strong". It's a very curious phenomenon. If the dollar were truly "weak" then the gov would have to pay more 1.53% to get somebody to buy and hold debt instruments for three years.

[RichatUF]

Rick-

It's possible that the oil bubble is an arbitrage situation but would conversion to the euro actually change anything?

That was going to be my punchline after a bout of logorrhea! I was thinking that the surge in oil prices, gold, and other commodities was all that "mad money" flowing out of the US MBS markets. It seems too easy an explanation as to why the bond houses can't even sell munis and forget mortgages, but it might relevant.

How much has the European population grown in the Eurozone since '98? How much "real" economic growth is possible, absent population growth?

Good call-I think I flew by that line and didn't give it much thought. This might also hold the key to the "surge" in productivity in the Euro-zone too another aspect of the "strengthening euro story". Its not that they are deregulating or expanding technology, they are pasturing the oldsters.

More later...

[cathyf]

You know, there is one aspect of the mortgage debacle which really is the government's responsibility, and I have yet to have heard a single politician talk about it.

When a mortgage holder faces a borrower who needs relief to avoid foreclosure, and the house that is the collateral is worth less than the mortgage (and a lot less after figuring the costs of foreclosing and liquidating the house), then the solution which is often in everyone's best interests is for the mortgage-holder to reduce the principal on the mortgage down to a value which is closer to the actual value of the house.

The problem with this is that the IRS has ruled that any such "forbearance" is income, taxable in the year that it occurs. Which means that for a family on the edge of financial collapse, the forbearance might not be enough to stave off bankruptcy -- and foreclosure -- the exact thing that is in the best interest of the mortgage holder to avoid.

And the IRS's position is clearly wrong under any reasonable rule of accounting. A taxpayer who receives forbearance on a mortgage should decrease the basis on the house. In other words, the amount of the forbearance is capital gains. Congress has expressed its will on capital gains taxation clearly and multiple times -- capital gains are taxable when realized (when the house is sold), taxable at a lower rate than income, and not taxable at all under various circumstances (most notably when its a residence.)

We hear endless politician bloviating about finance things that they nothing about. How about the politicians talking about the real business of government -- you know, making the IRS apply the laws that the Congress has passed.

[GMax]

The name is Internal REVENUE Service. So if they call it income now ( which they do ) that will lead to a higher tax bill and thus REVENUE. Its really quite simple when you understand their whole purpose in being. Regulations which followed common sense, that is only in some bizarro world that we have not yet visited.

[GMax]

Who cares if the dollar is weak v the euro? I am not planning a european vacation anytime soon, and it will make our export much more competitive and drive up the overall level of exports, which in turn will reduce our balance of payments deficit, all good from where I sit. If we got a lot of goods from Europe ( we dont ) and the demand was inelastic and substitutions were scarce or nonexistent, then I guess it could lead to inflation. But someone will have to do a better job explaining our massive dependency of products of the EU, as I am of the opinion that its not that significant.

[RichatUF]

cathyf-

They saw that and fixed it in part.

GMax-

Who cares if the dollar is weak v the euro?

Yes and no-I'm flying with Sam Adams as my co-pilot so give me a little slack if this doesn't make a whole lot of sense.

A "weak dollar" rebounds to the US in higher prices. It helps exports only on the margins-Boeing might sell a few more aircraft or Microsoft might get a few more Chinese companies to actually pay for licenses, but the dollars they earn buy less aluminum or Indian tech support. And in someone's day-to-day living a dollar buys less food and gas here in the US.

As Rick was saying above, if the dollar were truly weak rates wouldn't be at where they are (and don't forget the US was cutting taxes and raising rates from 02-04 and the dollar still declined). With rates going down and already at historic lows it can only be a few other things that are causing the dollar to decline against the euro. My guess would be the herd moving to oil, gold and silver, agriculture and the euro (and everything else) in a bit of a fever that somehow or someway "US dollar hegemony" is going away and they all what to be in the front car.

A few problems with this theory-the big money funds have to understand that the US is the world's largest exporter and importer, the world's largest consumer market, and commodities in some circumstances are already priced in other currencies. The major oil exporters know there is only one place in the world that they can park substantial wealth daily and earn a decent return and not have to worry about a thieving class. So the big scary (PANIC) that some countries wants to "dump the dollar" is easy to state with conviction, but very difficult to do. It comes down to depth and liquidity of US financial markets-the rest of the world, combined, can't compete. The other catalyst in all this is the Beijing Olympics, but basically the high for the Chinese build out is going to be the night of the opening ceremonies-then its going to be down hill for a while.

Eventually some sanity will return: the housing market will get unstuck, oil and commodities will drop (substantially), and in an early Denver snow we will be entertained about "The worst economy in 5060 years-it will have to be rebuilt." My worry is that sanity doesn't return soon enough and we repeat the same mistakes that led to the depression-high tarriffs, isolationism, high taxation, more regulation. FWIW...

[bubarooni]

ok, since you are talking about the mortgage 'crisis'...

i have several friends who are far more progressive and socially conscious than i.

they have as of late, been beating up on all the fat cat moneylenders in BIG FINANCE pulling down those exorbitant salaries and bonuses. i am willing to allow that there is some shenanigans in that respect, but i'd swear that 'housing activists' like ACORN were pressuring congress to loosen the requirements for mortgages and boost 'community development' programs.

despite my best googling i'm staying mum around them for the moment as i've no ammo to counter their points. am i just misremembering all that?

[Rick Ballard]

Rich,

I keep looking at the Carlyle Capital meltdown - 30/1 leverage is about the same as an oil contract. Carlyle was buying something more "real" than the oil speculators in the sense that more than half the oil market is a phantasm at the moment - contracts are rolled rather than consumated through delivery.

It may be that the uncontrolled (and uncontrollable) growth of M3 has outpaced growth in marketable investments to the extent it's actually driving an inflationary movement in an environment which is actually slightly deflationary in reality.

I don't see a Smoot-Hawley replay - there's no gold standard and cross border ownership rates (as well as the rise of the multinational) would seem to militate against the possibility.

That won't stop the anti-NAFTA panderbears from peddling BS but note that both BHO and RW made sure it was known to our trading partners that they had fingers and toes crossed while babbling on the stump.