Happy Anniversary To Paul Krugman

Almost exclusively because we have a Dark Heart, we want to get a head start on  preparations for the second anniversary of Paul Krugman's bold interest forecast.  Roll the tape from March 11, 2003, please; his lead:

With war looming, it's time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

Well.  Per the Federal Reserve, I see that mortgage rates were  5.67% on March 7, and 5.61% on March 14, 2003.

Today, despite the war, financial markets continue to slumber - as of March 3, 2005, the Federal Reserve tells me that fixed rate mortgages were at 5.79%.  Robert Samuelson puzzled over this a few days back.

Perhaps the Earnest Prof is a bit stronger when forecasting equities?  Let's check his stock market call of June 20, 2003; with the S&P 500 closing at 994.7 on June 19, 2003, Krugman wrote this:

The big rise in the stock market is definitely telling us something. Bulls think it says the economy is about to take off. But I think it's a sign that America is still blowing bubbles — that a three-year bear market and the biggest corporate scandals in history haven't cured investors of irrational exuberance yet.

Or, to put it another way: it's hard to find any real news to justify the market's leap. Instead, investors seem to be buying stocks because they are rising — which is pretty much the definition of a bubble.

As of this writing on March 4, 2005, the S&P is at 1221, up 11 on a good jobs report.

Hmm, did I mention jobs?  That calls for a link to Mickey's "Krugman Gotcha Contest" from the fall of 2003.  I appear with a late entry, citing Krugman's Bold Assertion, from July 25, 2003, that:

There is very little evidence in the data for a strong recovery ready to break out. As far as I can make out, Mr. Greenspan's optimism is entirely based on models predicting that tax cuts and low interest rates will get the economy moving.

Let's put in some numbers from Economagic:  here is quarterly GDP growth, on an annual basis, starting with the third quarter of 2003:

2003 Q3 - 7.4%;  2003 Q4 - 4.2%

For 2004, the quarterly growth figures were 4.5%, 3.3%, 4.0%, and 3.8%.

Total non-farm employment, July 2003: 129,857,000; as of Jan, 2005 it was 132,573,000.  That is an average of 150,000 new jobs per month.  The latest jobs report, showing 262,000 new jobs (and with small upward revisions to the past few months) will improve that average.

Since this is my lucky day, I will drag in Paul Krugman's column from Aug 15, 2003, where he instructed us that "Just to keep up with population growth, the U.S. needs to add about 110,000 jobs per month".

We remain confident that all of these forecasts were based on his professional opinion, and were not influenced by his political views.

MORE:  We mocked his stock market forecast, and a few others, back in June 2003; we identified the Key Krug-Rule in this post (and glumly conceded the probability of higher taxes in the comments section, driven wailing before the iron lash of Brad Delong.)

UPDATE:  We are all in agreement, then - Paul Krugman admits "my forecasting record is not great."

Comments

[BurbankErnie]

So how does one go about calling out an Opinion Writer regarding these (and probably other) complete bullshit articles? Personally, I cannot read Krudman, and depend on your piffy analysis to dig out the nuggets in the crap he spews. What can a Blog reader such as I, or a Blog writer such as you, do? This delimna is my biggest beef with uncovering, for use of a better word, deceipt in Main Stream Journalism, and not just on the Opinion Page. Whats a Blogger to do?

[TM]

Whats a Blogger to do?

You mean, after I take my blood pressure medication? My impression is that some of this trickles back to them; not from this site, natch, but when Andrew Sullivan went after Krugman, Krugman knew it. And I bet Kaus stings, too.

[Jeff]

Forecasting what will happen in the economy is a dicey business, and Krugman boldly goes there all the time. I suspect you could find several bold predictions that were off.

But leave the predictions aside. You've long despised Krugman for what you regard as his recklessness and imprecision. Here's the question, though: Bush has had four years to fiddle with the economy, and it's still listing--substantially what Krugman has been arguing for years. Moreover, Krugman's larger point--that Bush decisions have undermined US economic stability--are now broadly accepted.

I'll grant you Krugman's imprecision. Will you grant that in the larger scheme he's mostly right?

[Paul Zrimsek]

Tell it to the bond market, Jeff.

[gt]

As someone who has earned a living forecasting in the financial markets I don't see what you are driving at. Everyone makes mistakes. The only way to not make mistakes is to never forecast anything.

One could easily, as Prof Delong suggest in your other post, have a contest showing where Krugman was right. Start with Argentina for example. Or the fact that Bush's 2000 fiscal promises made no sense.

But I have another contest. Call it the GT Challenge. Can you please point out to any columnist that accomplished anything remotely similar to what Krugman did on the CA energy crisis?

As David Warsh put it:

The story as it frequently is told is that it was a Fortune magazine writer who raised the first alarm. And it is true that Bethany McLean, a former Goldman Sachs analyst-turned journalist wrote a savvy (if somewhat cautious) article in March 2001 titled "Is Enron Overpriced?"

There were other journalists who over the years cocked at skeptical eyebrow at the company -- none more so than Jonathan Weil, a reporter for the Texas regional edition of The Wall Street Journal whose prescient story about energy-trading companies' bizarre "mark-to-market" bookkeeping practices never made it into the newspaper's national edition. (Today Weil covers the accounting industry for the paper.)

But it is generally agreed that once the Enron story began to unwind under internal financial pressures arising from the decline of share prices -- once CEO Skilling unexpectedly resigned in August 2001 -- that The Wall Street Journal owned the story from beginning to bankruptcy.

And while The New York Times made a distinctive and important contribution to understanding the Enron story, it was not what you probably think.

...

The Times did make a major contribution to the Enron story, however, and they made it early on. It may even have been the most important scoop of all. The record of it can be found in nine columns spread across 26 pages towards the back of Paul Krugman's new collection, "The Great Unraveling."

It was in December 2000 that the economist-turned-newspaper columnist first raised the possibility of market manipulation in the California electricity crisis, by generators deliberately withholding power. Two months later he followed up with a column on how out-of-state generators of power (like Enron) had successfully opposed permitting their utility customers to negotiate long-term contracts, thus retaining maximum market power.

...

I was among those who initially were skeptical of the diagnosis. But it seems to me now that Krugman turned out to be absolutely right. The industry's conduct was the real story in California -- "looting" behavior every bit as shocking (and, it turns out, as predictable) as that of many bankers in the run-up to the American savings and loan crisis of fifteen years before. The Enron saga is no more than a glorious point-making anecdote in this larger scheme of things. And Krugman played the key role in alerting the rest of the world to this possibility.

Yet neither the New York Times (which early on put its investigative ace Jeff Gerth on the story) nor anyone else has been very successful in following up. It's all very well to blame the outcome on the halfway deregulation of timid politicians. That was, in fact, in each case the industry's defense. But it ignores the companies' role in suborning the politicians' misconduct in the first place -- like the parricide who craves mercy because e is an orphan. Much more imaginative reporting will be necessary before the public has a good feel for the political economy of deregulation.

So in the end, there were two standout heroes in what we sum up as "the Enron story." One was the team of Smith and Emshwiller at The Wall Street Journal. The other, as irritating as he can be, was Krugman at the New York Times -- a fitting twist, since the economist earlier had been among the many victims compromised by Enron's brand-building campaign, having accepted $50,000 to serve, along with luminaries such as editor William Kristol of The Weekly Standard, on a panel of informal advisers.

Can you come up with anything similar to this? You can include bloggers if you want.

To be clear I mean finding a columnist that through sheer brainpower (not, say, inside contacts) was able to analyze a very complex situation and offer remedies long before anyone else even realized what was happening. Jane Galt, who for some reason fancies herself an expert in economics, took more than two years to realize how wrong she was and that Krugman got it right. And she's among the more honest and knowledgeable in the Right.

Anyone?

[TM]

So, he was wrong about stocks, wrong about bonds, wrong about the economy, but right about Enron (and probably right about the dollar - I assume he foresaw disaster).

And therefore I should do what with his opinion?

I am not saying he is not smart; I am (roughly) saying that he is only useful when his preconceptions (Bush and Republicans are evil) actually align with the facts, as with Enron.

Stopped clock, twice a day, etc.

You've long despised Krugman for what you regard as his recklessness and imprecision.

I am sure it goes deeper than that. Much as I hate to go on the couch, as it were, I would say a big part of it is the endless cheerleading that says "well, he is a Serious Economist, he would never let his partisan feelings influence his Economic Analysis."

I think he would, and does all the time.

As to "Krugman is right on the broad themes", his "analysis" of income inequality is a joke. In this old post, I recycle a couple of glaring, substantial errors he made that (perhaps simply by bad luck) reinforce his Rep-bashing world view.

[Cecil Turner]

"It was in December 2000 that the economist-turned-newspaper columnist first raised the possibility of market manipulation in the California electricity crisis, by generators deliberately withholding power. Two months later he followed up with a column on how out-of-state generators of power (like Enron) had successfully opposed permitting their utility customers to negotiate long-term contracts, thus retaining maximum market power."

And in the intervening period, he managed to give a fairly complete summary of the situation, including the fact that he'd been on Enron's payroll. Hindrocket noted in 2004 that Krugman's moral outrage came a little late. Krugman disputes it.

Personally, I think the whole concept of capping consumer prices while deregulating the price paid by utilities on the supply side doesn't make a lot of sense, and is bound to cause problems (including market manipulation). Nor was I impressed by the after-the-fact attempts to implement a wholesale price cap, or to blame the problem on out-of-staters. Subsequent investigations suggest manipulation was never more than a tithe of the problem, and the voters in California rendered a clear verdict (eventually).

"To be clear I mean finding a columnist that through sheer brainpower (not, say, inside contacts) was able to analyze a very complex situation and offer remedies long before anyone else even realized what was happening."

It's possible you might be able to find a better case.

[Buckaroo]

Advice to those willing to make public predictions about financial markets usually includes the nugget to specify either a target, or a date, but not both.

I think Brad Setzer's analysis is probably on target - the US debt position is untenable for much longer. Greenspan seems to concur, more or less.

Krugman was early, but that doesn't mean he was wrong, to question how long the US can float large debts. I suggest checking back in around the middle of 2007, a year into the tenure of our next Federal Reserve chairman, to see how things might play out.

[Jeff]

I've got three degrees and they're all in the humanities, so I'm going to back out of the econ arguments--after all, my ignorance does not prove Krugman's. However, you point to something I think may expose why I love the good professor:

Much as I hate to go on the couch, as it were, I would say a big part of it is the endless cheerleading that says "well, he is a Serious Economist, he would never let his partisan feelings influence his Economic Analysis."

I'm not sure who is saying Krugman is not partisan, but I have a hunch he's either a righty or an idiot. I've loved Krugman for years precisely BECAUSE he's such a partisan. During the run-up to the war, as the NYT and WaPo failed to criticize the administration and the Dems were busy hiding under the bed, there was really only one guy writing in the mainstream press--even on the op-ed page--who really took the wood to the administration. He's been an ardent foe of Bush all along. For those few lefties who thought Bush was a madman (we were all bloggers), Krugman was a breath of fresh air.

(Okay, one bomb in the shaft before I run away: Krugman also howled that the tax cuts went to the wealthy--a hotly disputed claim in 2001. He said that we'd plunge into serious deficits, and he said we were mortgaging our future for the stinking rich. And finally, he--and he alone--was willing to assert that Bush's economic policies weren't based on economics, but were take-backs for the wealthy. Nothing more. I still can't see how he's wrong on these points. Kerboom!)

[TM]

To be clear I mean finding a columnist that through sheer brainpower (not, say, inside contacts) was able to analyze a very complex situation and offer remedies long before anyone else even realized what was happening.

Anyone else? What are the odds? But if we can settle for "not many, and in the face of strident opposition", I will be so rash as to point out that I was on to Joe Wilson as a phony even before the Plame leak, and never let go.

A tasteless victory lap is here.

Or, since the Times has now embraced my legal theory of the Plame leak, here is another victory lap. Again, I was not alone, but how often does that happen? Safire on Agri-gate (we converted agricultural credits to arms for Saddam) comes to mind, maybe.

Of course, one might observe that the facts simply aligned with my partisan pre-dispositions (which was darn courteous of them).

[Jim Glass]

Krugman's not even trying any more.

I mean, Alan Greenspan spends literally hours before Congress explaining at least four separate reasons why he favors private accounts in Social Security...

The normally placid Greenspan rose almost to the threshold of passion as he made a class-based argument by contending that private accounts would allow low-income people to become mini-capitalists — in his view, a very good thing.

"When you have assets which you own, which you can bequeath to your children, (assets) which have your name on them, I think it is highly desirable thing, because you give wealth to people in lower- and middle-income groups who have not had it before".

The Fed chairman predicted private accounts would be "extraordinarily popular," and "if they are I think it is a very important addition to our society because, as you know, I’ve been concerned about concentration of income and wealth in this country ... This, in my judgment, is one way you can address that." etc. etc.

And Krugman reports:

"Mr. Greenspan offered no excuse for supporting privatization."

I mean, geeze. He used to put some effort into his slurring people, but this is just sloth.

Now it's the same with Cato. Krugman says they never even thought about transition-cost issues when you can read dozens of papers covering them right there on their web site.

PK's gone from a shill for the DNC to a lazy shill for the DNC. Pinch pays for this?

I'm looking forward to Tierney. When they finally move his column up to a page where people will see it, it'll be fun. He has the potential to drive the Krugmaniacs nuttier than they are.

[gt]

Cecil, I don't know what expertise you have in military affairs but you clearly have none in economics. If you don't understand the role of the price caps in the CA energy crisis it simply means you don't understand the economics behind this. Start http://www.wws.princeton.edu/~pkrugman/wolak.html>here.

Tom, the challenge stands. And sorry but what you posted doesn't count. That's just your view of Joe Wilson.

I don't know what you do in real life Tom but I worked as an analyst for a long time. Pointing out that people make mistakes is like saying people breathe. It provides no information.

Krugman has been right on a lot of things. I mentioned just a couple. A truly in-depth analysis would quantify how many times he was right vs wrong and how that compares to his peers and require weighting the predictions for importance or relevance. I'm really not interested in doing that so I offer something simpler. Something along the lines of the great hitter analogy you and others have used for Bush. I am pointing out an intellectual grand slam by Krugman (which is what his analysis of the CA energy crisis was for tose that undertsand what happened) and challenging you or anyone else to find something similar. It has to be technical in nature not just an opinion. It has to be unique or close to it, meaning that there aren't many others saying the same thing.

I have never found a columnist or blogger that has done anything remotely similar but I could be wrong.

[gt]

It's funny Jim because I distinctly remember you and Patrick telling there are no transition costs.

[Cecil Turner]

"Cecil, I don't know what expertise you have in military affairs but you clearly have none in economics. If you don't understand the role of the price caps in the CA energy crisis it simply means you don't understand the economics behind this. Start here."

Piffle, GT. It's not a question of whether you could use natonal wholesale caps to compensate for California consumer price caps, of course you could. The question is whether it was a good idea. It wasn't. Or, if you're saying the California legislators bear none of the responsibility for the crisis (as Krugman appears to argue), again piffle. They set up the ground rules--clearly flawed both by being unresponsive to price changes and failing to reward conservation--and failing to foresee the scenario in which it would bankrupt the entire state. And your ad-hominem is particularly unconvincing.

[gt]

sigh. OK, whatever. You don't get it and don't seem to want to. Price caps were a good idea for solid economic reasons. And no, no one is saying that the legislators bear no blame. Did you even read the articles? Did you read ANYTHING about this?

[Cecil Turner]

Hey GT,

You managed to get one empty assertion in ("price caps were a good idea for solid economic reasons"), in an otherwise entire paragraph of ad hominem. No, I never read read ANYTHING. And I'm particularly handicapped by not trusting anything Krugman writes as Gospel. I must not want to get it. Whatever, sigh. Guess I'll go through life ignorant. Have fun, dude.

[TM]

I have never found a columnist or blogger that has done anything remotely similar but I could be wrong.

Well, you could be right, but so what? He writes two columns a week - he better be right more than one time on one subject.

And as to Joe Wilson, my "opinion" that he was not credible had plenty of documentation to support it even before it got backing from the Senate Intel report.

[Jammer]

Well, I don't know for his overall record, but I do recall two things:

1. He wrote "the Bush boom is over" right after a very weak jobs report last June.

2. The highly useful Lying In Ponds has pegged him as one of top 5 most partisan columnists for the past several years.

[gt]

Jammer,

So? Why is being partisan bad?

Tom has a little obsession with Krugman's errors and I have a bigger ionbe with that uiseless Lying in Ponds website. Sorry.

Just so you realize how useless Lying in Ponds is. Imagine two columnists. One is always right. Always. But he always attacks one party. The other is always worng. Always, But he attacks both parties equally.

Who would you rather read?

And who is 'worse' in the Lying in Ponds methodology?

Tom,

I'll leave the challenge open. Just one example is all I need. And your opinion on Wilson doesn't count because it's only that. It is not a fact that Wilson is not trustworthy.

[RMc]

Jeff, it's kinda hard to take you seriously when you say on this blog:

During the run-up to the war, as the NYT and WaPo failed to criticize the administration

Do you actually read these newspapers? At all? Ever? Or do you believe they've become fronts for Karl Rove?

Meanwhile, on your own blog:

Vatican says Pope is recovering well, should be able to subjugate women and demean gays in a matter of days

Yup, that's just the kind of gentle humanity we've come to expect from the Democratic Party. Moron.

Actually, watching your kind spout off like this allows me to take solace in the fact that the Dems will never win another presidential election for quite a while.

[BadLiberal]

Jeff

How do you get that the economy is "still listing"? Job growth has been solid, unemployment is under 6%, many indicators are good. Granted, we're not in phenomenal booms, but it sure as hell beats the 1970s or the early 90s.

Even more to the point, how do you get to the conclusion that the "listing" economy is Bush's fault? A recession and a trillion dollar terrorist attack do take a toll.

QT, can you name a time when government-imposed price caps worked out really well? See Canada, drugs, shortages.

The point here is not that Krugman is occasionally wrong -- any forecaster will be -- it's that he uses his column to make fire and brimstone predictions of an horrifying doom on the horizon, and works up my liberal friends into hysterical fear fits. In those cases, he has always been wrong.

[Corky Boyd]

Krugman also predicticted Bush would restart the draft in January if reelected. I e-mailed him to let him know if Kerry were reelected, he would be the one to have to reinstitue the draft because every officer would resign his/her commission. I said they would resign because they considered him a traitor.

Shortly afterward, Krugman announced he was taking some time off.

Corky Boyd
Sanibel FL

[Bill]

gt,

Okay, as "someone who has earned a living forecasting in the financial markets", are you going to tell me with a straight face that you'd trade on Krugman's pronouncements? If so, I'd be more than happy to consider taking the counterparty position on a few deals with you.

[Eric]

As a Republican who voted for Bush last November, I often disagree with Paul Krugman. On many topics in recent years, he has transformed himself from a respected economist to a partisan hack.

As a fellow economist, however, I can't fault him for his 2003 prediction on mortgage rates. What he could not have anticipated is the massive buying of U.S. bonds in an attempt by Asian central banks to prop their currencies. The debt and current account overhang in this country is scary, and as someone who is trying to buy a house, I'm hoping that these central banks don't reverse themselves too quickly.

Long-term interest rates are likely to rise, perhaps sharply, this year. They'll come down when Congress closes the budget deficit.

[Anonymous]

Economic growth is solid, employment is solid, inflation is low, real wages are up, the stock market is up . . . and this is a listing economy?

No, we aren't having an irrationally exuberant bubble supported by lies. That's good. That's solid, reliable growth, unlike what happened in Clinton's second term. Speculative bubbles cause malinvestment and serious economic dislocation; it's downright amazing Bush was able to keep us out of a depression between the bubble collapse and 9-11.

[Tino]

Krugman analyses of the California problem is further proof of him being a partisan hack and no longer a serious economist. He basically blamed the problems on evil capitalist Enron and as a proof that big government is good. But this completely ignores the fact that the flaws that made market manipulation possible (as demonstrated by Borenstein et al) were *caused* by the excessive regulation, not some sort of libertarian laissez fair that the lefts seems to hallucinate existed in California. De-regulation of electricity markets has worked perfectly well in places such as Sweden and Britain.

The California crisis was caused by over regulation, not under regulation and inherent market inefficiency as Krugmans (of course, being an ideological fanatic first and an economist second) claims. This included price caps, the state destroying the incentive to reduce demand due to prices, creating excess costs for building new capacity and not the least the crazed socialist policies of forbidding forward contracts.

Also your proof cycle is plain laughable: 'Krugman was proven right, because he says so'. Just because Krugman *claims* price caps were a good idea does not make it so. Of course you can always create a specific model where they do make sense, if emphasizing and ignoring the right factors. But there are also plenty of models where Caps do not make sense. The real test of economics is empirical experience, and the evidence is clear, the caps were disastrous in California.

Finally you should really be careful when you accuse others of ignorance when you yourself do not seem to be know what you are talking about. You don't want to risk making a fool out of yourself do you?

[Jim in Chicago]

"price caps were good"

Oh, please, please, please, pretty please explain this.

[Jim Glass]

"It's funny Jim because I distinctly remember you and Patrick telling there are no transition costs."

WEll, if Krugman ever claims that we've never mentioned the topic either that might be relevant, if just as wrong.

[gt]

Really Bill?

You would have taken the counterparty position on Krugman's views on Argentina or Asia?

I would have made billions!

[gt]

Jim in Chicago, follow the links and ye shall learn.

[gt]

Tino, I suggest you read what was actually written.

[Tino]

1. Krugmans position on Asia ten years ago was good economics, but nothing to make money on since he predicted a slowing down of growth over many years. On Argentina he said what mostly everyone one else was saying. I guess for Krugman that is
better than average, since the norm is to make incorrect predictions.

2. "Jim in Chicago, follow the links and ye shall learn."

"Tino, I suggest you read what was actually written."

Translation: "I don't know what I am talking about, the only thing I can do is to parrot and worship on the feet of my Guru The Great Paul Krugman. I looked on the homepage of The Krugman, but since he did not have a respond to you I can only remain silent. But this is OK since it means that no response is necessary."

[godfodder]

Oh come on qt! Tino just obliterated your argument and that's all you have to say? It is perfectly clear to any objective observer that the energy market was distorted by politically driven (instead of market driven) "reforms." It will always be thus when politicians manage markets. Read Hayek!!

price caps = shortages

[Freezer]

Alright GT, I'll bite. I followed the links and read what was actually written. I also checked out a couple other sites to get some more ideas on the subject. Here are a couple of questions about Krugman's analysis:

1. His "stylized" version of the PX has the PX paying out the highest bid to everyone who bid - did this occur in practice? And if so, who set this system up? I haven't been able to find any mention of such a scheme other than Krugman's article.

2. There's no mention in this article of the issue of the fixed retail price of energy. All other sites I visited mentioned this prominently, and it seems like it *should* be a pretty big issue. Since this goes against Krugman's claim that the crisis was caused by industry conduct rather than incompetent regulation, do you know how he explains this away?

Oh yeah, the main other sites that I used were facsnet.org and sfgate.com.

[gt]

sorry godfodder but Tino did no such thing. Unfortunately tino is so confused he doesn't even know what price caps I'm talking about. No, it's not the retail price caps (which were a big cause of the crisis).

Of course the energy market was distorted. It was a mess. And yes, it was politically driven reforms. But none of that has much to do with what Krugman wrote and Tino would know that if he had bothered to read the articles.

I mean, Tino is so clueless he thinks Krugman's position on Argentina was what everyone else was saying.

[gt]

Freezer,

This leads to an almost philosophical discussion of what cause is. Krugman never denied that incompetent regulation was a cause. In fact, without incompetent regulation there would have been no crisis. But incompetent regulation was not enough. You needed a perfect storm of bad regulation and supply problems. This created a situation where the energy companies, simply by acting on their self-interest could manipulate prices.

As Krugman wrote:

it doesn't involve collusion, let alone conspiracy, among the generators. You don't have to imagine Ken Lay and Dick Cheney sitting in a room, trading sneers, and chortling over the havoc they are wreaking (which isn't to say that this might not have happened!). All it takes is individual firms, acting in their individual self-interest.

This means that some firms had market power and this was then made worse by market manipulation. Temporary price caps, which the FERC finally imposed, can help in this situation.

[gt]

Tag closed?

[gt]

Freezer,

Some context.

In the 1980s The Economist magazine published an article on the world's top young economists. I think they only mentioned 8. They divided the 8 into two groups, the top-top and the up and coming. Krugman (and Larry Summers) were part of the top-top.

What characterized them was an interest in the real world something that at the time was not so common among economists. They all had their political views but their research was very much driven by what the facts showed or by what could be proven.

In the 1990s Krugman began moving from being just an academic to being a popularizer. He spent a lot of time attacking the Left back then and was really hated by many liberals. Yes, hated. He attacked the Right as well but mostly extreme supply siders. The Right wasn't setting policy back then.

I think what bothered him about the Bush administration was the sheer ideology. Economics tells you price caps are bad but in sme cases this doesn't apply. One such case was the CA energy crisis where price caps could help (wholesale, not retail). Yet the Bushies denied there was anything they could, which was false. The Bushies did not create the problem but it was their responsibility, at least in part, to try to fix it. And for ideological reasons of the "the markets are always right" they didn't for a long time.

[Patrick R. Sullivan]

Considering that GT thinks the Swift Boat Veterans have been proven to be liars, because a report written by Lt. John Kerry in 1969 said X, is enough to tell us what stock to place in his skill as a logician.

Btw, on a point of dispute directly between Krugman and myself, Brad DeLong--no doubt in a moment of weakness for which he's still kicking himself--admitted I was right and Krugman wrong:

http://www.j-bradford-delong.net/movable_type/archives/000947.html

Just in case anyone is keeping score.

[gt]

Patrick, the fact that you think Kerry wrote that shows you really will believe anything.

[Tino]

qt you are just digging faster in your hole.

"If you don't understand the role of the price caps in the CA energy crisis it simply means you don't understand the economics behind this"
But Cesil was SPECIFICALLY talking about "the whole concept of capping consumer prices". Now suddenly you agree that the retail price caps were problematic, where you two seconds ago accuse someone of ignorance when saying so?

The article you quote is yet self gratifying piece where Krugman completely misses the point, and falsely blame the problems caused by left-wing Democrats in California on Dick Cheney and Enron. The price power he talks about is a proximate effect (something that real experts such as Joskow and understand, but of course not Krugman), not the cause of the problem as presented by Krugman.
Instead Krugmans ignores the factors behind the crises. *Nowhere* in the article does he mention the laws forbidding long term options! Instead he bizarrely credits one of the incompetent politicians behind this mess, writing that the problem was solved "Finally, when Gray Davis signed up a lot of power under long-term contracts, he fundamentally changed the game."
He also writes that the crises ended when "consumers engaged in a lot of conservation", 'accidently' leaving out that consumers were discouraged by conserving by the price controls passed by the politicians. He than shamelessly starts the third sentence by talking positively about "price controls" (on the wholesale market, not the consumer market). Only Krugman think that the bid caps ended the crises. Or maybe he just tries to suggest so despite better knowledge, which is even worse.
Krugman creates a Straw Man to be able to be "vindicated". If you do not agree with his deceptive and populist attempts to blame Enron and market liberals for the crises, you are 'denying market power'. This despite the fact that there were a large number of journal articles written about this issue already in 2001. Identifying market power as caused by artificially inelastic prices is one thing, *blaming* the problem on market power is completely different. Krugman is putting the two as opposites, where in fact they are not. Note how he ends the story:
"To me it was obvious by early 2001...the glib declaration that it was the fault of the politicians were nonsense."
Really? The actual experts, rather than the Left-wing hack, do blame the politicians. All the people he cites in the article Joskow, Borenstein and Wolak, blame the mistakes made by the politicians in various article they have written together or apart.

2. Let me just qoute from an article Krugman wrote sin Slate specifically about Argentina mid 1999 after the depression had already started (in second half of 98):

"The odds are that this whole affair will soon blow over."
"you can make a reasonable case that Argentina should stick with its currency board for some time to come."
Now I happen to think he is generally right about the problems with currency boards. But most sensible economist already know that third world countries fixing their currencies and betting on the IMF to bail them invites crisis. This has been repeatedly pointed out by say Milton Friedman and Allan Blinder. Even those who support the fixed exchange rates usually don't deny this, but tend to weight these costs against the benefit.

I really suggest you read the article to see just how pathetic the case for "Krugman the Guru" is. http://slate.msn.com/id/32173/. The article is only notable for being so mainstream and bland. He makes no bold predictions, not even any serious warnings or recommendations. You certainly don't see any of the alarmist language we are used to when he rants about the US economy of Bush when discussing a country already months in a severe crisis!

3. By the way, I just stumbled on *yet another* idiotic prediction by the Great Economist. He writes an article comparing western European performance with that of the US, called America the Boastful. He concludes that the case for the US is exaggerated: "our current sense that we are on top of the world is based on a huge exaggeration of the implications of a few good years here, a few bad years elsewhere."

Let's just see what happened since. Assuming (like Krugman does) that the Us free market system is not systematically better than Europe and Japan, if anything they should catch up. I wonder if they did:
(I compare Krugmans figures with OECD figures of PPP http://www.oecd.org/dataoecd/56/4/33746760.pdf)

1995 78% of US GDP/capita
2003 74% US GDP/capita

Germany
1995 83% US GDP/capita
2003 70% US GDP/capita

Japan
1995 80% US GDP/capita
2003 70% US GDP/capita
Note that these figures do not include 2004, a 4.4% growth rate for the US where Germany and France were basically stagnant. Another feather on his hat!

[Tino`]

"Krugman is putting the two as opposites, where in fact they are not."

Clearify: "those two" means saying the problem was due to overregulation by politiicans and due to market power.

[Jammer]

QT, I am perfectly aware of how Lying in Ponds works. I am also aware that being partisan does not automatically make you wrong. We have also determined that Krugman is, at a minimum, not 100% correct.

But come on, at some point you have to ask yourself "If this person always criticizes group A and never ever criticizes B (except maybe for being insufficiently hard on group A)could it be that his partisanship is coloring his view of the facts?" I mean really. Excessive levels of partisanship are NOT a good sign.

[MB]

I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

Well they haven’t woken up to it yet, but that’s not to say that they won’t. In a meeting Krugman was asked when the bond markets would panic and he said something like “the afternoon of October 23rd 2008.” He was joking, but when did he ever predict a crash in the next twelve months? And he said that stocks were overvalued, he didn’t say that they would fall next Tuesday. You haven’t refuted him at all; you’ve just posted a bunch of non-sequiturs.

Paul Volcker says there's a 75 percent chance of a financial crisis in the next five years. What part of his analysis do you disagree with? Where did you study economics?

[TM]

You haven’t refuted him at all; you’ve just posted a bunch of non-sequiturs.

Well, I would prefer to think of them as cautionary signs - if he told me 20 months ago that stocks were overvalued, and they have since risen 22%, that surely does not mean he is wrong, but it also might give one pause before deciding his advice is particularly insightful.

Oh, and "everyone" thought rates were going higher in March 2003, and everyone was wrong. Hard luck.

As to GT, at some point, unless the process becomes a bit more flexible, it becomes tedious - everything you believe is a "fact", but all we have is "opinions".

Since I am still fuming about Joe Wilson, can we extend the list of "facts" to include the info that he was dropped by the Kerry campaign, and dropped from their website arrangement? Put another way, if the opinion that a fellow is not trustworthy is sufficiently widely shared and easily documented, why is it not a "fact"?

Or, is it possible that Krugman's analysis of Enron is not a "fact" either, but simply a widely shared opinion?

Basically, I am asserting the right of the rest of us to have facts, too. It just does not seem fair that you have all the facts in the world, and we have nothing but opinions.

(SOB)

Hmm, Father's Day is coming - maybe one of the kids will leave me a fact then...

[Jim Glass]

Of course the irony of Krugman's "home mortgage" piece is that to avoid that soaring financing costs of 20 years from now he paid an extra up-front charge to protect himself (and still is, about 2% a year). He protected his own finances!

But as to Social Security, doing the same thing -- prefunding benefits now so they won't have to be financed at a time when annual deficits are reaching 20% of GDP or taxes are increasing up to 100% from today's level or some combination -- is bad bad bad by him.

"my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt."

Yup, and he's not exposing his own finances to that -- just your Social Security benefits.

[MB]

...that surely does not mean he is wrong, but it also might give one pause before deciding his advice is particularly insightful.

What advice did he give? He said:

“...investors seem to be buying stocks because they are rising — which is pretty much the definition of a bubble.”

What is unreasonable about that statement? And where does Krugman say that rates would go higher in March 2003? People thought they would go up as the economy recovered, but Krugman was writing about something else: the risk of a sudden spike in interest rates caused by a panic. He didn’t say it would definitely happen, and he didn’t say it would happen in 2003. He is worried that it might happen sometime during the life of his mortgage, which it might.

Are you certain that the bond market won’t panic? What is your prediction for interest rates?

[Yevgeny Vilensky]

Of course, everyone can be wrong. But with Krugman, it seems that the correctness of his predictions can be used as a random number generator. He is wrong so often, that it makes him as useless of a predictor as having an ape shoot darts at the stock quotes.

In response to some people who are trying to revive Krugman's "hypothesis" by recasting it as if he didn't give any timeline about when it will happen:

This is a rather bad line of argument. Surely, in the next 100 years, the stock market will be down at some point. Does that mean that Krugman can say after the next market downturn, "I told you so, there was a bubble!" I mean, at some point, I would assume you'd have to call in all bets and flip over the cards to see who had the better hand. In fact, Krugman does give us some predictions that can be objectively evaluated. For example, he says that there is a bubble forming because the bull market is the result of no specific good news, but investor buying because prices are rising (the very definition of bubble). Except that he ignores the employment numbers. He ignores the interest rate numbers. He ignores the consumer numbers. All of those are reasons the investors were buying and continue to buy to this today.

Why should Krugman be criticized for being a partisan? Remember folks, this guy is supposed to be an academic at Princeton. My understanding, and forgive me if I'm wrong -- I'm only a Ph.D. student in applied math -- is that academics are supposed to dump preconceived notions at the door and pursue truth wherever it may lead. Doesn't partisanship umm... make that impossible? Imagine if I were doing math as a partisan conservative. Then, I'd have to reject everything ever done by Grothendiek, a brilliant, though deranged leftist, mathematician. But that's what Krugman essentially does, by rejecting academics (!) as right-wing nuts who Bush dares nominate to the federal bench (even though they're well-respected for their academic work). Imagine me dumping on Alan Sokal's abilities as a physicist because he's a leftist.

I am tired of people thinking that Krugman has some deep insight into the world because he's a Princeton prof and has a Ph.D. in economics. Big deal. Does the fact that I know Fefferman's Counterexample to the Ball Multiplier Conjecture mean that I have some great insight on firm organization? Of course not. Krugman ought to take a hint and just shut his trap. Better yet, we should just exacto-knife his column from the NYT.

[gt]

But Tom, like you I usually focus on specific technical points.

When I said that it was your opinion that Wilson was unreliable I meant that whatever facts you have on your side (and you do have many) that is not enough by itself to call someone unreliable, whihc is a general statement. Leave Joe Wilson aside and think of people you know in real life. All of us make mistakes so if you want you can accuse anyone of being unreliable or having made errors. This is true but because it is true of all people it provides no information. In Joe Wilson's case what would have made a difference is proof that what he said about the WMD controversy was false. Nobody that I know ever presented that. Hence my claim that it is your opinion.

As for Krugman and the CA energy crisis it's not just David Warsh saying he was right but all the major reports that came out after the crisis support what Krugman said. It's not surprising since Krugman relied on much of what he wrote in the expertise of top energy economists which he knew personally (remember he used to be at Stanford) and who were personally involved. Krugman wrote that a badly designed electricity system allowed the exercise of market power and market manipulation by electricity generators. All this has been corroborated afterwards. We even have tapes of the traders acknowledging market manipulation. And in those circumstances temporary wholesale price caps made sense (even if price caps in general make little sense).

And so my challenge. What PK did is, AFAIK, unique among columnists. But if anyone has a counterexample I'd love to read it.

[MB]

Yevgeny, you think a couple of non-terrible jobs numbers in 2003 justify current prices? Well good luck. Let me know how you get on. In my opinion it's a bubble.

Economic management at the moment is reckless and incompetent; levels of debt are extremely frightening. You could call Krugman a partisan were it not that so many other mainstream academic economists think the same.

[Jeff]

Way upthread I posted a coupla comments that were on-topic and civil. I've read this blog since just after its inception--having started my own blog (now defunct) at around the same time. I always enjoyed Tom's analysis (still do), and we traded good-natured barbs.

We see the world differently. I am fundamentally a collectivist, and emphasize America's devotion to the virtue of equality. Tom, a classic conservative, is an individualist, and emphasizes liberty. This tension has been at the heart of American polity for over 200 years.

So when someone calls me a "moron" and derisively slags "your kind," I take it kind of personally. Hey Rmc, settle down. I've been reading this blog a long time, and I like to think that it's a place where a liberal can join in discussion without having to put up with your Hannity-like assualts.

[MB]

What’s the matter, Tom? Cat got your tongue?

Let’s summarize.

Paul Krugman (Princeton Professor, Clark Medal Winner), Paul Volcker (Former Fed Chair), Joseph Stiglitz (Nobel Prize for Economics) all think that bond market might collapse. On the other side we have… who are you again? You still haven’t told me where you studied economics.

Or if you agree that there is a risk of the bond market taking a dive, then why was Krugman wrong to change to a fixed-rate mortgage? Would you advise people not to take a fixed-rate mortgage?

[Jeff]

Badliberal, in a perfectly reasonable riposte, asks How do you get that the economy is "still listing"?

Hey, I'm just agreeing with Al Greenspan, who, when he's not bizarrely abandoning 50 years of personal beliefs, manages to note some facts:

"You cannot continuously introduce legislation which tends to expand the budget deficit... Unless we do something to ameliorate, we will be in a state of stagnation."

Bush has put himself in a weird position, arguing for a fake crisis will actual ones loom. He simultaneously must argue that things are dire, but not dire enough to get rid of the tax cuts. They're dire enough to demand instant changes to Social Security, but not Medicare.

Let me turn the question back around to you: what's the party line? Is America's economy in a dire state, or has Bush's various "stimulous" efforts actually paid off?

You can't have it both ways.

[Yevgeny Vilensky]

"Paul Krugman (Princeton Professor, Clark Medal Winner), Paul Volcker (Former Fed Chair), Joseph Stiglitz (Nobel Prize for Economics) all think that bond market might collapse."

So what? And Noam Chomsky is probably the greatest linguist to have ever lived. Doesn't mean that he ought to be listened to when he talks about threat constructionism.

I'll tell you why the bond market won't collapse. The deficits are decreasing and are expected to decrease. Why? Because the economy is speeding up, which is leading to higher tax receipts. If you look at tax receipts by the government, they peaked in 2000, but have been steadily declining. The CBO and OMB all project higher tax receipts for this year (which would make sense since they usually lag about a year from market data). I also believe that the bond markets are correctly anticipating that Bush will reign in spending, which was quite out of control in the last 4 years (though PK has no right to criticize that... remember, if he had his way, we'd be spending left and right).

"On the other side we have… who are you again? You still haven’t told me where you studied economics."

Oh puhlease! When economists learn that you can't divide by zero, we'll start talking. Better yet: when they stop giving out Nobel Prizes for the profound discovery that used car salesmen are crooks (George Akerlof). Henry Hazlitt was possibly one of the best economic minds of the 20th century. He never graduated college. Economists still think that Black-Schoales is a useful model for the real world (never mind Mandelbrot's 1965 paper that showed that log-normal is a terrible hypothesis and that likely, log of stock prices has no second moment as in the Parieto-Levy distribution). Give me a break. Learn how to add and subtract. Then we'll talk.

I will agree with you and PK that the weak dollar policy is in general a bad idea. But, I also think that there are other net pluses that offset whatever problems that causes. The point is that so far, PK has been wrong. And if his prediction wasn't meant for the next year and a half after he made it, then what time-frame does he mean here. I would presume that a bubble caused by temporary good feelings for no reason would have already popped.

Jeff: "Is America's economy in a dire state, or has Bush's various 'stimulus' efforts actually paid off?' You can't have it both ways"

Ok, for SS to be in a bad state, the entire economy does not have to be poorly off. They function on different time-scales. The problem with SS has more to do with not enough receipts relative to outlays about 35 years down the line.

As for Medicare, you are right that the problems there are likely more dire than those with SS. But, there seems to be no good way to fix it right now. Bush thinks, for better or worse, that private accounts will solve SS's future problems. I happen to agree to some extent.

Oh, and whoever likes to reason from authority, read the Becker-Posner blog, where Nobel winner Gary Becker supports SS Privatization.

[Yevgeny Vilensky]

"Paul Krugman (Princeton Professor, Clark Medal Winner), Paul Volcker (Former Fed Chair), Joseph Stiglitz (Nobel Prize for Economics) all think that bond market might collapse."

So what? And Noam Chomsky is probably the greatest linguist to have ever lived. Doesn't mean that he ought to be listened to when he talks about threat constructionism.

I'll tell you why the bond market won't collapse. The deficits are decreasing and are expected to decrease. Why? Because the economy is speeding up, which is leading to higher tax receipts. If you look at tax receipts by the government, they peaked in 2000, but have been steadily declining. The CBO and OMB all project higher tax receipts for this year (which would make sense since they usually lag about a year from market data). I also believe that the bond markets are correctly anticipating that Bush will reign in spending, which was quite out of control in the last 4 years (though PK has no right to criticize that... remember, if he had his way, we'd be spending left and right).

"On the other side we have… who are you again? You still haven’t told me where you studied economics."

Oh puhlease! When economists learn that you can't divide by zero, we'll start talking. Better yet: when they stop giving out Nobel Prizes for the profound discovery that used car salesmen are crooks (George Akerlof). Henry Hazlitt was possibly one of the best economic minds of the 20th century. He never graduated college. Economists still think that Black-Schoales is a useful model for the real world (never mind Mandelbrot's 1965 paper that showed that log-normal is a terrible hypothesis and that likely, log of stock prices has no second moment as in the Parieto-Levy distribution). Give me a break. Learn how to add and subtract. Then we'll talk.

I will agree with you and PK that the weak dollar policy is in general a bad idea. But, I also think that there are other net pluses that offset whatever problems that causes. The point is that so far, PK has been wrong. And if his prediction wasn't meant for the next year and a half after he made it, then what time-frame does he mean here. I would presume that a bubble caused by temporary good feelings for no reason would have already popped.

Jeff: "Is America's economy in a dire state, or has Bush's various 'stimulus' efforts actually paid off?' You can't have it both ways"

Ok, for SS to be in a bad state, the entire economy does not have to be poorly off. They function on different time-scales. The problem with SS has more to do with not enough receipts relative to outlays about 35 years down the line.

As for Medicare, you are right that the problems there are likely more dire than those with SS. But, there seems to be no good way to fix it right now. Bush thinks, for better or worse, that private accounts will solve SS's future problems. I happen to agree to some extent.

Oh, and whoever likes to reason from authority, read the Becker-Posner blog, where Nobel winner Gary Becker supports SS Privatization.

[Paul Zrimsek]

Look, if you guys want to argue that stocks are overpriced now and their future performance is likely to disappoint, that's one thing. But to suggest the existence of a bubble is preposterous. The major indices spent the first 10 months of 2004 in a trading range, and have been advancing cautiously since then. Bubbles don't end that way, or continue that way. How can you have momentum trading without momentum? Where are the "animal spirits"?

[Patrick R. Sullivan]

"Patrick, the fact that you think Kerry wrote that shows you really will believe anything."

There were only five candidates for the authorship. Three of them are members of SBVFT, and say "Not I". One is dead, and one is John Kerry (and he isn't talking).

Only John Kerry can be definitively placed on the Coast Guard Cutter from which the report was transmitted.

What is the logical conclusion to draw from the facts I've submitted for you?

[Dimsdale]

Like it or not, Krugman's articles in the NYTimes are severly colored by his hatred of Bush. It makes him look like a subjective fool, at least in the eyes of this scientist. Yevgeny is perfectly correct when he says "My understanding, and forgive me if I'm wrong -- I'm only a Ph.D. student in applied math -- is that academics are supposed to dump preconceived notions at the door and pursue truth wherever it may lead. Doesn't partisanship umm... make that impossible?" Precisely correct. Krugman has thrown out his objectivity, and hence, his professional believability, when he issues his economic Dowdifying (rhymes with stupifying) rants in the NYTimes.

I remember one encounter between him and Dick Armey on PBS, when Krugman was railing about the stockmarket as a being too risky for the great unwashed to invest their money, and Armey simply asked him where he had his 401K investments. Krugman never answere beyond "I have done well." Do as I say and not as I do is hardly good economics. But I am clearly no expert, and as Yevgeny so spledidly wrote, my Ph.D. in Neurobiology does not qualify as an expert on all things (just those I can easily punch holes through with a little research).

I am with you Patrick. Until Kerry releases his FULL military and medical records by signing SF180, HE is the liar, not the SBVT (now combined with the POWs for Truth). Several of Kerry's stories have been thoroughly debunked and retracted by Kerry, while the Swiftees have done a marvelous job reconstructing facts and getting signed affidavits (Kerry and his supporters never did this) to support their claims. The only way thay could be definitively disproved would be the release of Kerry's FULL record, and he clearly has absolutely no intention of doing so, even at the cost of his own candidacy.

That is a tacit admission by Kerry that he is lying, because there is no doubt whatsoever that if he could exterminate the Swiftees with his record, he surely would have done so. Kerry is at best an exaggerator, and at worst, a pathological liar. And I live in Massachusettes, so I have more than a little experience with Kerry (and, sadly, Ted Kennedy).

[invited]

http://www.heinzjansen.de/wwwboard/messages/380.html bathroomdiscussedwithdraws

[boston]

http://soyproducts.com/wwwboard/messages/99333.html complimentwhosewondered

[blushed]

http://wozniak.org/wwwboard/messages/9845.htm formallevelrecovered