Today Paul Krugman responded to his, as he put it, “haters”:
“others are using that out-of-context remark about the Fed “needing” to create a housing bubble.(…)
So did I call for a bubble? The quote comes from this 2002 piece, in which I was pessimistic about the Fed’s ability to generate a sustained economy. If you read it in context, you’ll see that I wasn’t calling for a bubble — I was talking about the limits to the Fed’s powers, saying that the only way Greenspan could achieve recovery would be if he were able to create a new bubble, which is NOT the same thing as saying that this was a good idea.”
Since Mr. Krugman insists on using his New York Times soapbox to distort the public record, we must, once again, look at his 2002 bubble quote (in two full paragraphs of context):
A few months ago the vast majority of business economists mocked concerns about a ”double dip,” a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I’ve repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.
The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. (Emphasis added.)
As I wrote last July, context is not Krugman’s friend in this matter…
“…the first paragraph introduces the “double-dipper iconoclasts”, and then clearly states that he, Krugman, agrees with them. The second paragraph then outlines the “basic point” of the double-dippers, which again, he agrees with. And the basic point in question is that to “fight this recession the Fed…needs soaring household spending.” Krugman then continues to say how the Fed would need to accomplish this goal, which again, he supports; he says that the recession needs to be fought with soaring household spending, which Alan Greenspan needs to induce by creating a housing bubble to replace the Nasdaq bubble. By writing, “as Paul McCulley of Pimco put it”, Krugman is not “merely” quoting another person; he is using someone else’s phraseology to express his own opinion.
Another protestation is that Krugman was saying the housing bubble won’t work, since later in the editorial he wrote:
“Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.
But this protestation completely ignores the fact that when Krugman wrote in the editorial…
‘Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic.
and…
But wishful thinking aside, I just don’t understand the grounds for optimism. Who, exactly, is about to start spending a lot more? (Emphasis added.)’
…he was clearly characterizing a housing bubble as an object of optimism, whether or not he thought it was possible. In other words, at best, Krugman could be interpreted as saying that it would be great if Greenspan could pull off a housing bubble, but that he, Krugman, doubts whether he’ll be able to accomplish such a worthy feat.
So it should be clear that the Fed causing a housing bubble in order to bring about “soaring household spending” was Krugman’s optimal situation, whether or not he thought it was do-able at the time. Given the consequences of the housing bubble that did ultimately happen, that alone should be enough cause for the public to stop listening to this fellow.
{ 19 comments }
Krugman is an unmitigated scumbag — a fraud who has been installed into his current position so he can spout the party line. He’s a court sycophant. He’s a pedantic nerd who is allowed to hang with the cool, confident kids so he can do their homework.
The only question in my mind is the extent to which he’s aware he’s a human hand puppet. Considering how defensive he is about Austrian economics in general and this “bubble” quote in particular, I suspect that, on some level, he understands his rather undignified role in life.
How Krugman got this Memorial Prize (named after Nobel who ever since gyrates like a dynamo in his grave) for international trade no one can fathom. First, he rants about the allegedly unfair advantage for China due to alleged currency under-valuation but can’t explain how they buy their imports at equally inflated prices and still allegedly grow, and then he wants exactly those people installed as financial regulators who can’t see a bubble nor can imagine who caused it but drive their country right into sovereign default (although he now admits he had an inkling of a bubble as he asked for one though I didn’t have the nerve to go through all his posts and columns to find out whether he then rejoiced in seeing one or went on ignoring it until it burst like all the other geniuses). As they say in Ireland: “they can’t find their [what was the other word for donkey?] with their hands”.
Krugman’s name will one day be a pejorative.
When will the NYT fire him?
Better question: When will the market replace the liberal rag that is the NYT?
It’s funny how Krugman get’s entangled in his own word.
By saying that the only way to create a recovery is to create a bubble but then to say right after that he didn’t say it was necessarily a good thing. He is therefore saying that he didn’t say that recovery was a good thing.
Sometimes, it would better serve Krugman if he would just shut up. But it’s fun to see him get entangled in his own rope. Give him enough rope and he will hang himself, LOL !
CrisisMaven,
Krugman got a nobel in economy and Obama got a nobel in peace. This just goes on to show that the Nobel committe are a bunch of liberals rewarding other liberals for thinking like them.
I have lost all the respect I once had for the nobel prizes. So much that if I was a hiring officer for a large company, I would automatically reject all candidates who would have the insolence of mentionning that they are nobel laureates. I would not hire bragsters.
As far as I’m concerned, nobel prizes are worth nothing.
I wish more people would realize Krugman isnt an economist: He’s a political shill for the Democratic Party. To Krugman if a Republican adminstration does something its automatically bad for the economy, while Democrats cant do anything that wont help the economy.
Probably the most ammusing example is that he criticized Bush for his defecit spending, and the Fed’s inflatoinary policies under him. Yet he praised Obama’s ‘Stimulus’ and Bernankie for providing adaquate ‘liquidity’(meaning hes been constantly inflating the money supply since he took over the Fed).
Yea dont listen to Krugman unless you want to know why the Democratic party will ‘save’ the economy….
Cybertarian – you are right. I got disgusted when Kissinger got his. Not because he didn’t formally fullfil Nobel’s own criteria put down in his testament for awarding it to whomever in the previous year had done most for world peace – ending the Vietnam war certainly counted in that category. But it had the bad taste of giving the distinguished servive medal to the fire fighter who put out the fire he himself started.
Oh and by the way, coming back to Krugman: I yesterday stumbled upon a blog of a courageous libertarian/Austrian professor “Krugman-in-Wonderland” which, besides this Mises blog, I have thus listed in my economics “Blog Hall of Fame”.
ooooo thanks for that. I actually read follow Krugman’s blog with some regularity, just cause I like a good laugh every now and again, but now I have a place to turn for responses to his idoicy.
Lysenko is going to recieve the prize postumously for genetics.
Krugman is totally consistent. He believes that the government should be an activist intervenor in the economy; pure Keynes. The way out of a recession is stimulus. Pure Keynes (note his repeated insistence that the stimulus of 09 was INadequate – those of you who think he’s a puppet, you’re nuts).*
So in “context” – the consistent and overarching theme of Krugman’s columns, his 02 column is in fact clear:
Government should have cured the 01 recession with real stimulus. It didn’t, it wouldn’t, so it left it to Greenspan, and the only arrow Greenspan had in his quiver (since interest rates were 0) is a housing bubble. Thus -as of the 02 column – the only way that GREENSPAN can avoid double dip is to replace the NASDAQ bubble is with a housing bubble.
That’s what Krugman was saying in 02. And he was correct.
You all are so bent on the concept that stimulus is off the table that you take Krugman’s remark to mean that a housing bubble was desireable. Again, kiddies, he was talking about what GREENSPAN could do, not what should be done by the GOVERNMENT AS A WHOLE.
*Any of you who get this can understand why the Kennedy tax cut in the 60s was pure Keynes. I’m lucky, I studied this in 70-71, before anyone ever heard the term “supply side.” And if you do understand it, you understand why comparing Kennedy’s tax cutters to Bush’s is like comparing architects with building blocks to kindergartners with building blocks. Those of you who refuse to get this, well, you were stuck in the mud of Vienna before, and you’ll likely be stuck in the mud of Vienna forever. But you might want to read the papers authored by the late James Tobin. If you’re interested.
And, by the way, you (mr. lilburne) deride Krugman by noting he refers to his “haters.” Well, J. Grayson, all you have to do is look at the people who posted in response to your column.
When you truly catch Krugman in error, do let us know.
If you read the whole article, Krugman doesn’t seem to be exactly endorsing the idea even in context. In fact, he seems to think it is an unlikely solution. On that, he was clearly wrong, but Greenspan still denies he and the Fed were responsible for the bubble. On that he may be right. Instead it was the flow of cash from all over the world into the housing markets, fueled by Goldman Sachs and the other bond manufacturers, that drove up prices. That would explains why the bubble was international, rather than limited to the United States.
Oceania was always at war with Eurasia…
Not only today is there a rising issue with so-called “Unpaid Internships” but light should also be shed on a new phenomenon that is that of the “Eternal Internship”…
Many of us, part of the summer 2008 and 2009 graduating classes were unfortunately incredibly hard-hit by the smack of the recession and the rise in unemployment…
Eager to gain experience and hopeful to one day find jobs, we thus, entered an endless cycle of “Eternal Internships”…one after another in hopes of finally reaching “Eternal Employment”…
It seems as though there is finaly a little light at the end of the tunnel, but times have been tough and the “Eternal Intern” phenomemon is not one to be ignored (often coupled with the ‘unpaid’ phenomenon – double whamy!).
If you want to check our story out (my story as well as that of two friends), please check us out at : http://www.the-eternal-intern.blogspot.com.
We span 2 continents, 3 different cities, 3 different industries…and yet we are still restricted by this Eternal Intern phenomenon…
Flora
http://www.the-eternal-intern.blogspot.com
I don’t see in Krugman’s quotes where he argued the outcome would be positive. He is correct.
For instance in this part on which you put emphasis:
“it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble”.
Where does he say that the outcome of the bubble will be positive? Please?
It should be clear from his column of Aug. 2005, “That Hissing Sound”
http://www.nytimes.com/2005/08/08/opinion/08krugman.html
where Paul Krugman says that the housing bubble allowed recovery and at the same time, that the housing bubble collapse will be painful.
“Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn’t have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. ”
He also said:
“Bubbles end when people stop believing that big capital gains are a sure thing. That’s what happened in San Diego at the end of its last housing bubble.”
and
“Now we’re starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone – not just those who own Zoned Zone real estate – should be worried.”
Look, I can quote out of context too and misread things! From the same Krugman blog post from 2002:
“The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed.”
Does this statement means that Krugman advocates the Bush tax cuts? Of course not. In this article Krugman is writing about what, from the perspective of the Bush administration, needs to happen.
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