Krugman said WHAT?
I had not imagined we would reach the point where someone would suggest central bankers are magicians who can remedy your bad education by offering you a job somehow, anyhow.
Hey, I don’t doubt Krugman is smarter and much more hardworking than I am, but sometimes, even intelligent public intellectuals say things that conventional wisdom and - I allege - common sense don’t agree with at all.
The evidence he presented seems pretty convincing.
Where I differ with him is in identifying what the problem really is.
I’m going to re-word this slightly, what Krugman is saying is really another broken-window fallacy.
Creepy, isn’t it?
Clayton -
But now, as then, powerful forces are ideologically opposed to the whole idea of government action on a sufficient scale to jump-start the economy. And that, fundamentally, is why claims that we face huge structural problems have been proliferating: they offer a reason to do nothing about the mass unemployment that is crippling our economy and our society.
So what you need to know is that there is no evidence whatsoever to back these claims. We aren’t suffering from a shortage of needed skills; we’re suffering from a lack of policy resolve. As I said, structural unemployment isn’t a real problem, it’s an excuse — a reason not to act on America’s problems at a time when action is desperately needed.
@Clayton: You beat me to it!
Clayton, Krugman is a man who received death threats for his anti-war, anti-torture stances, and was ferociously condemned by American neoconservatives for talking about war and foreign policy when he had initially signed on to be a business and economics writer.
Where I do object is that Krugman presumes certain vague, uncertain, fairylike supernormal entities behind his suggested policies not being implemented. “But now, as then, powerful forces are ideologically opposed…” demands the questions: 1) who are these powerful forces, and 2) what does he think their ideology is, and 3) why do they have a common ideology?, and 4) why is it necessarilly powerful forces? I hope he doesn’t answer the Republican Party, which has less than 10% of the voting population’s vote and a minority on both the House and Senate.
It’s disappointing that a Bank of Sweden prize winner can’t expand much further than some cryptic “powerful forces” claim. He sounds like a mainstream Paul Craig Roberts now.
clayton,
you are misunderstand what krugman is saying. if he had said something like “hey, the japanese dropped a bomb on pearl harbor, this will create jobs rebuilding the port, so its going to be good for the economy” then it would be the broken window fallacy.
what krugman is actually saying is that federal government spending in the years leading up to ww2 made up for the gap in aggregate demand and put people back to work and that this is what was good for the economy.
a little context might help you see the distinction. the day before this op-ed was published, krugman posted on his blog about a recent study that found government spending to be associated with a relatively large multiplier from 1939 to 1941(before combat activities actually began, but after the federal government began ramping up defense spending).
http://krugman.blogs.nytimes.com/2010/09/25/arsenal-of-recovery/
now, from there you can complain about what you don’t like about multipliers or whatever, but it is simply wrong that krugman is saying “war is good for the economy” as you assert.
You give him too much credit.
I would be curious to see a quote from Krugman showing he would have opposed American entry into either World Wars. Perhaps he’s not so much anti-war as anti-the-kind-of-war-too-small-to-“stimulate”-economies.
Clayton -
Civilian life during the war was characterized by scarcity and deprivation. For those on the front-lines, it was characterized by terror and loss of life.
It sounds like you want to say that just building a lot of tanks, ships and bombs can magically fix the economy. How? What will these be used for? Museums? Or maybe we can stimulate the economy twice by first building all the tanks, ships and bomb and then scrapping them? It is a broken-window fallacy. All those bodies invested building tanks, ships and bombs could have been out cultivating crops, lowering the cost of groceries. It is a denial of capital theory to deny that this is the case.
Clayton -
Austrians accuse others of the “broken window fallacy” too casually; you really have to grapple with effective demand and multipliers. These might be radically incorrect notions, but the Keynesian arguments aren’t as simple as Austrians typically allege.
Strangeloop; I see assertion without argument or evidence…
You sure do!
Fortuntately, I’m no Keynesian, so I don’t care too much to defend such ideas. So, it boils down to my opinion: if you want to actually dismantle the Keynesian legacy, I believe it’s better to conceptually wrestle with the justifications for those ideas: effective demand, underemployment equilibrium, multipliers, etc. You can’t just use a line from Bastiat’s handbook. I get the Misesian critique: you can’t spend a dollar without first stealing it from the private sector, but Keynesians do have reasons to advocate their policies, so let’s not pretend the reasons don’t exist.
Yeah, obviously Krugman and other Keynesian economists are not knowingly engaging in such broken window fallacies.
We understand perfectly well Keynesian aggregate demand, multipliers, etc… and we point out that they are committing broken window fallacies.
They don’t have any valid reasons to as why they are avoiding such fallacies. Why should they? My dog, who is not a real economist, doesn’t either.
Strangeloop: I generally don’t get into detailed debates over Keynesian ideas because I’m just not qualified. However, I find Krugman’s appeal to the 1939 ramp-up to American entrance into WWII as a recipe for future economic stimulus to be quite disturbing. If that’s the model he’s putting forward, what can he possibly mean by those phrases I struck out and substituted with my own? Perhaps my critique is not sufficiently subtle but I’m quite uncomfortable with using 1939-1941 as a model of economic stimulus.
And there are a lot of reasons why we should expect that a pre-WWII-style rallying around some common goal simply cannot be accomplished in the United States in 2010, by any means. We were pretty culturally and ethnically homogeneous in 1939. Today, we are extremely diverse. I think I remember reading that there are more non-whites in the United States today than whites. Regardless of what it says about human nature, that fact matters. Mexicans don’t care about what Africans care about and they don’t care about what Asians care about and they don’t care about what Indians care about and they don’t care about what white people care about. You can’t just tour the country giving speeches about the “imperial Japanese-German threat” and get everyone rolling out the door at 5:30am to work a 14-hour a day for a pittance in wages to build the bombs, ships and tanks you’re going to use to join in the orgy of civilian slaughter that was WWII.
Clayton -
You don’t get diddly-squat! Just like we discovered last week that you were shocked to learn that money is not neutral in the long run, according to Austrians.
That’s after weeks and hundreds of exchanges in various threads on the Austrian Business Cycle Theory where you insisted that accusing you of ignorance is not fair.
I’m certainly no expert in Austrian economics; I’m also not an expert in astrology. I know enough to distrust both. (Of course, you obviously disagree.)
If money isn’t even neutral in the long run, then that seems to suggest that there are no equilibriating tendencies in the market. This is all clearly off-topic, but if you could explain how money can be forever non-neutral, I’d appreciate it. I can easily understand non-neutrality while an economy adjusts to an increased money supply, but I can’t easily conceive of long-term non-neutrality, so I wouldn’t mind a quick rundown.
P.S. To claim I don’t know “diddly-squat” is patent nonsense: clearly, the most common criticism from Mises and his followers is that taking a buck out of the private sector to let government-meddlers “stimulate” the economy is an absurdity. I wouldn’t mind a little acknowledgment on that.
P.S.S. Playing the “you don’t know diddly-squat” game is easy, by the way: here you claim that mainstream economists don’t believe unanticipated changes in the money stock matter, when even Robert Lucas (one of the godfathers of rational expectations) even concedes that.
Here’s an article from the maestro on non neutrality of money: