Paul Krugman: "I told you so, again"

[one...two...tree 2,762]

Andrew Leonard

Reading Paul Krugman's blog these days is like looking into a hall of mirrors, infinitely refracting the same message: I told you so. Today he offers a perfect example. Noting t Morgan Stanley's confession that its prediction that U.S. Treasury bond yields would rise sharply in 2010 had been a "mistake," Krugman agilely linked to a post he had written in November 2009 expressing strong doubts about that very forecast.

But even better, if you go back and read that post, you will find Krugman digging up a Morgan Stanley analysis of the housing market dating back to 2006 calmly dismissing any chance of "a much-feared decline in prices on a nationwide basis." Among those who had been warning of a housing bubble: Paul Krugman.

But this is small time stuff compared to the really-big-I-told-you-so. On January 8, 2009, before President Obama had even been inaugurated, Krugman wrote a column warning that Obama's economic plan -- the stimulus -- fell "well short of what's needed."

The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job.

Then, in March, he followed up with a frightful display of prescience. (Italics mine.)

...[T]he White House has decided to muddle through on the financial front, relying on economic recovery to rescue the banks rather than the other way around. And with the stimulus plan too small to deliver an economic recovery ... well, you get the picture.

Sooner or later the administration will realize that more must be done. But when it comes back for more money, will Congress go along?

Republicans are now firmly committed to the view that we should do nothing to respond to the economic crisis, except cut taxes -- which they always want to do regardless of circumstances.

If Mr. Obama comes back for a second round of stimulus, they'll respond not by being helpful, but by claiming that his policies have failed.

That, I think, is an accurate summation of the current situation.

link

[^_^ 5,021]

We get it, Steven. You have a gay crush on Krugman.

[JohnSmith2007 353]

Dr. Keynes Killed the Patient

By Michael Pento

A morbidly obese gentleman labored into Dr. Hayek's office suffering from severe chest pain. The patient also complained that he was unable to consume his usual 10,000 calorie-per-day diet; in fact, he was feeling so sick that he could barely scarf down 9,000 calories. He noted that his love for food remained as strong as ever, but his body just wasn't keeping up with his demands.

After having a thorough look at the patient, the good doctor could not find anything wrong outside of the patient's extreme portliness. After a moment of reflection, he delivered to his patient a troubling diagnosis. He explained that the chest pain stemmed from the strain the patient's 500lb body was putting on his heart, and that the lack of appetite was his body's attempt to protect itself from this imbalance. Dr. Hayek's prescription was simple: the patient had to dramatically reduce his consumption while undertaking a moderate exercise program, with the goal of losing 250lbs as quickly and safely as possible. Dr. Hayek was aware that it would be a physically painful and emotionally difficult process for the man, but it was the only way to avert a life of suffering - or even a heart attack.

Unfortunately, our patient rebelled against such an austere program. He had grown very fond of his high-calorie and high-fat diet and didn't think that now, when he was already depressed from dealing with all these ailments, was a good time to deny himself the few pleasures he had left. In his opinion, the doc's prescription was just too simplistic. He thought there just had to be a way to have his cake and eat it - frequently. So, he waddled out of Dr. Hayek's office as fast as he could, shouting over his shoulder: "I'm getting a second opinion!"

The overweight gentleman sauntered across the street, where he found the office of Dr. Keynes. He told the new doctor about his acute chest pain and lack of appetite, and complained about the previous doctor's "heartless" prescription. After a cursory examination, Dr. Keynes rendered his diagnosis: the patient's condition did not stem from the fact that his gigantic frame was causing undo strain on his heart; instead, the doctor concluded, the patient's chest pain was merely causing a temporary lack of hunger.

Furthermore, Dr. Keynes argued, the stress of cutting weight at the present time would certainly prove detrimental to the man's already weak heart. Therefore, his prescription was for the 500lb man to each as much as possible, as quickly as possible. Anything less might cause the man to suffer a heart attack, he noted. Now the doctor did concede that, at some point in the distant future, it might be a good idea for the man to shed a few pounds. But for the present, the most import thing to do would be to consume as much as he could stomach.

The patient left Dr. Keynes' office with a broad smile. After gorging at an all-you-can-eat buffet, he momentarily forgot about his chest pain. It looked like he had found his solution; except, a week later, he died.

The Hubris of Government

The allegory above discusses the dangers of quackery, whether medical or economic. Right now, economic quackery - in the form of Keynesianism - has overtaken Washington.

American consumers are trying their best to deleverage. In terms of the story, the patient is actually trying to lose weight. But the government is blocking deleveraging and trying to boost consumption. They are forcing food down the patient's throat. According to the Flow of Funds Report, households reduced debt at a 2.4% annualized rate ($330 billion) during Q1 of 2010. Meanwhile, the federal government was piling on debt at an 18.5% annual rate ($1.44 trillion). Since every dollar of government debt is a promise to tax the private sector in the future with interest, this public spending spree effectively negated the Herculean efforts of the private sector to return to a sustainable path.

That's where the arrogance of Washington is really apparent. Scores of millions of American consumers have made the decision that reducing their debt burden is in their best interests right now. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. By leveraging up the public sector, they have used their power to confiscate our savings. In short, they are forbidding us from following the common sense path to fiscal health.

Unlike their forbears, modern-day Keynesians do not argue just for mollification in the rate of deleveraging. They seek to significantly increase debt levels in an effort to boost the aggregate demand in the economy. Apparently, only once the mythical recovery takes hold due to government spending, printing, and borrowing does a discussion of deficits become appropriate.

The US has persisted under this theory for close to a century, though with a declining quality of life. Unfortunately, the patient has now gone critical. Curiously, the world has yet to fully recognize our precarious condition, even as they provide us with life support. Washington is now entirely dependent on the reserve currency status of the dollar and the continued hibernation of bond vigilantes. Without these supports, the United States would face complete economic arrest.

Rather than allowing the American people to get back on our feet, Washington is stuffing us with even more debt. It's almost as if the feds are daring our foreign creditors to pull the plug. As a consequence, I predict that just as Dr. Keynes killed his patient, Keynesian economics will kill our economy.

Michael Pento is a senior economist at Euro Pacific Capital.

http://www.realclearmarkets.com/articles/2010/08/20/dr_keynes_killed_the_patient_98632.html

[I AM NOT THAT GUY 5,715]

Even monkey ####### sticks to the wall once in a while.

[Mr. Big Dog 10,747]

Even monkey ####### sticks to the wall once in a while.

Is that why you keep throwing more of it around?

Tell me, which country has successfully worked their way out of the deep recession with austerity measures? Which country has actually improved their fiscal outlook with austerity measures? What's that? Oh right, none. In fact, those that tried - most notably Ireland - are those that are still recession struck and in dire fiscal straits while those that have properly applied keneysian policies - most notably Germany - are coming out ahead. Both economically and fiscally, that is.

But hey, keep throwing that monkey ####### around. Perhaps it will stick to some wall someday.

[I AM NOT THAT GUY 5,715]

Is that why you keep throwing more of it around?

Tell me, which country has successfully worked their way out of the deep recession with austerity measures?

The US did under Calvin Coolidge, or don't you know the history of the Roaring 20's?

http://www.calvin-coolidge.org/html/the_harding_coolidge_prosperit.html

[Mr. Big Dog 10,747]

The US did under Calvin Coolidge, or don't you know the history of the Roaring 20's?

http://www.calvin-coolidge.org/html/the_harding_coolidge_prosperit.html

More monkey #######? I mean this recession. The 21st century. If you have to go back a century and have not much more than the period preceeding the Great Depression to offer then you ought to ask yourself just ho well that really worked.

[I AM NOT THAT GUY 5,715]

More monkey #######? I mean this recession. The 21st century. If you have to go back a century and have not much more than the period preceeding the Great Depression to offer then you ought to ask yourself just ho well that really worked.

From the cite above:

Many scholars and historians blame the Harding-Coolidge economic program for the stock market crash of 1929 as well as the great depression. The stock market crash of 1929 was not the calamity Americans have been made to believe. There were no major business or bank failures resulting from the crash. The crash of 1929 occurred in October and by December of that year the economy was once again calm and remained so for the next six months. The depression did not occur because of the stock market crash. There were several errors on the part of policy makers that plunged our economy into a deep depression. The inaction on behalf of President Hoover, New York Governor Franklin D. Roosevelt, and the Federal Reserve Board to curb over-speculation proved very unwise. The Smoot-Hawley Tariff Act of 1930 which President Hoover supported and signed into law helped to paralyze global commerce. The huge tax increases signed into law by Presidents Herbert Hoover and Franklin D. Roosevelt retarded economic growth, ballooned the national debt, and sunk the nation deeper into the great depression. If Presidents Hoover and Roosevelt had moved to curb over-speculation and otherwise continued the economic policies of Harding and Coolidge, the nation may have been able to have avoided the great depression. Most certainly, the depression would not have been as deep and prolonged as it was.

[Mr. Big Dog 10,747]

From the cite above:

Yes, the Austrian School. That 'monkey #######' ain't sticking on this wall.