Krugman again:
Think about what’s happening right now. We have a crisis in which the right is making insane demands, while the president and Democrats in Congress are bending over backward to be accommodating — offering plans that are all spending cuts and no taxes, plans that are far to the right of public opinion.
So what do most news reports say? They portray it as a situation in which both sides are equally partisan, equally intransigent — because news reports always do that. And we have influential pundits calling out for a new centrist party, a new centrist president, to get us away from the evils of partisanship.
The reality, of course, is that we already have a centrist president — actually a moderate conservative president. . . .
What all this means is that there is no penalty for extremism; no way for most voters, who get their information on the fly rather than doing careful study of the issues, to understand what’s really going on.
. . .
It’s a terrible thing to watch, and our nation will pay the price.
See the CME from this Thursday will impose a 0.5 per cent haircut on formerly risk-free Treasury bills. Formerly unthinkable.
Story here.
"Think about what’s happening right now. We have a crisis in which the right is making insane demands, while the president and Democrats in Congress are bending over backward to be accommodating — offering plans that are all spending cuts and no taxes, plans that are far to the right of public opinion.
So what do most news reports say? They portray it as a situation in which both sides are equally partisan, equally intransigent — because news reports always do that."
No, both sides are equally partisan. It just won't seem that way if your starting point is that the position of your opponents is insane.
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lol Pedro but these are issues on which Nick agrees with Krugman; when he disagrees he just can't understand what Krugman is on about. This was demonstrated during the last election when Krugman played attack dog on Obama (something about inexperienced hopey-changey flop), but we've forgotten that now.
People really need to read Krugman's whole post (which I'm sure they will), in which he makes the startling but probably true claim that the disease afflicting the media is even more fundamental to America's problems than that afflicting the Republicans.
For goodness sake, a journalist or commentator with even the tiniiest pretense of objectivity would only have to glance at the graph in your last post to see how absurd the Republicans' position is. As the author of the New Atlantic article put it:
And yet, even someone like Geoffrey Garret, who is forever being interviewed on ABC radio on the basis of his supposedly extraordinary expertise on US affairs, was yesterday spouting the standard rubbish about the need for compromise, both sides having contributed to the problem...
Patrick: You must be joking. Far from having forgotten his scorn for Obama during the primaries, Krugman is now claiming vindication for that scorn in every second post. Or maybe I misunderstood you.
Wouldn't it be nice if this thread did't become another mud-wrestling rink for the Catallxy crowd.
I'm hoping to keep the mud-wrestling to defined posts, without completely discouraging them because to some extent some of them add value to discussion
James,
You can be assured I will not cause any problems.
Obama thinks a 100% debt to GDP is not high enough. Well Prof Krugman if this is conservative, I'm a feminist mud crab.
Pedro,
as James says, take a look at the graph in my previous post. In point of fact Krugman didn't start from that position. He didn't start writing the way he has until he noticed that, in campaigning for the Whitehouse Bush said all sorts of things that didn't pass the laugh test and didn't get called on it.
On the relative merits - the republicans have form going back to Reagan - starve the beast - then the grownups cleaned up a bit afterwards - Bush I and Clinton - and then Bush trashed the place again. The Obama stimulus was both called for and indeed would have been delivered in roughly the same form (though there would have been more tax cuts for the rich) if the Republicans had won the White-house.
Patrick, I've disagreed with Krugman on two things that I can think of.
1) Methodology - for instance here.
2) Tying institutional reform to advocacy for short term stimulus and long run restraint here.
3) And on the political strategy of getting to the Whitehouse here.
These were disagreements - I'm not sure why you say I couldn't understand him. I presume it was a flippant throw-away comment. Can't see much sense in it.
James,
Without being in any way unsympathetic to Krugman's point, the other thing that has to be pointed out is the importance of the narrative of perfidy. Can you imagine Hawke or Keating being in the top job with their opponents having a record as bad as the Republicans and the electorate not hearing about it day after day, week after week? In fact Howard and Costello's Beazley Black Hole was simply two apprentices learning from the masters.
The sad thing is that because of their fecklessness, the ALP and US, the Democrats when they get bundled out of office - which is looking increasingly likely - will go down as spendthrifts, even though the last genuinely spend and tax ALP Govt was Whitlam (ie the Rudd stimulus was more or less Treasury designed, not the result of some incontinence by the Govt).
Can't say I agree that bringing down marginal tax rates is the same as cash for clunkers.
I wonder about the idea that the average voter will be able to understand the complexities of this matter once the media adopt Krugman's preferred stance. As he dscribes it the cult of balance has lead to an assumption that 'both sides are to blame' which he feesl is incorrect. Then other opinions are expressed that while the signal to the markets can be damaging - downgrading of bond status, damage to worth of middle eastern and chinese state investments at the same time other experts state that the US can't involuntarily default and this is purely a political tussle to discredit and damage the Obama presidency. Is this the real target of Krugman's piece- the media should be exposing the dastardly ways of the Republicans? Does he expect better of politicians? Last minute compromises will allow US government payments to be made.Wasn't this what happened when a similar stunt was pulled during the Clinton presidency? There looks to be a grim inevitability about this situation.
Pedro - To support the point Nicholas makes about Krugman's late adjustment to the idea of asymmetrical craziness, it's interesting to note his 1994 book Peddling Prosperity.
There's a critique of the Supply Side nonsense that was present under Reagan, but then he goes on to say that the current (i.e 1994) charlatans were the Strategic Traders in the Clinton Administration.
The whom you might ask? Good question. They were dodgy, but they also had no lasting legacy. At the time Krugman was clearly seeing himself as an uninterested technocrat prepared to critique the excesses of both sides. Less "both sides have a point" than "both sides are charlatans". Unfortunately for this posture, the Strategic Traders are lost to history. The Laffer and the Starve the Beast nonsense continued unabated, which left the posture unsustainable if one was actually looking at policy, so it was abandoned in the lead up to the 2000 campaign.
Now they don't feed the beast, they let it feed itself...
Richard,
Even in his Pedalling Prosperity guise, it was all a bit thin. I mean comparing Robert Reich and Lester Thurow to George Gilder and Arthur Laffer? In the case of the former Krugman said that he liked 'catching them with their hand in the cookie jar'. They'd talk about the 'competitiveness' of America and Krugman took that term on as essentially meaningless. I was at the Industry Commission (now PC) at the time and used to like wheeling him out at meetings of the Commission where we were making dark pronouncements about Australia's competitiveness.
In fact those with a bit of literacy used the term 'competitiveness' about nations as a kind of shorthand for productivity/national income. Garnaut spoke like that. Anyway, Krugman jumped on various things that Reich and Thurow said to demonise them as economically illiterate. You could see what he meant, but I thought it was a bit of a stretch.
People like Laffer and Guilder were always very different and at least from memory often backed fantasy land policies with a particular ideological bent - like tax cuts paying for themselves. Krugman would argue now that that kind of thing has spread and infected mainstream freshwater economists.
That's more or less my point, though I could have made it better. Krugman was really trying to make villains of them for the sake of the posture of a non-partisan serious person. I'm very glad he gave up on that.
Come off it, tax reform and tax cuts in Australia can be pay for themselves. This is only because our tax system is so poorly designed. Why do you assume otherwise?
.,
Do you have any evidence/data to support that claim?
There is more evidence than you can handle on a blog. Just start researching deadweight losses of Australian taxation. The literature is so voluminous. Ken Henry made 128 recommendations, remember. The deadweight loss of payroll tax has been estimated as highly by reputable sources as $1.70 for every $1.00 of revenue raised.
".", that we have inefficient taxes and inefficient means of collecting them is hardly controversial. But if fixing this was straightforward it would have been done long ago. And that 'tax cuts' in and of themselves would necessarily improve the efficiency of the tax system (without severely compromising fairness*) is an interesting hypothesis, but do you have much in the way of evidence they would do so?
* 'fairness' as perceived by the Australian public, not by someone who starts from the preconceived position that the market has already determined what the fairest wages are.
Do you believe that industry doesn't innovate?
There is nothing stopping tax cuts being delivered in an equitable manner. The fact that you don't realise how unfair income tax is on low income earners implies to me you haven't looked very far into this other than assuming the tax system does God's work.
In reality it keeps some people out of work.
That's not fair at all.
".", I'm well aware of the problems of high EMRTs, and I'm also aware of the problems that come from trying to remove them. I don't see that they *keep* people out of work, but they certainly significantly reduce the incentive to find it.
What problems?
So by being rational not to find work it doesn't keep them out of work? Um okay...
low dead weight losses eh. let me quote Derrida Derider who said this at core economics in his comment on Paul's original weird post.
"As you well know,the dead weight loss from current carbon pricing is very small (claims it will “destroy the economy”, or even any particular industry, are utterly laughable). Indeed the DWL may well be negative compared to the dead weight loss from the income tax it replaces."
The incidence of a payroll tax is very similar to a GST.
I would have thought if one got rid of those small state taxes (originally targeted but ignored by Costello )and increased the GST we would be all better off.
The old suggestion of the five economists to freeze award wages and boost family tax credits was a good suggestion but it does cost a lot
".", if you believe you have problem-free solution to high EMRTs, by all means present your solution to a major political party.
And how is it rational to not find work just because it barely increases your take-home pay? For a start, the marginal value of every extra dollar when that far down the tax scale is not insignificant - but arguably more importantly, it's hardly as though the extra money is the *only* incentive to work for many people.
Which is not to say I don't believe high EMRTs are a problem, but I'm not sure I'd argue they were massively 'unfair' per se.
It can reduce your take home pay.
Solution here:
http://www.cis.org.au/publications/policy-monographs/article/926-reform-3030-rebuilding-australias-tax-and-welfare-systems
wiz, there is a real issue around EMTRs and finding work, for low-income earners and spouses. The issue is that your EMTR is a factor of your income, including welfare.
I actually agree with KB Keynes' two last paragraphs.
Patrick, Homer is wrong to blame Costello for the failure of the states to stick to the tax removals. I would like the States to ditch their shitty little taxes, but I think they should have a tax base they are actually responsible for.
Nicholas, I saw the chart in the other post and commented that decisions about the future are not made right or wrong by how we got to the present. You can be a hypocrite and still be correct.
If you read around then it is easy to find instances of Krugman verballing people. He's very clever and has a way with words, but rude is rude and misrepresenting is lying. Plus, plenty of the economists critical of Krugman are from the seaboard. You might not like the prescriptions of the tea party types, but that does not make them insane.
".", I wasn't aware there were EMRTs over 100%, if so, that does seem a patent absurdity. I've read plenty of 'flat tax' proposals, and been in too many arguments over them to see much point into getting into another one. But I don't actually see why having a flat tax rate is necessary to solving high EMRTs, seeing as high EMRTs aren't really a serious problem at higher incomes. Personally I'm more interested in the idea of a logarithmic tax scale (i.e. for every dollar you earn you pay a slightly higher tax percentage).
One point from JH's proposal:
"no overlap between tax payers and welfare recipients"
I think this fundamentally underestimates the degree to which tax and restributions systems have public support precisely because there is a sense that more or less everybody puts in and everybody takes out - there is no 'them' and 'us'. I'm all for finding ways to reduce the cost of churn, but it doesn't mean there's isn't value in it.
Pedro,
you do not know what you are talking about.
I was doing work for the Real Estate Institute at the time. I was trying to get them to do some hard lobbying to get rid of some of those distortionary state taxes Ken Henry showed hardly gained any revenue.
Treasury supported us worried that Costello had forgotten all about the GST agreement indeed didn't realise it did not have any agreement to get rid of further taxes merely to look at them.
the REI didn't take up my suggestion and sure enough the States ignored Costello as he had not done his homework. He never did have a good work ethic.
On Krugman it is amazing he is criticised for being consistent. He criticised fiscal stimulus by both Reagan ( whom he worked under for a time) and Bush for correctly stating it wasn't needed and monetary policy was adequate.
He said it was needed in very late Bush and Obama time because the liquidity trap had made monetary policy impotent.
Of course most of the criticism comes from people who simply have no idea of what Keynesin economics is about.
compare that with the likes of Taylor and Mankiw who were supportive of the Bush fiscal stimulus when there was a mere slowdown and no liquidity trap but now shout about using fiscal policy now.
Yee gods.
Pedro if you make allegations against Krugman then show some evidence. Almost every time I have seen such 'evidence' the allegation has been shown to be wrong.
Pedro is a lawyer working in property development.
Oh God shut up Homer.
you are an imbecile Marky.
he can be doing property development work until the cows come home.
He clearly had no contact with Costello' office or Treasury.
I did.
go take your blue pills and put your white coat back on.
Christ, you're resorting to big noting yourself?
you usually have to go to Canberra to lobby old son.
Lobbying is vastly different to property development.
Lobbying is something you had to do to get rid off those state taxes like stamp duty and the rest.
nN it is called working. Something you clearly have no experience of.
The irony alarm just went on my computer. Homer please stop.
Yeah JC you probably think that Property Development and lobbying is the same thing too.
Meanwhile a Goldman Sachs' research note says:
“A review of the spending and tax data at the federal, state, and local level suggests that a significant part of the weakness in economic activity in 2011 so far is due to fiscal retrenchment. In the first quarter, the Commerce Department estimates that spending cuts at the federal, state, and local level subtracted 1.2 percentage points from the annualized pace of real GDP growth; moreover, the expiration of the “Making Work Pay” federal tax cut and hikes in state taxes probably offset most, if not all, of the boost to disposable income from the temporary payroll tax cut.
In the second quarter, the fiscal policy impact was probably smaller, but still negative. Indeed, monthly data on defense spending, state and local employment, and state and local construction all show a clear downward trend for 2011 so far.”
gosh that strategy of fiscal retrenchment boosting growth in a weak economy takes another hit.
Gee homer
Instead of running a deficit of around 11.5% of GDP, it's gone down to 10.5%.
..a huge retrenchment
With the ratings wolves at the door dying, dying to cut the US credit rating, most of the US federal debt doling over at in the very short term, they certainly have a ton of leverage, don't they?
As for the states and locals.. They had no choice as the rating agencies would throw them out of the markets.
You seem to exist in a parallel universe when it comes to this stuff.
Deficits of 10% are not sustainable. Fact.
If the government doesn't retrench the ratong wolves will do it for them.
I think you left out that bit from the excerpt you lifted out of zerohedgw blog... the dark cave of economic insight.
No JC the fact is fiscal retrenchment in a weak economy leads to less growth a larger deficit and more debt as we see in Europe.
If your stupid theories held up Ireland etc would be booming instead they are in a depression.
I just love it when people who have NO empirical evidence spout such theories.
the only way to get out of debt and reduce deficits is to get healthy growth.
You simply want the US to replicate Japan who actually tried your theories.
Homer, the US is not Europe. Countries that had the stuffing knocked out of them in Europe will have to undergo a traditional type of recession in the same ways experienced under the gold standard through deflation and price adjustments, as they don't control the currency. The US is a master of its own currency regime.
Having said that, if you think cutting the deficit from 11.5% of GDP to 10.5% is a level frightening retrenchment you are living in some other universe. The debt structure, debt level and the deficit in the US is unsustainable. Their finances are totally screwed.
Oh really? We've been through this before at the Trop. Ireland was going to have the shit kicked out of it no matter what happened. They had a hugely inflated real estate asset bubble and it burst. They operate under the shared currency too.
Which one(s)
Any your proposal is what exactly? Keep piling up more debt with contuning deficits of 11.5%?
The Japanese chose this economic direction. They chose the deflationary course because the largest voting bloc are oldsters who prefer to seeing falling prices. Their attempts at quantitative easing has always been pathetic.
It's the fed's job to raise NGDP, not through debt.
Homer, I've seen Greg Mankiw comment on Krugman's rudeness and mispresprentation, David Henderson just to immediately think of two who have blogs you can look up. Here's another recent example.
http://www.themoneyillusion.com/?p=10165
I see you agree that the States welshed on the deal but somehow you put the blame on the promisee not the promisor.
Pedro, so long as you've had a good look around and you think Krugman is rude and misrepresents his opponents fair enough. But your authorities against Krugman are highly partisan. Do you know anyone who's got less of an axe to grind who thinks so. I followed the link you provided and it took me to a post which was highly tendentious and, it seemed to me to miss the central point Krugman was making. His beef isn't centrally that the freshwater economists don't know there's a demand side to the economy and that there are demand shocks, it's that the teach that there are all sorts of constraints on what govt. can do about it - but of course the details change with each argument.
In any event, it cites Lucas agreeing with Friedman that the Depression was (surprise, surprise) all the govt's fault, in this case the Fed. Krugman has outlined how tendentious that view in other stuff he's written. Have you seen it?
I see Nicholas has beaten me to it again.
Costello was the pointman to see the States did more than 'review' their taxes. He didn't want to know about them.
JC,
your claim, without any evidence, is that in a poorly performing economy fiscal retrenchment wil boost growth via the confidence fairy.
In each case we see it doesn't. Japan got deflation because it didn't continue with fiscal stimulus long enough and introduced your policies way too early and consequently got err higher deficits and higher debt.
Ireland's spending didn't accelerate until they undertook contractionary polices After getting hit by the GFC. That worked didn't it.
Homer you are lying about Irish fiscal policy.
No Marky,
you simply have read anything about Ireland.
Try reading this.
It is why they had to go to this,/a>.
Despite measures that took 4.% out of GDP what happened?
Kinda gets boring showing how badly Marky gets basic facts wrong all the time.
gives a bad bird impression as well.
yikes that should be this.
I hope
Homer
There was no fiscal retrenchment in the US that brought down the deficit from 11.5% to 10.5% in the current year. The recovery did that. The only cut the recent GDP congress and the administration agreed to was $300 billion spread over 10 years. The impact was $30 billion in the present year, which no one would call fiscal retrenchment.
There's no more room for the US other than to cut spending or at least present a plan that the rating agencies will accept. As I mentioned before, the level of debt, the short term duration of the debt and the size of the deficit does not give them any leeway. You think they have though. Interesting.
No, Japan choose deflation.
Ireland was clocked because its banking system collapsed and the government was then forced to write off losses through it budget.
The US can choose growth which will reduce the deficit and debt over time.
no Japan chose contractionary policies and that gave them deflation. If they had stimulated enough no deflation.
you do not have deflation and a healthy economy. As Adam Posen has said combating deflation has proved much harder than inflation.
Nicholas, yes, I've read lots of Krugman on the GFC. I didn't say his opponents are partisan, I said he was rude and misrepresents people. The guy sure can write though. Kinda like Paul Keating (but written), you might not agree with everything, but you can't help laugh.
But I gave you the wrong link
http://www.themoneyillusion.com/?p=10124
It seems to me Sumner is more respectful of both sides than tendentious.
Um yeah sure Homer. They'll grow with 100% debt to GDP ratio will they?
Bollocks Homer. By virtue of the budget deficit they weren't contractionary. Unless you reckon the Government ought to spend until a positive GDP number magically appears.
Marky ,
you are completely clueless. Just because it is a deficit doesn't mean it is contractionary.Just like a Surplus isn't always contractionary as we observed in Asutralia.
Try and learn some basic macro-economics. Here is the IMF on Ireland.
'For example, in the case
of Ireland in 2009, the collapse in stock and
housing prices induced a sharp reduction in the
CAPB despite the implementation of tax hikes
and spending cuts totaling 4.5 percent of GDP'
yes it is from a working paper I linked previously. you don't read, you simply want to remain ignorant
as I said it gets boring showing how many times you are wrong
oh Pedro that isn't a good example.
Cochrane and Fama don't understand basic economic principles.
yee ghats
Hahaha.
For those trying to follow Homerkles' incoherent ramblings on Ireland, he gave it a better shot on Troppo previously, as JC noted. Naturally, despite his best efforts at obfuscatory quotation and statistical cherry-picking Homer kicked his arguments [sic] right into the FUBAR zone before abandoning with his typically graceless cowardice.
Here's a stoush we prepared earlier.
Thanks Pedro,
A much better link. I'm not sure I agree with it, but I agree, it's not a tendentious article which makes me think my time will be wasted if I follow it up. I'll follow up with a closer look - if I get the time.
yeah the intellectual giant didn't realise the denominator had fallen ( that is what happens when you have a depression and as for the spending I have dealt with that.
Strange isn't it if Ireland went on a wild spending spree you would have thought the IMF would have recognised it,maybe the ECB nah it got past everyone but Sinclair ,Fyodor Marky and the rest.
Pedro,
I didn't realise you were joking.
I should have realized a Catallaxian talking about being rude and misrepresenting something.Then the article has a person who doesn't understand basic economic principles attacking Krugman for pointing this out out.
I was joking on another thread Homer. On this thread I was just discussing bias. I will admit to being rude to you at times, but only when you have really obnoxious things to say.
Pedro I was talking about Catallaxy in general rather than you. You are one of the more refined people there. indeed if there more like you it wouldn't be the joke it is today.
Back to Ireland.
Two major reasons why Expenditure rose a a % of GDP.
1) Nominal GDP fell a lot. My guess is this would account around half of the reason but that is a guess.
2) this quote from an IMF report 'The authorities
recognize that it will be necessary to articulate a strategy that moves away from universalism
in social welfare to one that relies more on targeting and incentives' should be easy to understand.
Unemployment more than doubled during 2008.
The Irish economy in nominal terms is just 74% of what is was at the START of 2007. It is 82% of what it was at the end of 2007. since the last quarter of 2007. It has fallen in 7 of the 13 quarters since the end of 2007 in NOMINAL terms. most of the increases have been very small.
Homer invents Treasury Newspeak to justify his bizzare positions.
What a totalitarian freak.
no Marky ?It is easy to look up Irish economic figures.
you on the other hand make them up.
Yes Homer and when everyone else looks them up they disagree with you. No one here at troppo backs you up and everyone at catallaxy thought you were full of shit.
Your story also changed when you were challenged, you malodorous maggot.
say Marky who makes things up as I have constantly shown on almost any topic he rambles about.
If Gross not Net spending was frozen at 2007 levels then spending as a % of GDP would have risen from 35% of GDP to 36% in 2008 rising to 40% in 2009.
Of course we must never forget Marky believes cutting public servant wages and sacking bureaucrats is an expansionary measure.
The Irish up until 2008 almost adopted a Costello strategy. A large Cyclical surplus hid a structural defcit however the Irish defcit was less than 1%. Vastly different to Costello's.
This ballooned in 2008 simply becuase of tax revenues.
You're lying Homer. Only you are interpreting the Irish figures this way. After you were challenged, you changed your story. No one here is backing you up, and everyone disagreed with you at catallaxy.
Homer you imbecile if you hold a surplus for a decade and then trash it out of choice the deficit isn't structural.
Or, should I say, "structeal"
Here is another description of Krugman's polemic style
"Nevertheless, Paul Krugman is flipping his wig over this hand-waving, non-binding promise to mildly decrease the future rate of spending growth. Not only will the debt-ceiling deal retard growth, Mr Krugman argues, but "by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status."
Where Mr Krugman sees "raw extortion" tending toward "banana-republic status" I see "democracy". Kindred Winecoff points us to this insightful piece by Sean Theriault, a professor of government at the University of Texas, who argues that "our members of Congress are acting exactly as they were elected to.""
From the economist.
Marky,
They didn't trash the surplus you imbecile the GFC did that.
If they had done so there might have been something said by the IMF, ECB EU but none did.
spending rose as a % of GDP because :
1) nominal GDP fell
2) automatic stabilisers kicked in and Ireland do not have means tested welfare spending
It isn't hard to look up.Look at both the Irish budgets and it National account statistics.
It would be nice if just for once you could make an informed statement rather than imitating Birdy.
Ask some else to explain the differences between the structural and cyclical parts of the budget. They are simple concepts but again you seem to have a problem comprehending them.