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PEG has something to say about science. I’m going to let Adam Ozimek say what needs saying about certain more easily refuted parts of the piece; but I’m going to actually focus on where I, well, kind of agree. Well, maybe agree is the wrong word. Let’s try empathize.
This Mother Jones piece crowed about the fact that ‘science-denying’ creationists were attacking portrayals of the Big Bang in Cosmos just as “[a] major new scientific discovery,…has now provided ‘smoking gun’ evidence for ‘inflation,’ a crucial component of our understanding of the stunning happenings just after the Big Bang.” What was this ‘smoking gun’ evidence?
Using a special telescope to examine the cosmic microwave background radiation (which has been dubbed the “afterglow” of the Big Bang), researchers at the South Pole detected “direct evidence” of the previously theoretical gravitational waves that are believed to have originated in the Big Bang and caused an incredibly sudden and dramatic inflation of the universe.
So, people who believe the universe is seven orders of magnitude younger than it actually is in spite of all already-existing scientific evidence because it conflicts with their theology are supposed to be pwned because a mysterious and complex gizmo they haven’t seen, located on the most remote part of the planet, was looking at something they don’t understand and found evidence they don’t understand of a phenomenon they don’t understand linked to a theory of the consequences of that thing they don’t believe happened. Yep. That’ll do it.
Think about it – have you seen that telescope? Do you know what it does? How it works? How can you be sure it’s working properly? What is its actual output – some sort of numbers on a computer? What do those numbers mean? How do you know that? Can you interpret them? How do they fit into the theoretical construct that leads you to believe this particular stream of telescope output corroborates the Big Bang? Do you really understand this?
I don’t think you do. And that’s fine. Most of us don’t understand most things. I probably understand fewer things than most. But one thing I definitely understand is that human beings are alive, if we’re lucky, for just over 700,000 hours, more like 525,000 as an adult, more like 350,000 as an awake adult, of which you’ll spend at least a fifth working and then you have kids and illnesses and hobbies and suddenly you’re out of time to understand complex matters of cosmological theory and telescope construction.
The point is that at some point to believe just about anything in which you are not a seasoned expert you have to trust other humans. And how you decide which other humans to trust isn’t something you can determine by corroborating everything they say, because that’s circular. It’s decided by a whole host of factors, but the point is that it is extremely rational to decide to trust or distrust certain sources as a matter of course.
Yet we resist that, for reasons that are both rational and thoughtful as well as those that are reflexive to elite culture. Watch Joe Weisenthal struggle with it in this convo:
@TPCarney and if today you’re still worried about inflation – but for the wrong reasons – then that still shouldn’t be taken seriously.
— Joseph Weisenthal (@TheStalwart) December 28, 2013
I’ve thought a lot about that short exchange since it happened nearly a year ago, because it so neatly captures the tension between our valuing ideas and open-mindedness and the relentless logic of using sources as filters. Many people who think that hyperinflation is JUST AROUND THE BEND and who have repeatedly warned of hyperinflation over the last decade have many useful and valuable insights; but their vocal and insistent warnings about imminent hyperinflation have also been extremely wrong in a very discrediting way. In the opposite vein, if you did trust the hyperinflationistas, why would you trust a debunking of them from, of all people, Paul Krugman?
In the end, we are all bound not by the objective veracity of the information and the merit of the ideas we hope to adjudicate, but by who we trust to convey and explain ideas and information to us. We trust science, fundamentally, because we trust people who trust science. And once that trust is broken, it can be very, very hard to restore.
And remember that discovery of gravitational waves and the Big Bang? Well, it was wrong. Probably.
Depends who you trust.
So these are the three largest components of GDP, all indexed to 1960:
Clearly one of these is not like the others, but the well-known fact that investment, not consumption or government spending, is mostly what fluctuates with the business cycle is very visible. I wanted to dig a little deeper, though, especially to compare the current recession to priors. So I made this graph:
Bars are unbroken periods of percent change in GPDI; their height is the total percent change in the period, their width is the length.
Here it is smoothed a bit using a highly-advanced method called “arbitrary eyeballing”:
And this time with feeling:
While none of these three graphs is perfect, looking at all of them the various recessions we’ve experienced and their depth and breadth become quite clear. And it seems striking that our current mess represents a vastly larger and longer decline in private investment then any prior recession since WWII.
So let’s break down GPDI; the biggest component is the broad heading of “fixed non-residential investment:”
Looking at the log (which is quite often a good idea, see James Hamilton for more) you can see that this recessions seems notably but not dramatically more severe than past downturns, and that we are on a decent track for recovery.
But here’s residential structures:
Wowzers. Two facts worth noting: residential investment has fallen off a cliff and is nowhere near recovering; the so-called “housing boom” is barely visible.
That becomes a little clearer, though, when you look at single-family construction vs. multifamily and “other” (dorms, trailers, etc):
Single-family construction clearly gets a little wacky during the mid-aughties, whereas multifamily is catching up from slacking on trend; since then, multi-family is rebounding while other is wishy-washy and single-family is really terrible.
What’s remarkable about all this, though, is that you can with some confidence say non-causally that recessions are, for all intents and purposes, fluctuation in housing construction.
In the past, we’ve had recessions, interest rates are cut, recession over. Now, interest rates can’t be cut, and we’re not building enough housing, and therefore there’s too much unemployment (especially among the young who are largely the building class):
In fact, relative to older folks, this is the worst the young have had it since the 70s:
Now, why does lowering interest rates reverse recessions? There are many good reasons, but to some extent they’re all about setting expectations. When the Fed “cuts rates,” what is doing is what its doing is just buying lots of government securities, which is what “quantitative easing” is; the difference between the former and the latter is the ends, not the means. The former is a kind of credible expectation setting of broader outcomes – “we will buy bonds until interest rates are where we say they should be, dammit.” The latter sets a much narrower expectation that doesn’t necessarily imply broader changes in the economy.
Now, there is an idea out there that Paul Krugman calls “the confidence fairy,” which he belittles…and he’s right (at least in practice)! As it is formulated by conservative pols and pundits as a partisan cudgel, it basically amounts to a non-sequitur; recessions, ergo, implement the tangential policies we support regardless of economic conditions (derp).
But I’m not sure the confidence fairy is entirely a fiction. In what I think is a bit of a cousin to Steve Waldman’s story of finance as the world’s most important confidence game, it seems like in the past recessions have been alleviated because the Fed creates self-fulfilling prophecies – by buying bonds to depress interest rates, they incentivize individuals to invest based on an implicit assumption about future growth dependent on their investment. And it all worked rather nicely until we hit the ZLB:
The thing that the Fed has fundamentally failed to do is pull their usual trick; they haven’t convinced anyone that the economy will be better tomorrow, so they’re not doing the things today that will create that improvement.
This, in a roundabout way, is where I get to responding to Ryan Cooper’s terrific article making the case for helicopter money. Helicopter money is a good idea. I like it. I support it. It is a humane, fair, and efficient way to help everyone get through hard times. But my gut tells me its not, on its own, enough to kickstart us out of the funk our economy is in. While the biggest reason the 2008 tax rebate didn’t help the economy was its puniness relatively to the impending crisis, it was doubly hobbled by the fact that it was a one-off with no guarantee of being repeated (which it hasn’t, though the payroll tax cut was it’s cousin). Ryan supports giving the Fed the power to mail checks unilaterally, not by implicitly supporting a fiscal-side program, which is a great idea – coordinating the king and the wizard can be a tricky game. But even then, a $2000 check can be extraordinarily helpful in the medium term to people in need, but it in-and-of-itself does not a housing construction recovery make. Helicopter money works best, and may work only, as the whip hand of a credible promise by the Fed of meeting a broader economic target; it can, though, be a very persuasive whip.
the ultimate goldbug
So I’m a little late to this whole Game of Thrones thing, but I’m making up for it, having watched every episode in the last month as well as reading A Game of Thrones and making my way through A Clash Of Kings (my goal is to catch up with the show by the end of the season and read all the books by summer’s end). And since Matt Yglesias has been econ–blogging from GoT I figured I might as well get on that wagon while it’s still bandy. Also, it involves ragging on the "hyperinflation in America is imminnent!" set and while that’s like shooting fish in a barrel, sometimes shooting fish in a barrel is fun!*
Something that always puzzled me re: predictions of looming hyperinflation is where the predictors think the supply constraint is. Even if you accept certain assumptions about "money printing" that I would quibble with, it’s not an increase in the money supply that leads to inflation per se it’s growth in the money supply that oustripts growth in real goods and services. Assuming "velocity" is constant (whatever that means) to assume that mo money = mo debasement means you have to assume that level of goods and services is constant. If you magic a $20 bill out of nothing and hand it to me I might decide to give it to an unemployed person or stuff it in my mattress or buy something with an extremely elastic supply schedule like a nice haircut. But I might also buy gasoline! To assume that "all this new money" will lead to hyperinflation you have to believe that the economy is producing as much as it can produce or that there is some real constraint on the economy.
Here’s a great example – in A Clash of Kings, when Tyrion Lannister is scoping out King’s Landing (which has seen an enormous influx of refugees since war erupted) he makes this observation:
"The markets were crowded with ragged men selling their household goods for any price they could get…and conspicuously empty of farmers selling food. What little produce he did see was three times as costly as it had been a year ago."
This, of course, implies annualized inflation in King’s Landing of 200%. That’s hyperinflation! But the reason for it is not an influx of money (say, the Lannisters minting more gold to pay off the Iron Throne’s sovereign debt) but severe supply shortages – the war is both reducing the productive capacity and capital wealth of the Seven Kingdoms as well as massively disrupting transportation networks. This is firstly a nice example of the principles behinf Paul Krugman’s work on economic geography but secondly goes to show that hyperinflation a) doesn’t necessarily require an increase in the money supply just as an increase in the money supply doesn’t necessarily engender inflation and b) that hyperinflation is usually a symptom of underlying dysfunction and catastrophe. Certainly there are supply contraints in the modern American economy but given that commodity prices are falling and lots of people aren’t working while putting everyone back to work through monetary expansion would cause some inflation it wouldn’t evaporate all dollar-denominated wealth and it certainly wouldn’t do that while there are vast amounts of underutilized resources in the economy.
*Actually, as of late I’ve been more in to shooting fish in mid-air with a bazooka.
Just a quick observation: for the past couple of days I’ve been seeing in a lot of places, including comments on this blog, the assertion that federal spending has risen 37 percent under Obama — that specific number. Does anyone know where it’s coming from? Because if I look at the actual data, I see federal spending rising from $3.475 trillion in fourth-quarter 2008 to $3.917 trillion in fourth-quarter 2012 — a rise of 12.7 percent.
Obviously this is coming from somewhere, and being broadcast by Rush or somebody. But it’s still kind of amazing how a totally wrong number can become part of what everyone on the right just knows to be true.
Not only that – look at this:
That’s the natural log of federal spending per-capita. As you can see, it grows slowly, then a little more quickly, then back to slowly, then aaaaaalmost flatlines during the Clinton administration, then takes off during the Bush administration. When the recession hits it accelerates before hitting a total wall. That’s what austerity looks like.
You can also see this as a percentage change:
That’s the first instance of federal spending per-capita shrinking in…well, how long?
Looks like the answer is “since Eisenhower got us out of Korea.”