The Bashing Prof. Krugman thread
Paul Krugman at war with Niall Ferguson over inflation
=======================================

He is really a handsome Devil, isnt he?


(renamed to reflect an important activity, that i want to encourage)


"Now, I like Krugman and I like Ferguson, but who is better?"

The Times: Professor Paul Krugman at war with Niall Ferguson over inflation

(as posted on the HPC Blog)

One of them is a “poseur”. The other is “patronising”.
One suffers from “verbal diarrhoea”. The other is a “whiner”.

A bust-up on the set of High School Musical 4 perhaps? A scrap behind the catwalk at a Milan fashion show? No. Those accusations were slung round in an increasingly bitter public row between two of the world’s most distinguished commentators on global finance and economics, professors Paul Krugman and Niall Ferguson, of Princeton and Harvard, respectively. It started as an argument about bond prices. But last week it blew up into a row about racism, printing money, spending our way out of recession, and the fate of the global economy

/see: http://business.timesonline.co.uk/tol/busi...icle6806419.ece

What a hilarious read. However, also worrisome. It is the same sort of polarization that we see between the equally adamant inflationists and deflationists.

What concerns me most is not who is right but why public discourse has broken down to this level.

There is no idea today of a middle ground or, in Hegelian language, of a synthesis to a thesis and its anti-thesis. I suspect here-in lies the way of progress.

I read Ferguson's Colossus: The Rise and Fall of the American Empire and didnt think much of it, sadly

He was too enthusiastic about the good the US might do around the world.

Did y'all see / hear the debate a few months back, hosted by one of the American magazines? I think it was in New York. Can recall which it was, but it was interesting to listen to.

Roundtable discussion, more than debate, but it got debatey thanks to them.

New York Review of Books. Just found it.

lol - i don't care if he won a nobel prize for economics (its not actually a nobel prize - there is no such thing for economics) - krugman is in my eyes an idiot and has said many idiotic things.

I enjoyed reading Ferguson's The Ascent of Money but he does seem a bit affected.
He tends to make quite simple points in a very dressed up way.
For me, guys like Bob Hoye (as a historian) and another Scotsman Hugh Hendry (as a thinker) knock spots off him.

I've read many of Fergusons books and there are generally enjoyable reads. But he has a flawed economic perspective in quite a few instances. I wrote an article a while back regarding his recent tv series.

http://theageofstupidity.blogspot.com/2009...l-ferguson.html

Also he changes his mind through time and was saying only 6 months ago that inflation was no issue, and has only recently started saying that the FED may have issues (see the post above in which he originally said the FED should be able to unwind the easy money).

Krugman is just a government cheerleader whose idol is keynes, even though the seventies discredited all that rubbish. This Crisis will hopefully discredit it, although these people can always say we need more - "we should have been like Mugabe" etc.

So Ferguson - but both don't have the complete correct picture.

http://business.timesonline.co.uk/tol/busi...icle6806419.ece



Krugman believes we have(had) a laissez-faire capitalist system?? This is just one example of why, to me, he is missing a big part of the picture

Actually that's not true - I cannot say that I "like" Krugman.
I think he's a "conomist", not an economist. He's conning people with very dangerous ideas:


Henry Kissinger, who knows a bit about fights, both political and intellectual, once observed that the reason academic tussles were so vicious was “because the stakes are so small”. And although that is true in one sense — it doesn’t matter very much whether the professor from Princeton doesn’t like his rival from Harvard — it is wrong in another. The stakes in this row are pretty high.

The argument is about whether the huge stimulus programmes launched by governments around the world, and the way central banks are furiously printing money, are lifting the global economy out of recession. Or whether they are just teeing up the next crisis — hyper-inflation and an even worse economic collapse.

These stimulus programs are a case of:
"Short term happy, long term sad."

The US got into the mess it is in today, by selecting easy short term options, over long term cures,
that were more painful:

History has shown that politicians nearly always chose short term bandages over painful long term cures. For decades, the US Congress proved incapable of passing sensible long term oriented legislation, like matching the higher gasoline taxes that were imposed in Europe years ago. The changes that really matter, like substantially higher prices for imported energy, are likely to be forced upon western economies through through changes in exchange rates.

There is a big risk in the stimulus spending we have seen in the US during 2009. The spending is not well-targetted. Too much money is being wasted, and the debts and dollar claims against the US are piling up. The real change and the major pain still lies ahead some months or years in our future. Larger debts will mean an eventual bigger slide in the US dollar. The ultimate result may be a higher US dollar oil price than we would have seen without such massive spending. High oil prices, such as $200 per barrel, or even my own forecast of oil at $400 per barrel, will mean enormous pain for energy users, and suburbanites in particular.

My point is that "easy solutions," like today's cash-for-clunkers program, waste money and boost government debt, and do not work. In the long run, waste delivers poverty and destitution for many Americans. The irony is great. Those who live in the outer rings, may think the clunkers program was wonderful - they had a brief improvement in their living standard (a new car) part paid-for by the government. But the waste may simply increase the chances that the beneficiaries of the clunkers program will find themselves down-and-out and abandoned by bankrupted government, unable to help those in the "Stranded suburbs" of tomorrow

What I want to see is: Krugman totally discredited, along with Keynesian economic, so that the world can get on with fixing the mess that they (the Keynesians) have created. Although it would be emotionally satisfying to see Krugman stripped of his Nobel prize, I dont think that is likely. We will have to settle for watching him lose most of the Noble money on the New York apartment that he bought recently.

== ==

If you want to know how totally misguided Krugman is:
It was Krugman who said Gordon Brown’s bank rescue had “saved the world”, so creating the warm glow of approval that our beleaguered prime minister basked in for a few weeks.
(- from the Times article)

An Interview With Marc Faber ⋅ July 8, 2009 ⋅
http://www.mcalvany.com/podcast/?p=85

FABER AGREES with the Swing theory.

About half way in, Faber says:

Greenspan has created a bubble in ALL markets.
The Obama administration is listening to people like Krugman, who think 'bubbles are good.'
If they see a deflation, they will react with another stimulus program, and therefore the more deflation
we see in the short term, the more inflation we will see later on.

Mish:
"Krugman is saying: Deficits were a disaster under Bush, and fine under Obama.
He's either a hypocrit or a fool, or both."

Agreed.

Krugman-bashing is always welcome here
Listen:
Yet To Be Convinced - *AUDIO*
If this stimulus doesn't work - then what?
http://howestreet.com/audiovideo/index.php...ediaplayer/1361

Blaming the Innocent - while the Paul Krugman's get Nobel prizes

Blaming Capitalism / John Brown

We are now in the process of deleveraging from this boom. It is painful, but it represents an opportunity. A government genuinely interested in economic restructuring could be focusing on cutting spending, lowering taxes, and reducing corruption, instead of playing ‘pin the blame on the capitalists.’

Today, we are likely heading into the second wave of massive recession. There is a concerted effort by the government to blame the fallout from their schemes on the free market. You, the educated observer, should recall that the most rabid capitalists – Peter Schiff, Doug Casey, Jim Rogers, Lew Rockwell, Ron Paul – were the only opponents of the bubble economy while it was occurring. Meanwhile, those that seek to pass judgment on capitalism – Bernanke, Greenspan, Tim Geithner, Jim Cramer – celebrated the artificial boom and were shocked at the resulting bust. Why does anyone even listen to these fellows anymore?

No, this crisis is not a failure of capitalism, but the result of a sustained attack upon our capitalist system. If we allow it to be used as a pretext for more government control, we will endure a ‘lost decade’ like the 1990s in Japan.

To avoid this fate, taxes must be lowered, especially corporate rates. Instead, we are increasing taxes on businesses and individuals. The government must cease its corporate bailouts which subsidize failure at the expense of success. Instead, we are now giving away money not just to failing giants, but to reward those with less efficient vehicles – when they didn’t even ask for it.

Most importantly, the Fed must be controlled. Presently, in addition to its ‘open market operations’ that subsidize government and industry, the central bank is paying interest on the bank reserves it holds. This encourages banks, borrowing at nil percent, to lend at zero perceived risk to the Fed rather than accept the higher risk of lending to small and medium sized businesses – thus snuffing out any remaining embers of economic vitality. Meanwhile, the massive Fed-enabled borrowing by the U.S. Treasury is crowding out healthy American companies from debt markets.

/more: John Brown, Peter Schiff's colleague

Maybe he meant that deficits are bad in a growing economy, and good in a recession?

They will lead to disaster either way, but I think Prof.K was guilty of being partisan in his view

Krugman talking more sense this time possibly

http://www.nytimes.com/2009/09/06/magazine...&ref=global

To be fair, finance theorists didn’t accept the efficient-market hypothesis merely because it was elegant, convenient and lucrative. They also produced a great deal of statistical evidence, which at first seemed strongly supportive. But this evidence was of an oddly limited form. Finance economists rarely asked the seemingly obvious (though not easily answered) question of whether asset prices made sense given real-world fundamentals like earnings. Instead, they asked only whether asset prices made sense given other asset prices. Larry Summers, now the top economic adviser in the Obama administration, once mocked finance professors with a parable about “ketchup economists” who “have shown that two-quart bottles of ketchup invariably sell for exactly twice as much as one-quart bottles of ketchup,” and conclude from this that the ketchup market is perfectly efficient.

But neither this mockery nor more polite critiques from economists like Robert Shiller of Yale had much effect. Finance theorists continued to believe that their models were essentially right, and so did many people making real-world decisions. Not least among these was Alan Greenspan, who was then the Fed chairman and a long-time supporter of financial deregulation whose rejection of calls to rein in subprime lending or address the ever-inflating housing bubble rested in large part on the belief that modern financial economics had everything under control. There was a telling moment in 2005, at a conference held to honor Greenspan’s tenure at the Fed. One brave attendee, Raghuram Rajan (of the University of Chicago, surprisingly), presented a paper warning that the financial system was taking on potentially dangerous levels of risk. He was mocked by almost all present — including, by the way, Larry Summers, who dismissed his warnings as “misguided.”

By October of last year, however, Greenspan was admitting that

This is a pivotal point and the main reason why I think this market will crash at some point. The price of financial assets can not levitate for long without the underlying support of the real economy. In my opinion there is a lot of hot reluctant money going into the market here and that with investors under duress; they perceive future inflation, thanks to the credible threat of central banks, when the exact opposite is more likely.

How long can divergence between the financial and the real economy last?

Marc Faber can deep-six a reputation better than most

Here he is writing out one of GEI's favorite incompetents, Paul Krugman:

... a lengthy and complex article by Paul Krugman in the New York Times on Sept. 3 2009,.entitled "How Did Economists Get it so Wrong?" Aside from the title, which should actually read: "How I Got it so Wrong, and Why I Still Don't Get It", the artice is hardly worth a read.
. . .
What is remarkable about Paul Krugman's discussion of various economic theories is that the name of only one Austrian economist, Josephy Schumpeter, is mentioned, and then only en passant and with some derogatory remark.

==
I think it is fair to say that the awarding of a Nobel Prize to Krugman did not upgrade Krugman's standing as an economist, it downgraded the Nobel Prize.]

Any other negative remarks on this clown are always appreciated here

Interesting, I had missed this spat. Very entertaining, although I agree with Romans holiday that it is also a tad worrisome.

If this is the level of intellectual discourse they are capable of, I'm glad neither of them are actually making decisions for us. Things are neither as black and white as models dictate (Krugman) or as historical analogous reasoning implies (Ferguson). Both can be utterly wrong, but neither is willing to admit it. Both *want* to be right, instead of looking for a practical and near-optimal solution that satisfies multiple issues. That's a dangerous sign, in my opinion.

Further than that, I think their disagreement stems from different back argumentation paths. They have different in many ways (using Toulmin's argumentation model):

* Claim -Krugman we should stimulate. Ferguson: we should reduce the fiscal gap.
* Grounds - K: Cost of human suffering will be great in a deep protracted downturn. F: Growing fiscal debt destroys US credibility.
* Warrants - K: Data/model show that stimulus reduces severity of downturn. F: History shows that stimulus grows fiscal debt dangerously.
* Backing - K: Reduction of suffering is important (pareto optimum). F: Clearing bad debt / avoiding currency crash is tantamount
* Qualifier - K: We don't want another Great Depression. F: We don't want another Japan's 90s
* Rebuttal - K: Laissez-Faire didn't work. F: Keynes was wrong.

(BTW, above are their arguments, not mine)

I don't know who's right or wrong, but I can give you an example, which is not directly analogous due to structural differences. But it does illustrate the difference between the two possible paths argued by the men above, neither of whom have actually experienced/lived either of the options. As such, I consider their 'expertise' to be bit on the side of arm-chair philosophy.

In the 90s Scandinavian deep depression Finland just cut everything in a really quick/efficient way and many banks went bankrupt. The result was huge unemployment (much of this remains structural almost 20 years later), thousands of healthy companies going bankrupt in addition to the bad ones, suicides shot through the roof (initially), poverty increased, all services were cut and child/youth mental health problems exploded.

In contrast, Sweden had a mild recession, recovered rapidly through it's import capacity (which wasn't bankrupted), got rid of the unemployment before it turned totally structural and was able to use government spending/schooling to divert the changes in the economy towards future structural adjustments. Granted, Finnish banks are now among the world's top rated in terms of security/safety by Global Finance and Finnish government debt is considered the safest after Norway, which is swimming in oil saving money. However, Swedish banks/debt is equally good. But both countries were still equally badly prepared for this current bubble and now Finland again is being hit harder - in fact, utterly devastated in terms of industry/employment.

I know this, because I lived this time and have read too many analyses of the reasons and decisions of/in these depressions. This left deep scars in the psyche of the country, but they didn't avoid us from getting caught in this current bubble. I'm beginning to side with the Austrians/Keynes both of whom thought that bubbles are inevitable.

Do I think that Sweden did worse or better than Finland? Well, their downturn was less harsh and not as much structural damage was done to their economy. Their banks faired better in the sense that their debts were cleaned and most of the banks stayed in business (and in fact ended up buying Finnish ones).

Wish I knew what the right ultimate hard-line answer was. Maybe neither? Probably something in between, as silly as it may sound to hard-liners. But I admit it's a question of values: in times of trouble does short-term suffering of the poorest matter and if so, how much. People don't agree on the basic questions of morals, so I don't think their ever going to agree on the whole question of stimulus or not.

As for investing, I think it's going to be hard stimulus first (like so far), then a fairly rapid winding down of that in successive stimuli, even if short-term interest rates are kept fairly low. Good luck in investing in that climate. I'm expecting something like the manic swings hypothesis to play out. So far. As decisions change, so does my position.

Good post, Halycon.
I hope people dont mind my little pet hate being exercised here...



I thought it would be a good idea to rename the thread, to encourage Krugman-bashing


(Reading Krugman's NYT column should be made a criminal actrivity)

(this headline from today's SCMP may be see the light):

Interest rate rsies should come only after jobs rebound, says Krugman

"Central Banks should fight the urge to raise interest rates until the global economy showed signs
of recovery and joblessness began to decline, Nobel Prize-winning economist Paul Krugman said yesterday."

"... we're going to have years before we return to anything that approaches reasonable levels of employment"

"unconventional monetary and fiscal responses, which he credited with saving the world from sinking into depression"

==

Of course, Low Rates will help him do well with the expensive Manhattan Co-op he bought recently,
and they will help send the US Dollar into freefall. And when that happens, it will force interest
rates HIGHER than they would be otherwise.

This sad creature (Krugman) cannot see that coming, and when he is forced to sell his co-op
at a loss, I may pour myself a glass of champagne, and say, Justice Done !

DrBubb, you seem to get really agitated about Krugman.

Anyway, recently he lashed out at the “gold-standard mentality” that he seems to fear so much.

http://www.nytimes.com/2009/10/12/opinion/...ugman.html?_r=1

He is a great inflationist. Bernanke must love him. Interest rates will stay low.

If we do get hyperinflation in the US, then Krugman should be considered one of its uncles.
He is "selling his soul" for popularity, just as Greenspan did before him - he's another villain

Bernanke is its mom, and good old Greenspan is the granny.

I changed Krugman to an uncle, and a highly enthusiastic one

NO NEED to ease up on the Krugman bashing...



No wonder, the phoney economist just gambled most of his Nobel Prize on a Manhattan Condo.
When I pass him begging in the street someday, I wont put a coin in his hat, unless maybe I am carrying a penny.

Here's what a real economist has to say about the impact of the weak Dollar:


Roubini on the Seeds of the Next Crisis
By editor|Oct 23, 2009,

Nouriel Roubini, one of the biggest bears on Wall Street and known for his warnings about the U.S. economy, believes oil is going to push over $100 for reasons that have nothing to do with the fundamentals of supply and demand. According to him, a similar argument can be made for other commodity prices.

IndexUniverse: “There’s a huge bubble, because we have zero rates in the U.S.”, Roubini said in an interview with IU, “..Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before. It’s going to go crashing down, in an ugly way. That’s the basics of the argument.

Roubini also said that “a wall liquidity” is chasing risky assets, “that liquidity can chase those assets higher for the time being until the huge carry trade—the asset bubble and the wall of liquidity—comes crashing down. You can still have all the risky assets going higher. Of course, the higher they go, the more they diverge from fundamentals, and the riskier the situation becomes.”

Roubini touched also on the deflation argument, hinting that gold is not the answer. He said ” the only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.”

I agree with Roubini on the fundamental fragility of this market as a wall of cheap liquidity pushes up risky asset prices.

I disagree with the great Roubini that gold is just another one of those assets. In my opinion gold, is in the process of monetization. Gold may dip a little on a liquidation but should recover quickly due to the instability of currencies. I am sticking to a $900 post QE floor.

Continued uncertainty and the problem of valuation will see gold continue to climb in the aggregate with periods of volatilty to the downside. The rise will not be parabolic but incremental and may take years.

If it hits $900 again, chances are that I will be an aggressive buyer of Gold

That would be a good time to buy. I understand you already effectively have a core position in gold. When/if gold hits 900, I am hoping to load up on silver, which should, with other commodities, be hammered. I kind of see silver as a leveraged play on gold... without being leveraged. My aim is to swap silver to gold once the next tide of liquidity hits the market. I am still wondering if the present tide has further to run.

Jim Sinclairs comment on http://jsmineset.com/

Nouriel Roubini Saturday:

Many in the gold family have their shorts in a knot concerning an article quoting Professor Roubini that unless we get extreme inflation or extreme deflation those like myself who say gold is going to $1224, $1650 and on to Alf’s numbers are wrong.

Professor Roubini admits that he has never favored gold which means he did not nor would he have owned it at any price.

Professor Roubini did not mention gold’s role as a currency nor its relationship to the US dollar.

Professor Roubini’s interview did not address the fact that extreme currency inflation has occurred in monetary history while debt was failing. That is the definition of hyperinflation, a currency event that will drive the gold price much higher than even I anticipate.

what a hilarious post.

http://en.wikipedia.org/wiki/Mutually_exclusive



the collapse of fiat will mean that all sorts of items get monetized.



I also suspect it won't be parabolic. something like this (but worse) maybe:

I do not think "fiat" will collapse, but just devalue against gold. Fiat will remain valuable to the general populace as there will be, believe it or not, a scarcity of money. This will lead to lower prices and cheaper assets. Gold which may double in price would effectively have a quadruple purchase on assets as those assets themselves depreciate against fiat currencies. This is the reason to buy gold, if you see deflation.

The problem with most economists like Krugman or Roubini is that their brains have been washed in the Chicago School of Econonomics and so they have not got a clue about gold. They don't even have reasonable models for it.

Now, here are two reasonable models, and in both, gold is extremely cheap at the moment.

Approximity's Model: MZM Equilibrium Gold Price
http://gold.approximity.com/gold_price_model.html


Jim Sinclair's Model: Federal External Debt Equilibrium Gold Price
http://gold.approximity.com/gold_price_models_sinclair.html


None of these models are perfect in any sense. But they give a better understanding of how high the price of gold momentarily is. A better understanding at least than any sort of government CPI-adjustment.

I think we will know pretty soon how realistic Sinclair's predictions are.
We are getting rather close to hos Nov.5th date.
The coming 5 days may tell us quite alot

I don't think he mentioned any figures regarding Nov. 5. The figure he mentioned was $1,650 by Jan. 14 2011. Not sure why people take his countdown(s) so seriously. He just does that for the weaker members of his fellowship, who need something more concrete they can believe in.

EDITed to correct date.

Talk about a quick sure way to lose "believers". Reckless stuff if you ask me.... just like some of his more meaningless fanciful figures. All it would take is for gold to go on a decent dip and the newbies/ grannies will be leaving the gold bug camp in droves.

If he had a genuine concern for the "average" consumer looking to protect their worth, the case/ justification for gold should be made on a more sound footing than the "imminent hyper-inflationary destruction of fiat" dogma in my opinion. I think this reflects his own prejudices more than the state of the real world.

Opps, just realised this was the bashing Krugman thread.

it's hard to keep a healthy obsession under control, I suppose

You and Bubb obviously don't read Sinclair. He IS genuinely concerned, otherwise, why would he have this blog? The guy is rich and could retire. But he spends hours explaining his point of view every day. As for the sound footing, it is certainly sounder than many others, including certain posters on GEI.

The countdown thingy is something technical he read from the USDX chart I think, so traders like you and Bubb should actually love it.

Have you missed the irony in what you have just posted?
???
"The guy is rich and could retire. But he spends hours explaining his point of view every day."

I'm sure he has more money than I do.

But what benefit do you think he derives from other folks buying gold?
Far more than I get by trying to get people to buy carefully, and hedge their Gold positions sometimes.
I really dont get this worshipful attitude towards Mr.Sinclair!
He was caught misleading people about his investments in Tan-Range, when he was quietly unloading
stock while telling everyone that he was putting money into the private placement

The man is hardly the paragon you make him out to be.

Having said that, I do think many people get value from his blog, and I am happy for you to post his
comments here. But do realise that he would love to see his "troops" have enough power to move the
Gold market is his own favor. I'm sure that at least half his motivation is that he would like to teach a
lesson to those on the other side of the Gold market, whom he has been competing with for years.

See answer here: http://www.greenenergyinvestors.com/index....st&p=136126

Research funding at university is given on a political basis. If you want to research the perils of global warming you'll be able to find plenty of funding. But if you want to show that global warming is a bunch of rubbish you will never get funded. As the whole education system selects for obedience and conformity this should not really come as a suprise.

The same goes for economics. TPTB decide what they want to do then look for 'research' to justify it. Governments throw money and accolades at people who decide that government should take everyone's stuff and increase their own power. After a while it becomes self-reinforcing.

It's obvious that printing money will not cause an economy to grow. Don't believe me? Take a simple example. An economy that consists of a farm a factory and a printing press. Use this simple example to explain how printing money, beyond what is needed to facilitate trade, is supposed to create growth.

I believe, from what I have read, his time period is 4 to 27 November, not exactly the 5th. During this period he expects $ to fall below 71 and...well you know the rest.

I believe, in fact it is Jan 2011 for $1650 and he has a $1m wager on that (of course that will be c $750k by then...).

Yes, of course, end of second January week 2011. No one ever took up his wager.

It is quite comical that you continue to think of me as a "trader", when I have made it clear that I am not... being a hedger instead. I think this reflects the narrowed Sinclarian position which has both demonized the word "trader" [traitor] and can not conceive of any other position besides "all in".

Completely artless when you consider investment is akin to war.

I liked the title so much, I had to bring this here

Marc Faber delivers speech, takes on Paul Krugman
Subscribe to author Published Sep 27, 2009
http://www.digitaljournal.com/article/279755

Actually, it is an interview, not a speech. And Krugman-bashing is only a small item, which doesnt appear until part ..

The comparison is valid:
Faber speaks sense, while Krugman speaks nonsense.

Krugman in Wonderland

Sometimes you cannot make this stuff up. The lead Keynesian Cheerleader, Paul Krugman, contradicts himself when trying to throw a Repub down the rabbit hole. In his textbook on macoeconomics he blamed "Eurosclerosis" (persistent high unemployment) on unemployment benefits:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.

Now he encourages extended unemployment benefits. From a blog wonderfully entitled Krugman-In-Wonderland, here is Krugman's case:

What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

The snarky remark is what he touts as "what textbooks say" is the opposite of what HIS textbook says. So it is ok to create persistent unemployment and Amerosclerosis since it somehow stimulates the economy? There are so many things wrong with this sort of advice it is hard to know where to start. I happen to favor extended unemployment right now for reasons of compassion, to bridge people through the downturn, but not to somehow stimulate the economy.

Stimulus is not the end, but a means to the end. What good is "stimulus" if it leaves us stuck with high levels of unemployment and reliance on government life support to sustain a moribund economy

/more: http://yelnick.typepad.com/yelnick/2010/03...wonderland.html

+++++

(my reaction there):

Good article.
It is certainly time that Krugman's reputation was thrown under the bus.

The man is a font of dangerous ideas, and giving him a nobel prize was a cruel joke. Instead of enhancing his reputation, it diminished the reputation of the Nobel committee.

Keynes argued for low government spending in the boom times and high taxation

Krugman is consistant with that.

Obviously generous unemployment benefits discourage worker appetite to get work. They are another form of malinvestment.

But we are in the bust phase now and spending needs to be maintained to prevent a deflationary spiral that will destroy good business and good households along with the bad.

the argument put forwards by keynes was that you can moderate an economy and guide it via applying stimulus in weaker times and removing it in better times.

Therefore the government should work oppositely to the person who spends more in good times and holds back in bad times.

The idea that governments should now encourage a collapse in spending is insane.

But equally insane is the idea of benefits and a whole welfare cushion during boom times so that you have long term unemployed and a culture of hopelessness while workers are imported from poorer countries.

But because they have done this

But equally insane is the idea of benefits and a whole welfare cushion during boom times

There is now no money to encourage spending without devaluing the currency and possibly risking a deeper crash at a later time.

Hard to see currencies crashing against each other when nearly every government is doing the same thing. The movement of sterling so far is easily manageable against the largest economy and second largest economies in the world

I see the opposite especially when one currency has more leeway to change its tack than another, for example what is going to happen to the £ if the Fed raises its rate next Tuesday because Ben is not allowed to turn the printy handle as quick as he wants or if the EMF is born and the EC decide that the EU must put its rate up 0.25% to help compensate. What then would the gap be between UK bonds and the base rate and just where would Brown get the cash to pay the interest owed let alone go on another spending spree.

The bank account is in overdraft, the coin bottle is empty of loose change, the cupboards are getting bare and the kiddies are getting hungry, is it time to go and see the IMF banker or do another smash and grab raid. What would be the target, increase VAT, pensions, profitable companies or banks, he's already sold most of the heirlooms, not much else left is there.