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Krugman on Reinhart-Rogoff: data bent by the black hole that is our political/media system

Posted by Charles II on May 3, 2013

Krugman, NYT:

The fact is that Carmen and Ken are fine economists. Carmen has been doing terrific empirical work on banking crises for a long time. Ken is arguably the world’s leading international macroeconomic theorist. In fact, the main reason I knew that the case for fiscal policy remained strong even in the context of New Keynesian models was that I carefully read the canonical text by Obstfeld and Rogoff.

So what happened here? My interpretation is that after writing a very good book, R-R dashed off a careless paper on debt and growth that was so much what the VSPs wanted to hear that it made them instant celebrities in a way they hadn’t been before — and they didn’t know how to say stop the merry-go-round, we want to think about this a bit harder. The temptation involved was one of fame and becoming a part of the alleged real world, not some crude mercenary consideration.


The Reinhart-Rogoff rehabilitation tour has been really depressing. There are a number of routes they could have gone; unfortunately, they seem addicted to the notion that they can end the discussion by arguing with straw men.

There should be a serious investigation of how these errors crept into Reinhart and Rogoff’s work. They have been a poor example to younger researchers of the proper response to finding error in one’s work, responding with arrogance and defensiveness when they should have apologized for all the harm their work has caused.

But Krugman doesn’t think they should be accused of fraud, and–at this point–neither do I. Even though the selective use of data ought to be scrutinized very closely.

Posted in economy, Paul Krugman | Comments Off on Krugman on Reinhart-Rogoff: data bent by the black hole that is our political/media system

Your sanity break

Posted by Charles II on December 7, 2011

Krugman, Reinhart, and Nocera

Posted in financial crisis, mortgage crisis, Paul Krugman | Comments Off on Your sanity break

Magical money

Posted by Charles II on January 13, 2011

Barry Ritholtz has a bunch of good links today. The one I like best is Robert Lenzner at Forbes:

The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.

They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.

Presumably that income gets written off when foreclosure actually takes place, so you can figure there’s something like $50-$100B of funny money on the banks’ balance sheets based on collecting mortgages that aren’t being paid. That’s separate from the $1T in assets that will have to be written down on foreclosed mortgages.

And, by the way, this perfectly illustrates why keeping people in their homes, paying mortgages is so important. You can either pay $50-$100B per year to keep people in their homes or a $1T lump sum to kick them out. Assuming that people will either move or get permanent jobs within 10-20 years, it’s pretty obvious which the cheapest solution is.

Meanwhile, Caroline Salas of Bloomberg reports that the president of the Federal Reserve Bank of Dallas calls keeping the US out of complete collapse “fiscal pathology,” which gives you an idea of the mental state of the inflation hawks among the Fed governors. I would concede that tax breaks for billionaires was pathological legislation, not to mention our military budget, but most of the rest of the spending Congress has done for the last two years has been for unemployment insurance, Medicaid, and tax relief for the middle class and poor. Pathology.

Paul Krugman asks if Europe can be saved. As is often the case, I think Krugman gets the diagnosis wrong: he thinks that the basic problem is that the periphery (i.e., the poorer countries) can’t devalue their currency and therefore work cheaper; the alternative is cutting everyone’s wages/payments, which is hard to negotiate. (Unless, of course, countries decided that that’s what the real problem was and legislated it into being. Foreign bond holders would be p–sed, of course, but maybe better a smaller coupon than actual default?) In my opinion, though, the real problems are that (a) Germany (and to a degree France and even Britain) is rich enough to subsidize its industries so that the poorer nations can’t really compete, and (b) there’s widespread corruption and weak governance in the so-called periphery. Sure, you can force wages down… or Germany could accept that it needs to subsidize the weaker nations while they bring their operations up to speed. It may end up doing so through bailouts, but that’s a far inferior solution. But I really don’t understand why Krugman turns to currency devaluation when the US– which has just as a diverse and large economy as Europe– has enjoyed monetary union for hundreds of years. Would the Great Depression have been less awful if Kansas and Georgia been able to devalue their currencies? Somehow I doubt it.

And Simon Johnson, writing on The Baseline Scenario has your optimism for the day:

Let’s be honest. With the appointment of Bill Daley, the big banks have won completely this round of boom-bust-bailout. The risk inherent to our financial system is now higher than it was in the early/mid-2000s. We are set up for another illusory financial expansion and another debilitating crisis.

Bill Daley will get it done.

Ritholtz has more, but I lack the time to read everything I should.

Posted in economy, mortgage crisis, Paul Krugman | 6 Comments »

The real reason Obamanomics was a disaster

Posted by Charles II on October 8, 2010

Watch here.

Or, if you don’t have the time, liberal and conservative economists along with financial experts think the fiscal stimulus was too small. Jan Hatzius says there are two scenarios: pretty bad and very bad. Feldman and Krugman agree, possibly for the first time ever.

And America’s solution for Obama’s failure? Put the people in power who believe that any stimulus is bad, unless it’s tax cuts for billionaires.

PS: Thanks, Calculated Risk.

Posted in financial crisis, Paul Krugman | 5 Comments »

Krugman on the coming currency crisis

Posted by Charles II on January 4, 2010

Paul Krugman wrote an important piece on currency crises. He describes currency crises in three “generations” of economic analysis.

The first generation is an uncomplicated case. Countries need reserves of foreign currencies in order to conduct trade. But suppose a country’s reserves decline to a threshold that makes others afraid to get caught out. Then they will dump the native currency to buy the foreign currency, creating a short-term squeeze.

The second generation is a more complicated case where speculators, recognizing that a country’s currency policy isn’t consistent with its national objectives, create a run on the currency, forcing policy makers to decide between sustaining their currency or getting re-elected. The model for this was the sterling crisis where George Soros made his bones.

The third generation crisis incorporates the real-world effects seen in severe currency crises, which includes a severe decline in GDP with high unemployment. That is what happened in Argentina and may be occurring today. To excerpt from Krugman: Read the rest of this entry »

Posted in economy, financial crisis, Paul Krugman, stock market | 4 Comments »

Business Roundtable

Posted by Charles II on May 24, 2009

The NY Review of Books has an interesting roundtable with Paul Krugman, Nouriel Roubini, Robin Wells, and George Soros, along with ex-Sen. Bradley, and also Niall Ferguson for comic relief.

To his credit, Bradley says we should nationalize the banks.

Nouriel says that things are and will be bad, but probably not catastrophic. He says that the solution is to convert debt into equity to reduce leverage, which I think isn’t right: basically this means flooding the market with major corporations priced as penny stocks. It might have worked when stock prices were near $100, but won’t work with stock prices below $20. If you could “induce the unsecured creditors to convert their claims into equity,” then they would have balance sheet problems. He also says this, which gets at the heart of what this means to the solution of the crisis:

But there are only a few ways of resolving that debt problem: either you default on it as countries like Argentina did; or you use the inflation tax to wipe out the real value of the debt; or you have to raise taxes and cut government spending.

Robin Wells seems to have pegged what I would call the ultimate source of the crisis:

I think this story starts really in the Eighties. During the Reagan years, we experienced chronic fiscal deficits, and we began to abdicate our responsibility to raise tax revenue that could sustainably finance government. In order to do that, we had to borrow, and who did we borrow from? We borrowed from countries that were running persistent trade surpluses.

Krugman says,

We are currently in debt about 60 percent of GDP. We have in the past been as high as 100 percent of GDP at the end of World War II without having a crisis, but your ability to go that high does depend upon people’s belief that you will behave responsibly, and that is somewhat in question

There’s more. It’s a conversation worth reading.

Posted in financial crisis, Paul Krugman | 2 Comments »

Turning The Corner

Posted by Phoenix Woman on May 5, 2009

Kimberly over in the comments section of The Field pointed this out:

From Krugman’s latest piece:

“Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss.”

I remember just a couple months ago where he said Team Obama was ‘killing us all’ with their ‘dithering’

Nouriel Roubini (Dr Doom) is more objective imo- he said in Newsweek that he no longer fears and L-shaped near depression, he now thinks we’re in the middle of U-shaped recession. He said the Obama Admin deserves credit for their aggressive policy action. The worst has been averted.

What’s interesting to me is how different the outlooks of Krugman and Roubini are. Krugman, as mentioned above, did admit (but only after a few hundred words of general balefulness) that the economy does seem to have been steered away from the abyss; however, he thinks that we’re in for a Japanese-style L-shaped stagnant recovery, whereas Roubini, the guy who is the one usually known as “Dr. Doom”, thinks that we’re about halfway through a U-shaped recession that, while “deep and protracted”, will be markedly on the wane, if not over, by this time next year.

Posted in 2012, economy, Paul Krugman, President Obama, stock market | Tagged: | 3 Comments »

Paul Krugman Q&A; Luskin response DOA

Posted by Charles II on October 14, 2008

Calculated Risk has Paul Krugman’s debutante lecture here.

His stalker and National Review Online show us how to behave like twits and a–holes. Luskin titles his piece, “Krugman’s Posthumous Nobel. This year’s prize in economics goes to an economist who died a decade ago.”

The best part of Krugman winning the Nobel is watching Luskin dine on his own liver.

Posted in Paul Krugman, Republicans as cancer | Comments Off on Paul Krugman Q&A; Luskin response DOA

Congratulations, Paul!

Posted by Charles II on October 13, 2008

Via Atrios, it couldn’t happen to a nicer guy. Keep it in kronor, Paul!

But he was still wrong about the benefits of global free trade, and all because he didn’t read the footnote in Samuelson(*)

(*) Actually, the textbook. But this 2004 paper by PAS spells it out.

Posted in Good Things, Paul Krugman | 3 Comments »

Paul Krugman is more optimistic than I am over the Paulson Plan

Posted by Charles II on September 22, 2008's view of the Paulson plan, via Truthout
[Image from]

Krugman thinks the discussion draft is a huge improvement over the Paulson Plan.

While I see some good in this counterproposal, I would say that the Congress is insisting on:
1. Probably worthless scraps of paper in exchange for other worthless scraps of paper,
2. A seat at the table, in which Republicans get four seats and Democrats get 1 (until roughly April 2009, when replacements for the SEC and FDIC are in place).
3. An opportunity to spend the $700B before the foxes are replaced from their positions guarding the chicken coop.
4. A fervent but likely-to-be-unconsummated desire for money for HOPE mortgages.
5. Sweetheart transactions at fire sale prices, ala what happened with the S&L bailout.
6. An escape hatch from responsibility for the Administration that will last until the first Tuesday in November.

That’s my read through page 17.

Posted in mortgage crisis, Paul Krugman | Comments Off on Paul Krugman is more optimistic than I am over the Paulson Plan

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