Tuesday, November 09, 2010

The Krugman gambit

Paul seems to only have one card these days, but he does play it very, very well.

It's the "nothing is ever enough card" and he got it out again in Sunday's NY Times.

The way it works is this:

(A) Lobby for any and all expansionary policies.

(B) Then, when an expansionary policy get proposed or enacted, pitch a fit and say that it's way too small and will never work.

(C) When said policy doesn't work (which of course could well be because the policy is bogus) scream "I told you so" over and over at the top of your lungs.

Was the "problem" with the stimulus bill simply that it was too small as Paul claims? Or was it that a temporary burst of government spending no matter how large is not going to come close to curing an economy that is suffering from a severe real shock/wealth loss?

One thing that's for sure as a matter of simple logic is that the fact that Paul said "it's too small", doesn't prove at all that's why if failed. Yet people (and Paul) often act as if it does.

Now he's pulled the same gambit with QE II, a policy that's unlikely to "work" no matter what size is chosen.
Well played, sir. Kudos!


Tom said...

Thanks you, Angus. You read Krugman, so I don't have to.

Richard Stands said...

I'm not an economist, so I'm sure I'm being way too simplistic here, but if printing money is the path to growth (presumably sustained), why not just take him at his word and print a billion dollars for each of us? Certainly that would be enough?

To me it still seems like the synthetic rush an addict gets when he shoots up. Feels great for a short time, then the crash is pretty bad, and the addict suffers a net loss. Shoot up more; crash is worse. Shoot up "enough", and the patient dies.

Anyone know how Paul would tell me I'm wrong on my simplistic analogy?

Anonymous said...

Why no love for QE at any scale? Surely the Fed can generate inflation if they buy enough assets.

Anonymous said...

Actually, krugman supplies alot of specifics when he makes his arguments - you know, historical analysis, publicly available data, numbers- things that his critics are quite allergic to. I mean why let silly details get in the way of a good ad hominem attack.

Angus said...

I'm not hatin' on QE II, it may have some marginal effect, but no volume of QE is going to knock 3 or 4 percentage points off the unemployment rate.

Anonymous said...

I don't understand your argument. Krugman has basically said the same thing over and over: the recessionary forces in play are far worse than most people are acknowledging, and thus we need far more stimulus (both fiscal and monetary) than policy makers are advocating. That's not the boy who cried wolf, that's the doctor who correctly diagnosed the problem. Or are you claiming that the fiscal stimulus wasn't 1/3 tax cuts and largely offset by reductions in spending at the state and local government levels?

Angus said...

No sir, showing that the doctor correctly diagnosing the problem would require a controlled experiment with two identical patients, where only one was given the prescribed treatment and that one (and only that one) then was cured.

He's vehemently diagnosing the problem but in no way can we infer his correctness from the observed outcome.

The fact that this is hard to understand is a tribute to how brilliantly Paul is playing his card, and I salute his skills.

If you always say in advance that any proposed policy that you favor is not big enough, then you are never on the hook when those favored policies fail.

It's a great card, that Krugman card.

David said...

I'm with Angus on this one. Krugman's contention is that size matters and he has been beating that drum ad naseum. Compare that to Barro's ex ante diagnosis:

"This is probably the worst bill that has been put forward since the 1930s. I don't know what to say. I mean it's wasting a tremendous amount of money. It has some simplistic theory that I don't think will work, so I don't think the expenditure stuff is going to have the intended effect. I don't think it will expand the economy. And the tax cutting isn't really geared toward incentives. It's not really geared to lowering tax rates; it's more along the lines of throwing money at people. On both sides I think it's garbage."

Now I'm no macro guy, but I'm not sure Krugman is more compelling than Barro.

When I talk to non-economists, the debate is almost always about the size and not the structure -- so Krugman has won the public mind on that point. What's ironic is that Krugman is apoplectic that most economists disagree with him on this point.


And, when it is about structure, it usually framed in redistributive terms, namely "tax cuts for the rich."

So, Angus' point that Krugman has one card that he's playing and playing masterfully, I agree completely.

Dave said...

Pretty weak argument. Krugman lays out his arguments for why the stimulus/QE2 is too small, and defends these arguments using actual numbers (e.g. $1.2 trillion lost GDP per year > $800 billion stimulus over two years. I know math is hard but you get used to it after a while). Now, he might be wrong, but there is no sleight-of-hand involved.

Charlie Clarke said...

"Now he's pulled the same gambit with QE II, a policy that's unlikely to "work" no matter what size is chosen."

The Munger Gambit!!! Agree with Krugman that a policy will be ineffective, but make it sound like you're disagreeing with Krugman and that he actually thinks the policy WILL be effective.

When said policy fails, claim it is Krugman's predictions and ideas that failed.

Then end your post with something just as unproven (and unprovable?) as anything Krugman has said, "a policy that's unlikely to "work" no matter what size is chosen" with absolutely no sense of irony!

You played that brilliantly.

Anonymous said...

Krugman supporters, what a sad lot. And dying off so quickly, what a great pity.....

Anonymous said...

The Charlie Clarke Gambit:
Attribute Angus-authored posts to Munger. C'mon son!

Charlie Clarke said...

Never even knew there were two posters on this blog (only read 3 or 4 times when Tyler links). Makes me happy though, cause I love Munger on econtalk.

Norman said...

Charlie Clarke said "Agree with Krugman that a policy will be ineffective, but make it sound like you're disagreeing with Krugman and that he actually thinks the policy WILL be effective."

Um, neither of those things happened, at least not in this post. The post makes no claim at all about the effectiveness of future policy, nor does it suggest that Krugman thinks any policy will be effective except for precisely that policy which Krugman most favors (and will never happen). The post is about Krugman's rhetoric, not his content.

The Charlie Clarke Gambit, round 2: miss the point of a post, argue effectively that this wrong point is wrong, then assert that the other contributor to the blog is much better. It's the perfect blend of ad hominem and strawman!

Charlie Clarke said...

Wow Norman, read for content Bud.

Claim about effectiveness of future policy = QE2 won't work

Krugman: "And there goes the best hope that the Fed’s plan might actually work."

Angus: "a policy that's unlikely to "work" no matter what size is chosen."

Next, question do they agree or disagree on this policy outcome? Answer: Agree!

Angus acting as if they disagree about a policy outcome?

"When said policy doesn't work scream "I told you so" over and over at the top of your lungs."
-> Check

No sense of Irony: See Norman

Anonymous said...

legalize counterfeiting now!

that'll get people spending