CapitalistImperialistPig

Paul Krugman, writing in the NYT , points out that the recent market turbulence triggered by China is part of a pattern of instability. But why does the world economy keep stumbling? On the surface, we seem to have had a remarkable run of bad luck. First there was the housing bust, and the banking crisis it triggered. Then, just as the worst seemed to be over, Europe went into debt crisis and double-dip recession. Europe eventually achieved a precarious stability and began growing again — but now we’re seeing big problems in China and other emerging markets, which were previously pillars of strength. But these aren’t just a series of unrelated accidents. Instead, what we’re seeing is what happens when too much money is chasing too few investment opportunities. More than a decade ago, Ben Bernanke famously argued that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a “global saving glut”: a huge excess of savings over investment in China and other de...

Krugman on the right's furious efforts to discredit Thomas Piketty's Capital in the Twenty-First Century : Brad DeLong links to the now extensive list of pieces debunking the FT’s attempted debunking of Thomas Piketty, and pronounces himself puzzled: I still do not understand what Chris Giles of the Financial Times thinks he is doing here… OK, I don’t know what Giles thought he was doing — but I do know what he was actually doing, and it’s the same old same old. Ever since it became obvious that inequality was rising — way back in the 1980s — there has been a fairly substantial industry on the right of inequality denial. This denial didn’t rely on any one argument, nor did it involve consistent objections. Instead, it involved throwing many different arguments against the wall, hoping that something would stick. Inequality isn’t rising; it is rising, but it’s offset by social mobility; it’s cancelled by greater aid to the poor (which we’re trying to destroy, but never min...

Not a comeback but a return . For those benighted souls not fans of Sunset Boulevard, Krugman on macro economists waking up in a world looking very Keynesian. Specifically, when Brad lists five key propositions of New Keynesian macro and declares that prominent Keynesians in the 60s and early 70s by and large didn’t agree with these propositions, he should now note that prominent Keynesians — by which I mean people like Oliver Blanchard, Larry Summers, and Janet Yellen — in late 2013 don’t agree with these propositions either. In important ways our understanding of macro has altered in ways that amount to a counter-counter-counterrevolution (I think I have the right number of counters), giving new legitimacy to what we might call Paleo-Keynesian concerns. Or to put it another way, James Tobin is looking pretty good right now. (Incidentally, this was the point made by Bloomberg almost five years ago, inducing John Cochrane to demonstrate his ignorance of what had been going on macroeco...

Paul Krugman has got to be one of the favorite demons of Republicans, billionaires, right-wingers, Eurocrats, Chicago School economists and no doubt others. Why so? How did this happen to a highly respected economist. Well there is the fact that he is acerbic, sarcastic, and really good at mockery. Moreover, he is fiercely mocking while managing to keep his critiques substantive, unlike his critics who flail and resort to childisn name-calling - yes, I'm talking about you, John Cochrane and you, Niall Ferguson. That's probably a minor point though. Another factor is his bully pulpit as an NYT Op-Ed writer.. The real problem, I think, is that he has been so infuriatingly right. He was, as he reminds us, one of the few public figures to call "Bullshit!" on the Bush administration's justification for the Iraq War, and almost certainly the most important single critic. He did so from a newspaper and editorial page dominated by pro-Iraq-war propaganda. Then there...

Paul Krugman often seems puzzled that his intellectual opponents fail to grasp the wisdom of his Keynesian policies. I think his big mistake is that he thinks that they are interested the same kind of mean and median social good that he is. From the standpoint of the rentiers, austerity can look darn good, at least until the house burns down. And then they mostly can just move.

Gold, or at least gold money, is a favorite fetish of the Randists, Ron Paulists, and the right-wing crackpotia in general. Fiat money, or anything that is an emergent property of society (to use Krugman's term) drives them nuts. It overflows their shallow intellectual buffers. Krugman puts them in their place. So what is fiat money? It is, as Paul Samuelson put it in his original overlapping-generations model (pdf), a “social contrivance”. It’s a convention, which works as long as the future is like the past. Obviously, such conventions can break down — but then so can things like property rights. In fact, you could argue that almost every asset in a modern economy owes its value to social convention; green pieces of paper could become worthless, but then so could any paper claim, which is, after all, worth something only because laws say it is — and laws can be repealed. And once you realize that a social convention is not at all the same thing as a bubble, several related fa...

Krugman's latest target is China's banking policies. Here he repeats John Hempton's claims that they amount to a kleptocratic theft of savings. Hempton basically argues that China has turned financial repression — controlled interest rates on deposits, which ensure a negative real rate of return — into a giant engine of kleptocracy. The banks extract rent from depositors, transfer those rents on to state-owned enterprises in the form of cheap loans, and then the Party elite essentially embezzles the money. Underlying the whole system is a high savings rate that Hempton attributes to the one-child policy. Actually, if he’s right about the demographic underpinnings, there’s a time bomb lurking in the system quite aside from his concerns about inflation running too hot or too cold: eventually, and as I understand it fairly soon, those older Chinese who have been frantically saving because they don’t expect enough grandchildren to support them will become net dissavers, pulli...

Peter Coy, writing for Bloomberg’s Business Week: The Financial Times reports today that Germany’s central bank, the Deutsche Bundesbank, “has signaled it would accept higher inflation in Germany.” The newspaper story says this would be “part of an economic rebalancing in the euro zone that would boost the international competitiveness of countries worst hit by the region’s debt crisis.” Coy finds this move obvious: If the euro area is going to hang together over the long run, you have to undo those competitiveness gaps that have been created,” says Schoenholtz. The peripheral countries need to lower their prices relative to Germany’s. If Germany had very low inflation, those countries would require outright deflation, which is extremely painful. If Germany accepts somewhat higher inflation, primarily via more generous wages to workers, the rest of Europe can have a low but still positive inflation rate. Says Schoenholtz: “To anybody who’s a monetary economist, this isn’t news.” Of ...