Methinks they do protest too much

This post was written by Kevin O’Rourke

It isn’t Paul Krugman’s fault that the European Commission has been busily defending a macroeconomic policy mix that is doing tremendous damage to the European periphery: the EC only has itself to blame on this one. And so the latest outraged tweets emerging from the Brussels bubble are a little hard to take.

One of the tragedies of the interwar period is that the good guys — liberal internationalists — tended to support a macroeconomic policy mix that was destructive, as a result of their support for the gold standard. In so doing they helped undermine the case for liberal internationalism. It would be helpful if the cocooned elites in Brussels remembered that they are, de facto, the public face of the European project, and that when they defend the indefensible they are in their turn undermining that project.

94 Responses to “Methinks they do protest too much”

  1. David O'Donnell Says:

    They are terrified of looking in the mirror …. and they close their ears to the fact that The Solidarity Bond is/was/will be a foundation of The European Project.

    “The IMF (2013) has recently demonstrated that fiscal multipliers are higher than previously estimated and, with austerity policies in place, this means, ceteris paribus, that the current contraction will be deeper than previously anticipated. De Grauwe and Ji (2013) [the focus of this thread] have also fairly convincingly shown with simple cross-country comparisons that the stronger the austerity policies are, the greater is the related economic contraction. They also demonstrate that the stronger the austerity policies, the greater is the related increase in public debt burdens. These are important and compelling results.” Richard Wood
    VoxEU and previous thread

  2. David O'Donnell Says:

    fyi Interview with Olli Rehn and his Big Stick yesterday!

    EU Currency Commissioner: ‘We Are Prepared to Initiate Sanctions’

    In a SPIEGEL interview, European Union Monetary Affairs Commissioner Olli Rehn discusses the current implementation of austerity measures in Europe, weaknesses in Italy and France and his view that even the smallest euro-zone countries are systemically relevant.

    http://www.spiegel.de/international/europe/interview-with-european-currency-commissioner-olli-rehn-on-euro-crisis-a-886736.html

  3. DOCM Says:

    One may question the wisdom of the reaction by some of the Brussels personalities involved but the initial fault lies clearly with Krugman in that he personalised the debate in relation to Rehn, a behaviour worthy of a number of easily identifiable contributors to this blog.

    In general, American academics have a very poor grasp of how EU institutions function. Krugman is no exception.

    It seems that both he and Stiglitz are now unofficial advisers to Beppo Grillo. That is the real measure of their level of understanding of the political forces at work in Europe.

  4. DOCM Says:

    An introduction to “Grillonomics”.

    http://www.lesechos.fr/economie-politique/monde/actu/0202618570624-grillonomics-stiglitz-et-fitoussi-planchent-sur-le-programme-economique-de-beppe-grillo-543966.php

    The Italian professor previously advising Grillo must evidently not have been up to scratch presumably because he advised that for Italy to leave the euro would cause a fall in living standards of between 30 to 40 per cent.

  5. rf Says:

    But Krugman isn’t reacting to an argument that says ‘what the hell do you expect us to do, this is the only realistic course available. Suck it up’, but instead one that sells the current program as the best option regardless of institutional design, political reality etc
    Krugmans perspective might be simplistic and moralistic at times, but so is the position he’s reacting to. All we ask is for a little honesty this late in the game

  6. David O'Donnell Says:

    @DOCM

    -1

  7. Kevin Donoghue Says:

    Amazingly, this is what Peter Spiegel calls a particularly nasty attack by Krugman:

    But take heart. Olli Rehn of the European Commission, last heard declaring that the big problem with austerity isn’t that it doesn’t work, it’s the fact that economists keep publishing studies showing that it doesn’t work, says that the only thing we have to fear is fear itself.

    From that you might suppose that Mr Spiegel has led an especially sheltered life. But according to his FT bio, he spent several years covering the wars in Iraq and Afghanistan.

  8. otto Says:

    On the same theme, Bini Smaghi on Italy and Reform:

    http://blogs.ft.com/the-a-list/2013/03/05/reform-denial-poses-a-bigger-threat-to-italy-than-austerity/#axzz2MgoSIdJm

  9. David O'Donnell Says:

    Portugal:
    The social earthquake rumbles ever louder
    5 March 2013 Expresso Lisbon

    More than a million people of all ages took to the streets of Portugal on March 2 to demand an end to austerity. The growing discontent could bring down the political system that has been in place since the fall of the dictatorship.

    http://www.presseurop.eu/en/content/article/3495271-social-earthquake-rumbles-ever-louder

    Spain:
    Is the Grillo bug catching?
    5 March 2013 El País Madrid

    Economic crisis, youth exclusion, discredited political parties: The situation which triggered the success of the Italian Five Star Movement could produce the same effect in southern Europe’s other countries, warns a Spanish sociologist.

    http://www.presseurop.eu/en/content/article/3493761-grillo-bug-catching

  10. Brian Woods Snr Says:

    @ rf: ” All we ask is for a little honesty this late in the game.”

    Honesty is not on the syllabus of any politician or bureaucrat - but you’re correct. If you tell the truth (the facts at least, and hold the spinola) - that’s it!

    Anyway its the economic Model-in-Use that is the problem, but its never mentioned and its long-term effects never explained. Folk are ‘fighting’ the symptoms - not the disease.

    Puts me in mind of my farm neighbour. He was using a ’shit-spreader’ the other day - powerful, earthy odour. But it was still sh*t!

    ps: Any particular reason this site uses a spellchecker which ‘flags’ Oxford spellings?

  11. Joseph Ryan Says:

    ‘Bunker’ Tweets

  12. rf Says:

    Oh I hear you BWS, don’t worry brother
    as an addendum, I keep pushing this article, as it’s really good

    http://www.orionmagazine.org/index.php/articles/article/7146

  13. Joseph Ryan Says:

    @KOR

    Thanks for the post. I was not aware at all that debt/GDP levels were higher when Keynes wrote his theory.
    So what is so wrong with debt levels now that they must be reduced?

    Europe is now marching to the sound of the debt collector’s drum.

  14. DOCM Says:

    On the subject of American professors of economics and their grasp of European politics!

    http://www.voxeu.org/article/ireland-s-rescue-package-disaster-ireland-bad-omen-eurozone

  15. rf Says:

    You mean the man who wrote this!

    http://www.amazon.co.uk/The-European-Economy-since-1945/dp/0691138486/ref=sr_1_5?ie=UTF8&qid=1362511179&sr=8-5

  16. Joseph Ryan Says:

    @DOCM

    That was an excellent article by Eichengreen.
    “A bright red line could have been drawn between the third of the government debt that guarantees the obligations of the banks, on the one hand, and the rest of the government’s debt, on the other hand.”

    That was exactly what should have been done. Some of the bad aspects of the ‘The Irish deal’ have subsequently been eased.
    The only thing that Eichengreen got wrong, was believing Gilmore’s rhetoric.

    The bottom line is that EZ policy over the past five years now has failed Europeans, particularly ‘peripheral’ Europeans. Italians in 2013 turn to Grillo, a comedian. Other Europeans and indeed Italians have turned to far more sinister people when their economic world collapsed.

    Nobody should be surprised that the abysmal failure of policy has been found out and is being rejected at the ballot box. EZ politicos and elites should perhaps be pleased that it is only at the ballot box they are being confronted.

  17. Kevin Donoghue Says:

    Joseph Ryan: “So what is so wrong with debt levels now that they must be reduced?”

    No valid reason, just austerian bullshit.

    Looking at the bright side, it’s gratifying that Krugman’s criticism gets under the skin of the Eurocrat. There is desperation in these pathetic tweets. We need to know, what is it he has, that our European critics lack? Nobody on this side of the pond seems able to get through to these guys. But obviously he does. Is it just that, in what passes for their hearts, they actually know Krugman can analyse the situation better than they can? If they have even that much self-knowledge, perhaps there is hope.

  18. bazza Says:

    The stupidity of the Eurocrats is breathtaking. They still cannot understand the counterargument even when it is spelt out to them:

    “We won’t solve our growth problems by piling new debt on top of our old debt”

    The point is, Olli, you must solve the debt problem with growth, preferrably real, but nominal will do.

    Debt is measured as a ratio: % debt/GDP. It is far easier to increase the denominator nominally than decrease the numerator in real terms. These are facts borne out by all the economic evidence from debt and financial crises from 1930s to now and even the IMF agrees, as per the multiplier debate.

    If the idealogical biases and cultural superstitions of the Eurocrats prevent them from seeing the economic evidence with clarity, then they should resign or be removed from office.

  19. DOCM Says:

    @ rf

    Indeed I do! But you will note how accurate his political predictions turned out to be.

    I have absolutely no problem with the academic economic community having a high opinion of this or that economist at a professional level. I simply cannot accept this as a some kind of imprimatur for their mistaken opinions once they leave the comfort zone of their particular discipline.

  20. grumpy Says:

    I actually think K-Dude should be congratulated for getting such a response out of those people in particular.

    Remember it is a standard, stock tactic of human beings in a position of authority/responsibility to refuse to engage with critics - especially when the criticism has a whiff of merit about it.

    Refusing to engage while critics natter on about you is a good defence as it makes you look important and them look obsessive, at a loose end, or disturbingly shrill.

    They appear to be loosing their cool.

    I notice in the Tweet squawks from Brussels K-Dude is accused of being too cynical. I think it is actually quite difficult to be too cynical when it comes to the nexus of politics, economics and money.

    BTW, this is nicely balanced and worth a read:

    http://krugman.blogs.nytimes.com/2013/02/27/another-attack-of-the-90-percent-zombie/

  21. DOCM Says:

    @ Joseph Ryan

    Ay the risk of repeating myself, I am not in the prediction business. As LBS has very expertly pointed out, it is a balancing act between austerity and the need for structural reform. It does not take a genius to figure out that austerity will reduce economic activity and if the balance is wrong, the capacity or rather - the political tolerance - for structural reform is reduced.

    The process is one of negotiation the outcome of which, by definition, cannot be predicted. But there there are always straws in the wind. The current one is the uncertainty of the Italian political process. In a single question; who does the state of Italy intend to send to the next meeting of the European Council and with what mandate?

    That is a matter for the recently elected representatives of the Italian people. I would be extremely surprised if the answer given is not, in the usual Italian way, an extremely pragmatic one.

  22. David O'Donnell Says:

    @DOCM

    Excellent article by Eichengreen in 2010 - many thanks for reminding us. The only error is that Barry did not expect the present Irish Gov to be so supine and reverential to its masters.

    “The Irish “programme” solves exactly nothing – it simply kicks the can down the road. A public debt that will now top out at around 130% of GDP has not been reduced by a single cent.”

    As factual today as it was in 2010.

    http://www.voxeu.org/article/ireland-s-rescue-package-disaster-ireland-bad-omen-eurozone

  23. Tull Mcadoo Says:

    DoD,
    Why is our public debt heading for 130% of GDP? Does it have anything to do with public spending?

  24. David O'Donnell Says:

    You must have hit that nerve Tull! Mick in still in A&E!

    Love that “As LBS has very expertly pointed out ..” from DOCM - priceless.

    and BWS thinks the blog has a spellchecker [hint:ck your own sys language setting] on the positve side The Oxford Dictionary are rumoured to be positive about including lorenzobinismaghiitis to the next edition and the American Medical Association is willing but unable to identify a suitable category of medical science for its inclusion; at EU level of course, chronic lorenzobinismaghiitis remains policy as ably spun on this blog by his disciple DOCM.

  25. Tull Mcadoo Says:

    DoD,
    I did not expect an answer!

  26. Paul W Says:

    What could have, should have, but didn’t happen….

    While current EU economic policy isn’t going in the right direction (for the debtors….or creditors it would increasingly seem), denial that the creditors are in the driving seat isn’t very helpful if one assumes that one must work within the existing system(s)….Rebellion is one alternative, yes, but the majority in Ireland isn’t supportive of that. That’s a fact that cannot be easily denied. PK’s way isn’t perfect either as is seen in the US…e.g. QE screws savings and those dependent (very often elderly) on fixed incomes, etc, etc.

    In the midst of the multitude of contractions, blurred right /wrong and other imbalances in the world right now, Ireland can only play the ball at its feet, either within the existing EU framework or outside. The Irish people have consistently voted to stay inside.

    So I accept SC’s and EH’s view that the country’s past choices, decisions and mistakes have been largely its own. Fine, however one can still argue for debt forgiveness, constitutional review of the bank guarantee, better social justice and better Irish choices and decisions, and a better EU /EZ economic and social policy & related, on the objective financial (e.g. unsustainable Irish debt) facts…unashamedly fight one’s corner, for the benefit of the Irish people (agree - the existing Irish elites have completely lost sight of this)….without needing to deny or ignore that the supporters of the creditors hold different views, particularly to those of the (minority?) Irish view against the status quo. A primary issue I have had is Irish Govt strategy and tactics in dealing with Europe /Troika. Can be summed up in terms of debtor subservience and lack of confidence (being smart). The result has been a rigidity of Irish policy and political response and responsibility a.o. leadership, internally and externally, for what the Irish can control and influence.

  27. John Corcoran Says:

    Firstly I would like to thank BBC radio which allowed myself and Paul Krugman to simultaneously address the people of the UK and Nothern Ireland and advocate a No vote. Unfortunately if the joint broadcast had been a day earlier I feel it might have been a swing factor.

    We have thrown all our gambling chips away and betrayed our fellow european neighbours who are struggling with austerity. Raymond Crotty must have turned in his grave when the result was announced. We betrayed Raymond as well. In a country that elected the corrupt Charles Haughey and continues to vote Michael Lowry to top the poll it is of no great surprise. The most sophisticated electorate in the world–what a joke. The logic was simple if you vote No you get two votes –if you vote yes only one. Two is greater than one. Simple maths.

    The train has left the station for Ireland and we have our bank debt forever tied to our throats. The oligarchs and their fellow travellors who frightened our people into buying vastly overpriced houses etc used the exact same tactics to frighten the voters into voting for a disastrous deal for Ireland. The soft landing professors and the other useful idiots did the rest. A sad day for Ireland. We betrayed ourselves and our fellow europeans.

    The No people –fought the good fight–finished the course–kept the faith.
    http://www.youtube.com/watch?v=AnL3×06UQqY

  28. John Gallaher Says:

    @Paul W not sure if you caught Beppe in the NYT’s yesterday,a bit inflammatory and sure to have raised pulses in europe-as intended.It just happens to be PK’s regular outlet.
    “..He has called for a nationwide referendum on whether Italy should remain in the euro zone…”

    http://www.nytimes.com/2013/03/04/world/europe/beppe-grillo-italys-gadfly-reflects-a-movement.html?pagewanted=1&_r=0

    PK is a little like David Hasselhoff…bigger in Germany….from other night on Charlie Rose debating ‘debt’,hope link works.

    http://www.charlierose.com/view/interview/12802

  29. rf Says:

    Someone help me make sense of this, on a practical level. I welcome enlightenment

    http://www.psmag.com/magazines/pacific-standard-cover-story/joe-henrich-weird-ultimatum-game-shaking-up-psychology-economics-53135

  30. rf Says:

    Actually that was just an overwrought and dramatic way of saying, this is quite interesting

  31. Paul W Says:

    @JG
    Missed those…preoccupied with ‘recovery’…appears to be a significant switch-up in real activity in the US…PE and even large FI money beginning to think bigger, getting things done, often with Europe in the strategy. You noticing that?
    I like PK’s stuff and read it as often as I can. He argues the other side of the ‘imbalance’, and does that well.
    Re the Italians, on their way to a “Lisbon referendum” moment…..a revote (more than one likely?) until closer to status quo re-established?
    Accept that the social upheaval alternative may also escalate, so Ireland needs to be ’smart’, much more so that it has been. Next election is already hampering the view and judgment, etc. The ‘promises’ BS has already started, and will likely increase to try to head off industrial action around CPA II.

  32. Shay Begorrah Says:

    @DOCM

    In general, American academics have a very poor grasp of how EU institutions function. Krugman is no exception.

    You have, unintentionally I assume, said something helpful.

    The corollary to your statement (which may be true to some extent, for what it is worth) would be this one:

    The problem with the people currently controlling European Institutions is that they have a very poor grasp of macroeconomics. Rehn is no exception.

    This is an uncontroversial statement outside of the Euro-bunker - numbers are numbers, some people can do predictions and others can not. Krugman is one who can, the collective set of economists in DG ECFIN and the ECB are ones who have had much less success.

    The reason why the statements are not of equal significance is that it is not Krugman’s job to understand the political intricacies of the hodgepodge of neoliberal “thinkers” and national champions for the self styled core who make up the EU’s current economic policy apparatus.

    However it is their job to know his - and they do not.

    Instead of trying to find the set of economic policies that had the best chance of stabilizing the Eurozone economy the various institutions have instead tried to forge a damaging new “strong determination based” economic policy consensus that matches the existing political one (the lazy southerners, the idiocy of the fiscal compact, the mess of Eurozone banking resolution and so on). The science is being made to match the politics.

    So the last five years is the story of institutions in the EU responsible for EMU doing their job in reverse - and that is where they are leading the European economy.

  33. John Gallaher Says:

    @Paul W-never worked harder for less….the Charlie Rose inc. Joe Scarborough possibly a bit ‘yank’ for ie regulars but always worth watching.

    Lots noise over this today….perhaps i misread it,but its like negotiating with people who say..ok we have an agreement but hold on till the board approves !
    The constant spinning/overselling must be exhausting….and a dollar twenty five buys you a cup of coffee!

    “We agreed to ask the Troika to come forward with a proposal for their best possible option for each of these two countries for EFSF and EFSM loans.”
    http://finance.gov.ie/viewdoc.asp?DocID=7591

  34. Paul W Says:

    @JG
    Talks about talks, meetings about meetings…”Thought leadership”. Hopefully the outcome will be “thoughtful”.

    Heading home early…snow on its way again. Damn, always something!

  35. Tull Mcadoo Says:

    JG
    Am a fan of Joe Scarborough. Proper sensible anti gun GOP lad. More of him and US politics would not be so disfunctional.

  36. rf Says:

    Joe Scarborough is as stupid as they come. In fairness!

  37. John Gallaher Says:

    @Paul W another have day-Chavez passed,all time highs across the board you heading home….off to my usual perch-a barstool !

    @Tull they both good very good and engaging-always interesting.Based on recent election results would appear euro politics getting a little funky too !

    @Shay appears some “vox” fans on here i read this a while back regarding the qualifications of policy makers or not-quite witty for vox!

    “The appointments of Papademos in Greece and Monti in Italy in 2011 are examples of leadership changes meant to bring more competent people into government. This column aims at understanding why governments sometimes appoint economic policymakers with economics training but often do not. It suggests that levels of economics education among finance ministers are substantially higher in new democracies than in old ones and that the appointment of an economics PhD as a central bank president is 22% more likely during a banking crisis.”
    http://www.voxeu.org/article/technical-competence-economic-policymakers

  38. John Gallaher Says:

    @rf well one could look at it that way…..looking forward reading your link looks very interesting tks.

  39. seafóid Says:

    Any chance of a discussion on the EU and banker bonuses ?

    http://www.guardian.co.uk/commentisfree/2013/mar/06/if-bankers-leave-it-would-be-no-loss

  40. Bond. Eoin Bond Says:

    @ John Corc

    “Firstly I would like to thank BBC radio which allowed myself and Paul Krugman to simultaneously address the people of the UK and Nothern Ireland and advocate a No vote. Unfortunately if the joint broadcast had been a day earlier I feel it might have been a swing factor.”

    Seriously John, you need new material. Thats the 10th time i’ve read that paragraph over the last 6 months. Good to see your ego is still in bubble territory though.

  41. Shay Begorrah Says:

    The Financial Times post the OP refers to is unintentionally great.

    The statements from the commission quickly go from a touching “The European Commission stands together!” to a pathetic “The Self Belief of the European Commission can not be shaken my mere facts.”

    I also enjoyed Dan Davies’ twitter feed bickering with the @ECspokessurnames.

    For instance the twitter feed of ECspokesKoen has one particularly poignant response defending the the Commission’s tortured relationship with evidence based policy making:

    “On the substance there’s plenty of material available on why we think what we do is the right thing.”

    What kind of material are we talking about here I wonder?

    @John Corc

    The BEB is right, you have to put the text of your press releases somewhere (lets say your own blog) and then link to them, if you can not be bothered to rewrite your opinions why should we be expected to re-read them?

    It pains me particularly as I think that particular info-nugget has turned up today on two other blogs I read.

  42. grumpy Says:

    Round 2:

    http://blogs.ft.com/brusselsblog/2013/03/when-economists-attack-krugman-vs-rehn-part-2/

  43. Brian Woods Snr Says:

    @ rf: Will study the Heinrich, J. et al paper. Looks like I may need to acquire a new Hobbit Hole!

  44. David O'Donnell Says:

    @grumpy

    ta for update on round2 … a child and the naked emperor springs to mind …

  45. Johnny Foreigner Says:

    I was going to say that the economists in question argue like schoolchildren… but that would be unfair to the children. For as any schoolchild doing the Leaving Cert knows, the correct quotation is “doth protest too much, methinks” and it means that the person in question (in this case Lady Hamlet) agrees too much for credibility. So entirely the wrong figure of speech for this instance.

  46. kingbadger Says:

    “liberal internationalists”

    This is code for Anglo-French imperialists who had no problem with invasion and occupation and mass-murder and suppression of indigenous rights as long as it was done by said Anglo-French imperialists and not Germans.

  47. DOCM Says:

    @ Johnny Foreigner

    You hit the nail on the head!

    However, there is a more serious aspect. Two blog posts, one after the reaction to the first was known, with the title “Cockroaches and Commissioners” is quite simply unacceptable. As is the misrepresentation of the comments about the performance of the economist in question when in Brussels which had absolutely nothing to do with his appearance.

    The Humpty Dumpty defence is pathetic.

    The text (for schoolchildren everywhere!).

    “When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.”
    “The question is,” said Alice, “whether you can make words mean so many different things.”
    “The question is,” said Humpty Dumpty, “which is to be master— that’s all.”

  48. Kevin Donoghue Says:

    @Johnny Foreigner

    Lady Hamlet, eh? Heaven help us. I hope “any schoolchild doing the Leaving Cert” knows better than that.

  49. Shay Begorrah Says:

    @Johhny Foreigner

    So entirely the wrong figure of speech for this instance.

    Whatever dude.

    Kevin could have thrown in some Macbeth when describing Rehn’s version of the Austerian narrative too:

    It is a tale
    Told by an idiot, full of sound and fury
    Signifying nothing.

    @DOCM

    It has come to this: Krugman has more credibility than the entire European Union economic policy apparatus so he gets to say what ever the hell he likes about them. Rehn is a laughing stock and Marco “Ricardo forever” Buti would be if people had heard of him.

    Krugman got that credibility by not being continuously wrong about economic policy outcomes for the five years since the start of the global financial crisis. Once the European Commission settles on policies that can achieve a few quarters of positive growth we will see about taking them (and their schills) seriously again.

  50. Kevin Donoghue Says:

    Just when you think it can’t get any worse, Niall Ferguson sticks out his glass chin:

    In my view Paul Krugman has done fundamental damage to the quality of public discourse on economics. He can be forgiven for being wrong, as he frequently is–though he never admits it. He can be forgiven for relentlessly and monotonously politicizing every issue. What is unforgivable is the total absence of civility that characterizes his writing. His inability to debate a question without insulting his opponent suggests some kind of deep insecurity perhaps the result of a childhood trauma. It is a pity that a once talented scholar should demean himself in this way.

    Krugman:

    What a pathetic response. Notice that he is doing precisely what I never do, and making it about the person as opposed to his ideas. All I have ever done to him is point out that he seems to not know what he is talking about, and that he has been repeatedly wrong. I would never stoop to speculating about his childhood! If he can’t handle professional criticism — which is all that I have ever offered — he should go find another profession.

    http://www.businessinsider.com/krugman-niall-fergusons-response-is-pathetic-and-maybe-he-should-go-find-a-new-profession-2013-3

  51. Rui Almeida Says:

    Welll I am from Portugal ,we are in austerity for 4 ! Four years and results are excellent.
    Our Gdp decreased already ten per cent and the deficit is bigger and bigger,umemployment is around 18 per cent and will pass the 20 per cent soon.
    When you will be
    satisfied,when we will have 30 or perhaps 50 per cent of umemployment,and we will have 90 per cent of poors?
    So if Paul Krugman is not right Who is?
    These famous from Brussels ? Who are predicting more and more austerity, for what?
    What?

  52. skeptic01 Says:

    The tone of Mr Krugman’s column is always polemical. He believes that his opponents persist with their views for purely ideological reasons (as do many on this blog), and he makes that belief obvious in his writings. It’s not a good starting point for reasonable debate. He plays the role of a left-wing counterpart to the various right-wing rabble-rousers in the US media, i.e. his column is designed to give heart to the left and to take no prisoners. However as one of the aggrieved tweets in the first FT piece pointed out, the European Commission is not exactly the Tea Party.

  53. Ciaran Says:

    Listening to Ollie Rehn drivelling on about confidence it’s kinda hard not to be reminded of the Tea Party.

  54. Ciaran Says:

    In fact it would appear to be fair comment to say that the European elites and the tea party actually appear to share some common ground on economic matters. .

  55. Shay Begorrah Says:

    @Kevin Donoghue

    Just when you think it can’t get any worse, Niall Ferguson sticks out his glass chin:

    Flea on the elephant time.

    It is obviously easy to make fun of auld Pith Helmet but I feel vaguely sorry for him. He had to emigrate because his own countrymen did understand what he was trying to say and then he found himself playing the roll of a public intellectual for the US conservative movement just as the movement utterly rejected intellectualism.

    Now that he finds that even the left’s intellectuals (if you want to put Krugman on the left) find no reason to engage him as an equal how must that feel?

    Those well paid speaking engagements in the US probably do not make up for the lack of validation he gets from his former peers and he seems like a troubled man to me.

  56. Misaki Says:

    Comments from Paul Krugman’s post on this, explaining why Olli Rehn’s remarks are not as crazy as they might seem:

    Keynes had a big, complicated theory about a deficiency in capital as an explanation for why fiscal stimulus becomes necessary so it’s possible he did not understand it correctly, but the basic idea of “more government spending reduces unemployment” is one that even Olli Rehn undoubtedly understands and accepts so his assertion about what Keynes would do is not about that.

    Actually, the whole Wigan Pier thing was about that period and it talked about people being “on the dole” so even then, spending would not have been about survival for Britain’s poor but rather self-respect and so on which is why gov’t spending wasn’t increased.

    So, given that the argument people most commonly attribute to Keynes was about capital and companies have plenty of it right now, it is very possible that Keynes would not advocate more (unsupported by taxes) stimulus in this situation.

    Regarding debt, I think the rate of increase in debt is at least, if not more important as debt-to-gdp ratio. It might also be misleading to talk about short-term changes in GDP as being “growth” if it does not proceed from any change in the underlying components of an economy and is just more people doing paperwork.

    The “unimpressive” comment might make sense if addressed to an audience that, in turn, is dependent on public support or elections since they do have to worry about people who care about appearance due to low info on issues. http://www.the-broad-side.com/image-is-superficial-but-still-powerful

    (In response to people saying that Keynes’ theory was about low demand, not lack of capital)

    From http://en.wikiquote.org/wiki/John_Maynard_Keynes

    “I am myself impressed by the great social advantages of increasing the stock of capital until it ceases to be scarce.”
    Book 6, Chapter 22, Section 4, p. 325

    “But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.”
    Book 6, Chapter 24, Section 2, p. 376

    From “The General Theory of Employment, Interest and Money”

    He also said that “It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.” (p. 129)

    Since we have 18 million empty houses (http://www.cnbc.com/id/41355854/Nearly_11_Percent_of_US_Houses_Empty) there is no need for this either. And we destroy food to keep prices high for farmers, as well as subsidizing industries like sugar, so no shortage of that either.

    It’s possible the elements of his theory that had to do with a shortage of capital do not see much discussion these days or are viewed as incorrect parts of the theory, but the topic was whether what Olli Rehn said about Keynes was reasonable.

  57. Kevin Donoghue Says:

    Misaki: “given that the argument people most commonly attribute to Keynes was about capital and companies have plenty of it right now….”

    The argument people most commonly attribute to Keynes is not about capital. In fact most of us first encountered Keynes’s argument in the simplified form presented by Samuelson. Roughly this runs as follows: Y=C+I+G and C=a+bY where a>0 and 0<b<1. From that we can derive the simple Keynesian multiplier.

    Keynes’ theory was mostly about low demand, not lack of capital. Of course Keynes did have things to say about capital but they were not central to his argument. Note that two of your quotations are from Book VI of the GT. I’d be amazed if Olli Rehn had even a passing acquaintance with Keynes’s thinking, about any aspect of his thory. I don’t believe for a moment that he ever read as far as Book VI.

  58. Brian Woods Snr Says:

    @ Rui Almeida: ” … austerity, for what?

    Hi there! Welcome to a misty Dublin!

    They haven’t a clue - other than they should be doing ’something’, ‘anything’, to give the impression that they know what the cause(s) of the problem are, and are working very hard on YOUR behalf (they have to say that) to restore the situation to Normal. Whatever Normal was.

    The truth is they are frantically attempting to stop the water flooding into the ship. The bilge pumps are working non-stop. We’ll see.

    @ Misaki: Hi there, also!

    Unfortunately we have to consign Keynes (and many other economic theorists) to the library shelves. They have become historical oddities. They analysed and commented upon their contemporary economic paradigm - Permagrowth. That paradigm has moved into its marginal limits and there is no way it can be put into reverse (it has to keep up a forward momentum). What we are experiencing are increasingly ineffective responses. This process will most likely continue for one or more decades - or until an economic Tsunami is triggered.

  59. Brian Woods Snr Says:

    FAO - rf: With apologies to other commentators for drifting somewhat ‘off-topic’.

    The Heinrich, et al paper is interesting, but hardly a Kuhnian paradigm shifter. What is does expose is the insufferable intellectual arrogance of a specific group of investigators, and the unthinking stupidity of another group. Its amazing that so many could be so wrong about the simple issue of ensuring that you shall have a genuine simple random sample (SRS) of your population - its something that is repeated again, and again in STAT 10001. Now I accept that getting that SRS is fearsomly difficult - but you must show what you did, and reviewers must check. Mind you, I think Edward Said might have intoned (in respect of us Occidentals) - “I told you so!”

    One economic issue that may come in for some (justified) negative commentary is Globalisation. I think (hope I am not wrong here) that the theoretical foundations for this were constructed from inferences made from those unrepresentative WEIRDoe* samples. Hence, there may be significant political opposition to Globalisation in some non-WEIRDoe countries. Well see what happens.

    Many thanks for the ht. I have had to revise some of my beliefs. Tricky!

    * Western, Educated, Industrialised, Rich, Democratic (societies).

  60. Johnny Foreigner Says:

    @Kevin O’D

    Nice catch, serves me right for being a smartarse.

  61. skeptic01 Says:

    @ Ciaran

    The austerity policies being pushed by the EC include increased taxes, as well as spending cuts and reforms. I can guarantee you that the Tea Party in the US will never propose policies that include tax increaeses.

    @ Rul Almeda

    You are correct about most of those statistics, except for the government deficit in Portugal. The deficit is not rising, it is falling.

    The problem for Ollie Rehn is that he predicted that signs of growth would reappear and unemployment would start to ease off. This hasn’t happened.

    The problem for Paul Krugman is that he predicted the periphery would fall into a debt spiral of ever-rising deficits from which it cannot escape. That hasn’t happened either.

  62. Shay Begorrah Says:

    @skeptic01

    The problem for Paul Krugman is that he predicted the periphery would fall into a debt spiral of ever-rising deficits from which it cannot escape. That hasn’t happened either.

    Really? Why not dig us out a few references there - are there researchers for that purpose where you work?

    Anyway Rehn et als success at damaging the Eurozone economy with German goldbug tinged neoliberal dogma does not compare with Krugman’s “failure” to predict the exact distribution of destruction.

    I think it is possible that PK thought the EU would have a more humane approach to unemployment and thus that the deficits would rise faster. The EU sure showed up him there.

  63. DOCM Says:

    @ All

    I wonder who said this;

    “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist”.

  64. Kevin Donoghue Says:

    @Johnny Foreigner

    If only the Eurocrats could take criticism as graciously as you do!

  65. Shay Begorrah Says:

    Its not normally productive to start European Commission Kremlinology but the tactics they use in their battle with Krugman, the reality based community and now the ghost of Keynes might reveal which faction is pulling the strings.

    Rehn recently said that Keynes would not be a Keynesian if he was alive today, it is an example of a common reactionary trope (Jesus would be a Republican if he was alive today, Orwell would have supported the invasion of Iraq, Darwin would approve of anthropogenic climate change, etc, etc) that plays on the ignorance of the modern conservative audience and the low intensity of analysis in the media. I think that the text from the General Theory that Misaki quoted fits into the same dissemble and distract conservative political activist play-book.

    So pretty obviously when Rehn talks about Keynes he is reading a script, he would not be deeply familiar with the work of Keynes. Keynesian theory is apparently not even part of the economic dialogue in Finland, where as in Germany it is well known but regarded as left wing statist heresy.

    So who is writing the script? Would DG ECFIN’s Marco Buti fit the bill? He has the academic chops, he seems like an ideologically committed neoliberal and he has mostly kept his head down so as not to become too publicly associated with the Frankfurt Doctrine in case things go south.

    Any anonymous contributors like to spill the beans on who the deceiver in chief might be? Remember that if we can precisely target the economic reactionaries here there might be less collateral damage to the European project as a whole.

  66. Ciaran Says:

    Skeptic

    It’s far from a perfect analogy but really if you listen to Ollie Rehn invoke investor
    confidence etc you could easily mistake him for Eric Cantor.

  67. Ciaran Says:

    And say what you want about the tea party ( and I’ll probably agree) but at least they’ve a democratic mandate of sorts . I mean Ollie Rehn from what I’ve heard was basically an unsuccessful , unpopular Finnish politician and now he’s swanning around Europe like the general of some conquering army .

  68. Misaki Says:

    Kevin Donoghue: It seems that Keynes tended more to explain it as that people with money were choosing not to invest it productive assets because the rate of interest on money was too high.

    From http://books.google.com/books?id=xpw-96rynOcC&printsec=frontcover&dq=general+theory+of+employment&hl=en&sa=X&ei=tpo4UZeDBcGwqQGH_YG4BA&ved=0CCEQ6AEwAA#v=onepage&q=scarce%20capital&f=false

    Or http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch16.htm

    The post-war experiences of Great Britain and the United States are, indeed, actual examples of how an accumulation of wealth, so large that its marginal efficiency has fallen more rapidly than the rate of interest can fall in the face of the prevailing institutional and psychological factors, can interfere, in conditions mainly of laissez-faire, with a reasonable level of employment and with the standard of life which the technical conditions of production are capable of furnishing.

    He blames unemployment on interest rates being too high. And continues to say that

    “To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

    So I do think it’s fair to say that his theory was not about whether digging holes in the ground would lead to higher employment, but rather about a lack of capital investment which he saw as being primarily the result of interest rates. And if society does not agree that further government spending is productive—if people calling for fiscal stimulus only say “we should spend more” without caring where that money goes, whether it is on military contractors or generous pensions for Congress or subsidies for corporations—then the situation would seem to be one that Keynes said “a sensible community” would be unlikely to accept.

  69. Shay Begorrah Says:

    @Misaki

    And if society does not agree that further government spending is productive—if people calling for fiscal stimulus only say “we should spend more” without caring where that money goes, whether it is on military contractors or generous pensions for Congress or subsidies for corporations—then the situation would seem to be one that Keynes said “a sensible community” would be unlikely to accept.

    The words “Society does not agree” are doing rather a lot of work there Miyaki, and in Europe the idea that fiscal expansion would in some way be a surrender to the corporate-military-parliamentary complex is utterly nonsensical.

    This reminds me a bit of this salty exchange between Professor Nutt and a badly out of her depth Sky News anchor on drug strategy:

    http://www.sueddeutsche.de/wirtschaft/paul-krugman-gegen-olli-rehn-transatlantischer-kakerlaken-krieg-1.1616878

    The key part being “You are not a scientist - why are you trying to debate the science?” This is an exactly similar position, opponents of stimulus policies are doing so not on the basis of the economics but of the politics.

  70. Shay Begorrah Says:

    Apologies: Wrong link above for the David Nutt video:

    http://www.youtube.com/watch?v=bCChf2WHNE4

  71. Misaki Says:

    Brian Woods Snr:
    >Unfortunately we have to consign Keynes (and many other economic theorists) to the library shelves. They have become historical oddities. They analysed and commented upon their contemporary economic paradigm - Permagrowth.

    I can’t find myself agreeing with this. It might be true that too many economists have assumed growth would continue indefinitely, but the rate of economic growth is basically irrelevant for unemployment at any particular point in time. It seems Keynes did talk a bit about making sure to produce capital-goods at the proper rate to ensure they were neither in surplus (opportunity cost with consumption goods) nor shortage, but “growth” is really more of a psychological factor that people use in arguments to justify ignoring inequalities in distribution.

    (Regarding the first link: Google translation says ‘”I have never claimed that his mother was a hamster”: The blogging Nobel Laureate Paul Krugman is really angry at EU Commissioner Rehn’ … which goes to show how humour is often hard to detect online and even harder when translating between languages. Do people not understand that Paul Krugman enjoys arguing with people?)

    The video is not impressive, but might not suffer from flaws any more than other live debate. Ecstasy might lead to health problems other than dying; it might lead to higher crime rates and not just deaths from overdosing and in both these respects the comparison to horseriding might be misleading. (Non-death harmful events are the entire reason why the concept of ‘disability-adjusted life years’ is used for example.) Or the headline used might cause people to assume that the drug ecstasy has no harmful effects other than the risk of death, when in fact it might cause decreased cognitive function or something and is thus something would benefit from restricting due to externalities from higher performance.

    In a similar way, talking about stimulus purely in terms of employment ignores other consequences, such as inflation or government corruption (seen in Greece) that people may see as also important. It is very much a political matter unless an economist is advising a centrally planned economy like a dictatorship.

  72. Brian Woods Snr Says:

    @ Misaki. Thanks for your thoughtful comment. Let’s agree to disagree on this. I’ll think on it a bit more, but I would ask you to consider what is nature of the economic paradigm that economists are using - they must have a set of theoretical foundation concepts on which to construct a physical economic process. Do you know what it is? I guessing its Permagrowth. I’d love to hear from economists about this.

    Krugman, Rehn are a pair of mature tomcats artfully pissing on each other. Leave them at it. Useless distraction. Though, some of PK’s comments are valid and well directed.

  73. David O'Donnell Says:

    Citizens in Europe are rejecting austerity policies as deeply misguided The eurozone needs reform, but devaluation, lower output and rising debt across the continent are nothing but a toxic brew

    Joseph Stiglitz
    guardian.co.uk, Wednesday 6 March

    http://www.guardian.co.uk/business/economics-blog/2013/mar/06/citizens-europe-reject-austerity-misguided

  74. rf Says:

    “The Heinrich, et al paper is interesting, but hardly a Kuhnian paradigm shifter. ”

    Yeah I assummed as much. The article seemed a little hyperbolic in parts..a journalist getting a little carried away at his interpretation of the relevance of the research

  75. Misaki Says:

    Brian Woods Snr: I have seen arguments for deficits being based on ‘permagrowth’, in the sense of debt not mattering if GDP growth can be maintained. So you might be right in that sense.

    In at least one case though, the argument for deficits was not about future growth at all; it just assumed that a one-time fiscal stimulus event would lead to permanently higher GDP so that higher revenue from taxes would be more than interest payments on a debt that remains unpaid indefinitely. If that was the case, then having already spent $16 trillion the US should have no further need to go into debt in order to have a strong economy. So the ‘theoretical foundation’ in cases like that is just a poor model of how the economy works.

    There is undoubtedly a lot of bad thinking or else unemployment would have already been solved. I should mention that it is as easy as finding a way to convince rich people to work less.

  76. Brian Woods Snr Says:

    @ Misaki: Thanks again. Have to ‘caffeine up’ my grey cells!

    The use of the term ‘growth’ is widespread in many contemporary economic commentaries and I have got to wondering whether the authors really do understand the implications (ie. the outcomes) of what they are advocating.

    The most basic economic expression for ‘growth’ is;

    Y = C + G + I + Nx where Y = GDP (which is, at best, a dodgy metric).

    But in the best traditions of economics lets assume GDP IS a valid metric of aggregate economic activity. And, given that human populations ‘grow’, then economic theorists have to explain how each of the variables on the RHS of the expression will change - to give an increase in Y (economic growth) that has some proportionate relationship to the underlying population increase. After all ‘growth’ is the thing that is being advocated. And economics is allegedly, about the distribution of scarce resources.

    There is little difficulty with modelling the expression in the safety of an electronic spreadsheet, but when you encounter the real world things become a tad trickier. I am asserting that economic theorists are not making the transition between their theoretical (spreadsheet models) and the real world, with its exponentially increasing population and absolute levels of finite resources - which when used, are not replaced. [Lets also assume away the externalities of environmental degradation]. In effect, contemporary economic theory and modelling is divorced from reality, and if the theories are enforced on real populations (as an experimental process to test those theories) - then great harm may ensue.

    One of the contributors to this site - rf, has drawn my attention to an unusual academic paper* which raises some difficult questions about the psychological mindsets (hence behaviours) of Americans. The authors posit a population of Western, Educated, Industrialized, Rich, Democratic (societies) [WEIRD] and assert that Americans are not only significant outliers in this population, but ‘outlying outliers’. And where does most of our economic theorizing come from - well from the most extreme sample of the outlying outliers - the educated graduates of American academic institutions!

    Might we not ’stand back’ a little and ponder the rationale of exporting American WEIRDoe ideas, and insisting that non WEIRDoe populations shall adopt thoses ideas? For their own good - you understand!

    * Heinrich, J., Heine, S. and Norenzayan, A. 2010. ‘The Weirdest People in the World?’, Working paper Series des rates fur Sozial - und Wirtschaftsdaten, No 139, @ http://hdl.handle.net/10419/43616.

    [I actually used Google Scholar and downloaded the paper from http://www.econostor.eu

    ps: Where are you from?

  77. Misaki Says:

    Any distribution has outliers on both sides, and it is not always easy to say whether being at the extremes is good or bad.

    For example, the US culture of ’selfishness’ does lead to higher crime rates than other developed countries… but it also leads to lower suicide rates than countries like Japan, China or Korea, and lower government corruption than countries like Greece. Even a standard like being “happy” (mentioned by the reporter in the article) can be misleading when evaluating cultures:
    http://www.theatlantic.com/health/archive/2013/01/theres-more-to-life-than-being-happy/266805/

    This is not something which is completely overlooked by economists; Paul Krugman made a post a few weeks ago that linked to a speech by Ben Bernanke that talked about this stuff. They are just often not sure how to proceed, so fall back on “higher GDP” as an easy way to decide what they should be talking about or advocating for.

    It’s also true that many countries have never assumed that the policies or culture of the US are superior, but have had those policies forced on them anyway; see countries with US-installed dictators or the lengthy occupation of Iraq that led to many deaths on both sides. So it isn’t always in the realm of academic debate, but rather political reality and publishing a paper is not the most effective way to cause change.

    (If you’re interested, this also critiqued GDP as a measure of success: http://pastebin.com/Wy8B0hK9)

  78. Shay Begorrah Says:

    I am not sure if anyone here is unfamiliar with the Dunning Kruger effect but if they are they should find out more. The Internet makes a lot more sense afterwards.

    The wikipedia article link above is good and there is a nice article about it here:

    http://arstechnica.com/science/2012/05/revisiting-why-incompetents-think-theyre-awesome

    I can not help thinking that the phenomenon is relevant to the debate about why the European Commission keeps getting it so wrong on economic policy outcome, relevant to why Krugman’s input is so important (and politically opposed) and even relevant as to how this thread has ended.

  79. Brian Woods Snr Says:

    @ Misaki: OK. Its not whether bein an outlier is ‘good’ or ‘bad’ - these are two very argumentative value claims - its the assertion (knowledge claim) that Americans are WEIRDoe outlying outliers on several psychological attributes - and, that our economic theorizing (modelling) and exhortations comes (mainly) from an even more extreme sample - American university educated graduates. Hence caution is advised.

    “They are just often not sure how to proceed, so fall back on “higher GDP” as an easy way to decide what they should be talking about or advocating for.”

    Exactly! Untethered from reality. And you are quite correct to point out the political aspect. Political Realism will always triumph. Economics’ real name is actually Political Economy. And Adam Smith’s more important contribution to Political Economy was his ‘The Theory of Moral Sentiments’ rather than ‘An Inquiry into the Nature and Causes of the Wealth of Nations’. Lots of economic folk often invoke the latter but have they read it and studied it? And how about the former? Ask any American economics academic does he/she know about E Peshine Smith and what he had to say about trade (both intra- and inter-national). Actually, ask all economists you encounter.

    Thanks for that link. I’ll follow it up.

  80. EWI Says:

    @skeptic01

    The tone of Mr Krugman’s column is always polemical. He believes that his opponents persist with their views for purely ideological reasons (as do many on this blog), and he makes that belief obvious in his writings.

    Unfortunately for you, the facts to date say that Krugman is right, and his ‘opponents’ blinded by ideology - exactly as he says.

  81. Richard Says:

    “The tone of Mr Krugman’s column is always polemical. He believes that his opponents persist with their views for purely ideological reasons (as do many on this blog), and he makes that belief obvious in his writings. It’s not a good starting point for reasonable debate. He plays the role of a left-wing counterpart to the various right-wing rabble-rousers in the US media, i.e. his column is designed to give heart to the left and to take no prisoners. However as one of the aggrieved tweets in the first FT piece pointed out, the European Commission is not exactly the Tea Party.”

    Does that matter when they with their policies have caused Europe more harm than the Tea Party has caused the US?

    Do I also have to point out that you (like so many of Krugman’s critics) focus on the style (”tone”, “polemical”) rather than the substance? What actually matters more to you? Politeness, or persistent double-digit unemployment leading to Europeans voting for fringe parties with dangerous anti-democratic, anti-humanistic ideologies?

  82. Richard Says:

    “Two blog posts, one after the reaction to the first was known, with the title “Cockroaches and Commissioners” is quite simply unacceptable.”

    I would think that persistent double-digit unemployment and the fraying of the social fabric would be even more unacceptable . . . .

  83. Richard Says:

    “In at least one case though, the argument for deficits was not about future growth at all; it just assumed that a one-time fiscal stimulus event would lead to permanently higher GDP so that higher revenue from taxes would be more than interest payments on a debt that remains unpaid indefinitely. If that was the case, then having already spent $16 trillion the US should have no further need to go into debt in order to have a strong economy.”

    Er, what? Misaki, when you presume that your readers are ignorant by putting out stupid arguments, it only makes yourself look bad. Do you understand that a Keynesian stimulus is suppose to be the government making up (with above-baseline spending) for the collapse in private spending in a depression? Are you proposing that the baseline federal spending should be $0? To show how stupid your argument is, your logic would be the same if that $16T was replaced with $4T (or $2T), yet anyone who’s familiar with the US economy would know that that would be a massive contraction in federal spending.

    Also, are you aware that when you take in to account the cutbacks in local & state spending, the actual government countercyclical “stimulus” in the US has been minimal?

    Your favorite author on the topic:
    http://krugman.blogs.nytimes.com/2012/06/03/the-level-of-government-spending/

  84. Richard Says:

    “There is undoubtedly a lot of bad thinking or else unemployment would have already been solved.”

    Depends on what you consider “solved”.

    Pushing the unemployment down below, say, 2% with the economy at full throttle is very difficult if not impossible.

    Pushing 20% unemployment down in a depression should not be that difficult.

  85. Shay Begorrah Says:

    @Richard

    Thanks for the clean up work Richard. The cockroaches Krugman warned about are everywhere.

  86. Richard Says:

    Appreciate the compliment, Shay.

  87. Misaki Says:

    >To show how stupid your argument is, your logic would be the same if that $16T was replaced with $4T (or $2T), yet anyone who’s familiar with the US economy would know that that would be a massive contraction in federal spending.

    It was a paper by DeLong and Summers. The number is important because fiscal multipliers (the increase in short-term GDP for a given amount of spending) is around 1, maybe as high as 2 based on the type of expenditure (the CBO and Moody’s rate things like foodstamps and aid to the poor at near 2).

    So that argument, which assumes that “growth” from fiscal spending is permanent, implies that most of the ~$15 trillion of the current US economy is due to previous deficit spending. That the US economy would be in roughly the same place today if most of the spending had taken place last year instead of in previous decades — I hesitate to say it would be the same as if all $16 trillion had been spent year because a model can make reasonable assumptions for spending at the margin that would not hold true if the numbers involved were much greater, the way that for example the CBO not only lists the expected effects of certain types of spending but also the maximum amount of ‘useful’ spending of a particular type (like infrastructure).

    So as long as the US would have some reasonable number of people employed without any deficit spending, the model used by DeLong and Summers implies that the US should already be at full employment due to previous deficit spending.

  88. Misaki Says:

    >Pushing the unemployment down below, say, 2% with the economy at full throttle is very difficult if not impossible.

    If people just work less, it’s easy to do. http://occupywallst.org/forum/the-problems-in-the-economy-are-not-new-they-are-o/

    >Pushing 20% unemployment down in a depression should not be that difficult.

    The size of deficits in depressions vs normal times would seem to be evidence against your statement, if you accept that it is “difficult” to get people to accept more spending when deficits are already high.

  89. Richard Says:

    “…if you accept that it is “difficult” to get people to accept more spending when deficits are already high.”

    But why do you accept that with 20% unemployment? Can you name an example country where the people were hunky-dory with 20% unemployment (and did not increase their vote for dangerous fringe elements) because they didn’t want to increase the deficit?

    Also, deficits would rise in depressions even if the level of spending did not change at all (due to a decrease in tax revenue) so please explain why it’s evidence.

    I mean, I understand that in general, people are psychologically wired to be stupid and want more government spending when times are good and cut back when times are bad (analogous to buying stocks after they have gone up and selling them when they have gone down), but you need to support your contention that voters would care most about the deficit even when unemployment is 20%.

  90. Misaki Says:

    I am not sure about deficits, but there are many countries where people resist more spending even at 20% unemployment because they don’t want higher taxes.

    Greece’s unemployment rate is around 26%. A search for “Greece higher taxes” turns up a few articles about how they have actually voted for higher taxes, but also this article:
    (Original article no longer available, but here is the cache:
    https://webcache.googleusercontent.com/search?q=cache:OCKTxBUo-roJ:http://www.thesait.org.za/news/117462/Thousands-of-Greeks-take-to-streets-against-wage-cuts-and-high-taxes.htm%2Bgreece+higher+taxes&client=ubuntu&channel=fs&oe=utf-8&gbv=1&hl=en&ct=clnk)

    Executive summary

    More than 60, 000 Greek citizens took to the streets of Athens on Wednesday to protest against higher taxes and wage cuts.

    (The same article, slightly revised is on Reuters)

    The article says that the Greek government isn’t even firing any public workers like it promised to. (I have read they plan to reduce public employment through “attrition” as people retire.) “Wage cuts” and “tax increases” are the main issues, not that the government isn’t increasing spending even further. You can call them stupid for not realizing that higher taxes allows the government to hire more public workers… or you can say that people would prefer that the government does not raise taxes to support more spending.

    I suppose if a country expects to default on its debts (as Greece has partially done), you might have people supporting endless deficit spending. But even in Greece, people are more concerned with preventing tax increases than increasing fiscal stimulus.

  91. Shay Begorrah Says:

    @Misaki

    Just to clarify, when you say Greeks protested against “higher taxes” the march you refer to was one against austerity measures in general. Perfectly understandable when as the article points out “Six years of recession and three of austerity have tripled the rate of unemployment to 27% (..in Greece…). More than 60% of young workers are jobless.”

    The article is worth a read but does not support your case.

  92. Richard Says:

    Misaki:

    As Shay said, higher taxes with 20% unemployment would be anti-stimulative/austerity-reinforcing, so protesting them does not make the protesters anti-stimulus.

    Again, can you name an example country with 20% unemployment where people are anti-stimulus because they didn’t want to increase the deficit?

    If not, your nice little theory isn’t applicable to the actual world that we live in and Krugman is right after all.

  93. Misaki Says:

    Another article (well, it was on the first page of search results a couple days ago but is no longer) describes the opposition to tax increases or tax collection in general:
    http://www.nytimes.com/2012/06/06/business/global/greece-warns-of-going-broke-as-taxes-dry-up.html

    “When he and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his license plate number to warn residents.”

    Not a country that feels that supporting additional government spending by paying taxes is a social obligation.

    As another more recent article notes:
    http://www.nytimes.com/2013/01/12/business/global/greek-lawmakers-back-tax-increase.html

    “The new law is to be followed in spring by a thorough overhaul of the tax system that will introduce jail terms for large-scale evaders instead of the suspended sentences handed down now.”

    If people took government deficits and its consequences seriously, this would have happened years ago. It is not the responsibility of Germany to jail tax offenders in Greece or create laws to punish people who evade taxes, facilitate tax evasion or accept bribes in lieu of collecting taxes; all Germany can do is cut off the flow of free money in the form of loans and bailouts.

    I don’t think it’s a coincidence that (ok, sorry this is really random) Greece has the highest percentage of respondents saying that they are having sex of any of the countries surveyed by Durex:
    http://www.durex.com/en-ie/sexualwellbeingsurvey/fequency%20of%20sex/pages/default.aspx

    Richard: the point of higher taxes is that it allows the government to continue to spend instead of cutting jobs. Faced with the reality that the rest of the EU is going to hold Greece responsible for its past and future borrowing, Greece would have lower unemployment if it raised taxes and spending.

    Protesting does make them anti-larger-government, which is a way to create jobs without excessive borrowing at high interest rates. I suppose if they tried to continue on that course, interest payments would rapidly take up most of tax revenues… is it legal obligations from entering the European monetary union that prevent them from continuing to borrow at 300%+ of debt-to-GDP ratio?

    So, given that the government that the people of Greece elected has accepted the austerity package in order to remain in the EU (instead of having debt explode and being forced out), I think it’s fair to say that the majority of people in Greece are anti-stimulus despite 26% unemployment.

  94. Christian R. Conrad Says:

    Kevin Donoghue asked: “Looking at the bright side, it’s gratifying that Krugman’s criticism gets under the skin of the Eurocrat. There is desperation in these pathetic tweets. We need to know, what is it he has, that our European critics lack?”

    Well, the most obvious thing he has and they lack is this: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2008/ .

    And I can’t see Olli ever getting one of those.

Leave a Reply