Tuesday, August 2, 2011

Paul Krugman’s further Descent

Those who have followed the career of New York Times columnist and Economics Nobel Prize winner Paul Krugman have witnessed a once brilliant man become increasingly unhinged.

The last chapter in this fascinating story took place today. Paul Krugman took one more step in his journey, now questioning “American Democracy” itself after losing a political battle to the GOP. Krugman complains: “What Republicans have just gotten away with calls our whole system of government into question”.

When questioning “our whole system of government”, Krugman is hopefully not advocating abolishing the franchise. What Paul Krugman has come to oppose is not democracy, but “American Democracy”, i.e. division of power. Still, abandoning support for our system of government it is a major step to take, even for Paul.

One interesting aspect of Paul Krugman’s assault on American Democracy is the timing. We need go no further than back to 2005, when a Republican was in the White House and Democrats used division of power to slow him down, Krugman was enthusiastically defending division of power. Thus he wrote that the “religious right” and "extremists" were threatening the Filibuster: “the big step by extremists will be an attempt to eliminate the filibuster”. The filibuster in the Senate is a unique part of American Democracy.

A cornerstone of democracy is accepting when your side loses democratic battles, such as the 2010 house election when 53.5% of the two-party vote went to Republicans in part in opposition to deficit spending. Paul Krugman’s support of democratic principles is selective: American Democracy and division of power is good when it gives Democrats more power, but bad when it gives Republicans the same advantages.

This is hardly the first time we witness Paul Krugman do a 180 degree shift of views. As a recent example, Krugman first argued that the IT-boom in the 1990s should be personally attributed to President Clinton. As late as 2008 he made the case that:

“Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.”

But of course now that Obama is in office, running deficits with a lagging economy, the President doesn’t automatically get credit/blame for the economy. Krugman wrote a few days ago:

“By the way, I don’t give Clinton credit for that revival; it was about learning to use technology. But in any case, there is no hint of a Reagan miracle in the data.”

The problem with Krugman is not only that he shifts opinion when it suits him, but also that his obsession to score maximum points in every short-term political battle trumps his intellectual honesty as an academic economist. Let us continue with the example above.

Professor Krugman proceeds to charitably write that colleagues Michael Bosking and John Taylor have began to “lose” their “mind”, because they use the Reagan Years as example of economic prosperity. The data Krugman cites to prove the Reagan Presidency an economic failure is multifactor productivity growth in the period 1973-1990.

Not only it is nuts to use a 17 years period to evaluate Ronald Reagan’s 8-year presidency, Paul Krugman is relying on an ill-suited outcome variable. Multifactor productivity measures the residual productivity growth you have once you remove the growth of factors of production, labor and capital. If a president, for example, raises growth by raising labor supply through tax cuts, that will not show up in multifactor productivity growth (in fact, it will probably lower it). The current rate of technological change as reflected in multifactor productivity growth is probably the economic factors a president can least effect.

Here are real per capita GDP growth rates in the post 1973 period, as measured by the Bureau of Economic Analysis, recently updated.

I will simply plot average annual real per capita growth rate of GDP during the years someone was president. This is 1981-1989 for Reagan, 1993-2001 for Clinton etc. This is the most standard measure of economic growth. For President Obama the first half of 2009 will be compared to the first half of 2011, the latest available data.



During the years when Ronald Reagan was President, the United States experiences its fastest rate of per capita growth in the post 1973 era, as fast as the Clinton years.

There is no way to determine if the growth was caused by Ronald Reagan, or if this is a historical coincidence. But nor is it any mystery, neither a sign of dementia, that economists such as Michael Boskin and John Taylor are impressed by the Reagan years.

Krugman claimed there was “no hint of a Reagan miracle in the data” because he was picking a silly period and an odd outcome variable, relying as usual on the ignorance and trust of his adoring liberal readers to get away with it.

Paul Krugman likes to claim his opponents are mentally ill. Above, we saw him accuse Michael Bosking and John Taylor of having lost their minds for reporting objective facts, that the Reagan Years were associated with high growth. Here is another recent article where he accuses most of the Republican party of being “crazy”.

It is not void of comedy that Krugman – a pundit so unbalanced that he questions “American Democracy” when he loses one political battle - constantly accuses others of being “angry”, “extremists”, to “lose” their “mind” and of being “crazy”. Project much Paul?

15 comments:

  1. Nicely put. The Reagan years look good both in comparison to other Administrations post-1973 and, as you pointed out in an earlier post, comparable countries in the same period.

    ReplyDelete
  2. I've always thought that Krugman LOOKS like a crazed hate filled fanatic.

    ReplyDelete
  3. Aren't intellectual dishonesty and moral relativism the hallmarks of socialists? Would they start using correct premises, complete contexts and (even common-sense) reasoning, would mean for them oblivion. Then what do you expect?

    ReplyDelete
  4. People that call themselves Republicans thought it was necessary to raise revenues by taxing the wealthy to achieve a reduced deficit. See for instance here. Our democratic system, which is presumably being led by a left leaning guy, produced a deal that is to the right of even Republican voters. That's why people like Bill Kristol are saying that they got pretty much everything they wanted with Obama. See here.

    A large majority opposes the war in Afghanistan (see here). Most oppose the war in Libya (see here). Obama is to the right of Americans on health care, on taxes, on caving to Wall St. Sure, you accept defeat in a democratic society if the majority view is adopted. But it isn't. The majority view isn't even considered. Most would cut spending by ending wars and corporate welfare. That's not even being discussed. They cut entitlements. What we have is a system that caters entirely to the wealthy and corporations, while the large masses of people are ignored. We ought to be questioning a system that produces these outcomes.

    ReplyDelete
  5. Hey Jon, dude.
    Huge majorities oppose affirmative action, and support drastically reducing immigration. Do you see that happening?

    Are you saying that a deal that does not even cut spending back to 2010 budget is right-wing? I guess I can call you a bonafide Communist then, for you so unlimited government as desirable. It's absolutely not _necessary_ to "tax the wealthy" or anyone further to reduce the deficit. You can cut spending, though yeah you can also eliminate "tax expenditures" which would actually be raising taxes but those are economically distortionary so its not so bad - like the mortgage interest deduction, state and local tax deduction, and employer-provided health insurance deduction.

    You are right about the wars. Though what is so "right-wing" about perpetual war? The foreign policy of perpetual war is as old as Woodrow Wilson, followed by almost every president. It IS interesting. Liberal internationalists and Neocons - same people different masks.

    Ending corporate welfare is an excellent idea as well. So, go on, find out who actually supports more corporate welfare? Who has asked for the elimination of farm subsidies, for example?

    ReplyDelete
  6. Hey Jon, Dude!

    Medicare, Medicaid, Social Security and Unemployent benefits make-up about 60% of the federal budget. Add-in benefits for farmers, students and veterans and the amount is almost two-thirds! Your statement, "What we have is a system that caters entirely to the wealthy and corporations, while the large masses of people are ignored" is not hyperbolic, it is delusional! We are well on the way to Euro-welfare state territory!

    ReplyDelete
  7. I like this: "There is no way to determine if the growth was caused by Ronald Reagan, or if this is a historical coincidence." No way at all, huh? I mean, certainly economists' knowledge of macroeconomic causation is meager, but we can say some things. For instance, Reagan's presidency began during a recession and ended at the peak of a boom, which artificially increases his score. Also, oil prices dramatically fell during his presidency.

    Maybe you missed this helpful Krugman post, which shows growth rates for any 25 year period you choose. It makes clear the problem with the Taylor quote in question: "...America entered a period of unprecedented economic stability and growth in the ’80s and ’90s...it was a more stable and sustained growth period than ever before in American history." Stable, yes, but most growth, no.

    ReplyDelete
  8. 1. “For instance, Reagan's presidency began during a recession and ended at the peak of a boom”

    As did the Clinton Presidency. At any rate, the Reagan Presidency started with an output gap of 2% of GDP, and ended around +1%. This is hardly enough to account for 30% GDP growth.

    2. Oil prices matter for the household budget, but not much for long run GDP of a country which (at 1981) was not a big net importer of oil.

    Overall, changes in the price of oil are insignificant for GDP during this period. Oil imports 1981-1989 changed by merely $26 billion dollars.

    3. Krugman quite clearly writes that there is “no hint of a Reagan miracle in the data”.
    This is what I object to. Would you like to defend this politically charged statement instead of talking about some other statement which I don’t discuss? I notice you conveniently skipped it.

    And no, you cannot use a 25 year period to evaluate the Reagan Presidency.

    ReplyDelete
  9. 1. Fair enough, but such effects do matter more for the 1-term presidents in the rest of your chart.

    2. Oh, so domestic oil producers generously keep their prices artificially below the world oil price to help the economy? How are oil imports relevant at all?

    But I have to admit the effects of oil price changes are likely short-term. For what it's worth: http://rogerpielkejr.blogspot.com/2011/02/oil-prices-and-economic-growth.html

    3. I was talking about the Taylor statement that Krugman was objecting to - seems relevant to me. But I do agree with you that Krugman's focus on productivity growth is strange. And I also agree his "no hint" language is unwarranted.

    Again, the 25 year period was suggested by John Taylor, not Krugman or me. I think it's common for Reagan fans to claim credit for the 90's growth, no? And wouldn't that make sense under the notion that lower taxes spur innovation, which has long-run effects?

    ReplyDelete
  10. You wrote 5 paragraphs about Krugman's antipathy toward "American democracy" without actually describing his argument.

    His column was about the apparent willingness to do something objectively bad for the country (default) in order to accomplish their political priorities (prevent tax increases). It's fine if you dispute the premise, but to ignore it and pretend this is sour-grapes whining about the Republicans winning in 2010 is ridiculous.

    ReplyDelete
  11. Evan:

    Threatening not to raise the ceiling cannot be so bad, since Krugman himself argued that Democrats should vote no on the compromise (neither would have led to “default”, the U.S has tax revenue to service the debt).

    If Krugman only criticized the behavior of his opponenst, I would have ignored it. But he concluded his article by specifically question “American Democracy” and “our whole system of government”. Those remarkable conclusions are Krugman’s, not mine, and not as far as I know expressed by other important pundits, even on the left.

    “the apparent willingness to do something objectively bad”

    You shouldn’t use the word “objective”. It is not “objectively” bad for the country, since the Tea Party itself hardly believe stopping deficit spending is bad for the U.S. Krugman’s view of Tea Party policies is “subjectively” bad.

    This is about maturity. Both sides believe that the other side’s policies are bad. I believe that Krugmans proposal to accelerate deficit spending would lead to a disaster.

    But the core of Democracy if that you respect when the other side wins and exercises power, even though you think what they want is bad (just as they think your policies are bad for the country). Paul Krguman lacks this maturity.

    ReplyDelete
  12. why is GDP better then Krugmans median income
    Following your logic, if ALL of the growth had accrued to bill gates, reagan would have a great record...

    ReplyDelete
  13. This comment has been removed by the author.

    ReplyDelete
  14. Reagan and Clinton also do far better than other presidents in the same period using median household income.

    Real increase in median household income:

    Clinton: +12.0%
    Reagan: +11.9%

    Carter: -1.4%
    Bush w: -2.7%
    Nixon/Ford: -3.5%
    Bush I: -5.4%

    http://www.census.gov/hhes/www/income/data/historical/household/H05_2009.xls

    GDP is better because it is a more compleate measure.

    You can come up with weird "what if" with median income too.

    Also, I don't quite understand your point, since I cite Krugman as using total factor productivity 1973-1990 to evalute Reagan, not median income (perhaps he did this somewhere else, but you didn't link).

    ReplyDelete
  15. One of the most disingenous charts that I have ever seen.

    Economic policy is not a Markov process. President Carter and the FED at the time began a process in 1978 to extinguish inflation from the economy. They tried a variety of tools and by 1982 the process began paying results.

    To say that the economic growth of the early 1980s had nothing to do with the monetary policy of the 1970s is nonsensical.

    ReplyDelete

Google Analytics Alternative