Several liberal blogs are chortling over this statement I made early in the year:
Will the economy decline in 2008?
Paul Krugman is voting for doom. It's worth keeping in mind, however, that Paul Krugman has predicted eight of the last none recessions under the Bush administration.
I think it's obvious we're in a slowdown, and a recession seems likely-ish, but Britain's skirted recession for over a decade now, so I can't be too fatalistic.
This is obviously hilarious--if you have an incredibly shaky understanding of statistics, and also, no knowledge of decision science.
If you keep predicting a recession, eventually you will be right. Every time there was the slightest downturn in the numbers, Paul Krugman predicted a recession. Eventually he was right. Do we give him credit for the one he got right, or the multiple ones he got wrong? To liberals, the answer seems obvious. Which gives credence to the conservative belief that liberals are people who cannot do basic math.
A more interesting question is what to do about doomsayers like Nouriel Roubini, who got the magnitude of the crisis right, but has similarly been predicting a financial holocaust for five years, with changing scenarios which mostly did not come to pass. Obviously, he was right that the global financial system was shaky. On the other hand, his understanding of why the global financial system was shaky does not seem to have been strong enough to predict the source of the failure--the current account deficit and the dollar have been at best minor players, at least in the way that he was worried about way back in 2004.
There are a lot of financial pundits out there. The law of large numbers means that one of them will turn out to have predicted almost any financial event. How do you separate true genius from monkeys throwing darts? That task is made much harder by the tendency of pundit partisans to look only at predictive successes, while discounting the failures. If you eliminate all of Paul Krugman's predictions that did not come to pass from the sample set, he looks like a genius. Unfortunately, the same is true of Larry Kudlow.
The people who, it seems to me, have been truly vindicated by this are Nassim Taleb and Benoit Mandelbrot. They nailed what to me is the core issue: bankers pricing security risk as if it were distributed along a normal curve with thin tails.
Paul Krugman = monkey throwing darts. Well alright then.
"It's worth keeping in mind, however, that Paul Krugman has predicted eight of the last none recessions under the Bush administration."
What's the difference between this and the claim:
"Paul Krugman has warned of the current recession several times in the past few years."
Krugman is only to be criticized if he has said, at the time of his predictions, that the recession was due in the coming months. Did he?
Hi -
Good take on the fundamental problems of forecasting.
The only forecasters to trust are those who can tell a convincing story why their forecast looks and behaves as it does. That way you can understand why the forecast looks like it does and can discount anything you disagree with.
Run from any forecaster who thinks that just giving you a graveyard filled with numbers is perfectly okay, as well as from those, when asked for the story behind the forecast, tell you how great their equations are.
Taleb and Mandelbrot have a convincing story to tell. Roubini has made a career, quite a successful one now that he's finally been right, with a good story that final came true.
And Krugman has expressed sincere regrets at not having seen The Financial Panic of 2008 coming. His forecasts of recession over the last several years are based on his vitriolic hatred of Bush, and that is not a good story to base a forecast on.
Do we have to talk about Krugman again?
See, it's like I said - Give the guy a "prize" and watch what happens...
I find it mildly amusing that he kept predicting problems even though he didn't see this one coming - He is still clueless as to the cause(s) - And yet we're still talking about him.
The mind boggles.
In defense of Krugman and Roubini, they looked at the system as a whole, but could not see every nook and cranny.
I think of it much like a house that has a bad termite infestation. You know the termites are there, you know that the whole foundation will collapse, you know it will be soon, but you have no idea if it will be tomorrow, next week, next month, or next year.
At least they were saying "Hey, there are termites here, we need an exterminator." As opposed to everyone else who is saying "This is a new type of wood, where we can't even get termites, so shut up and let us continue on as before."
The economic system is too big and complex to know what it will do day to day. But it is not too big to know whether it is built on a rotten foundation.
It took Krugman a while to be right. They knew it couldn't go on, and the end would be bad. But you can't predict the end of the music when playing musical chairs.
You were never right.
Big difference.
I boldly predict another financial crisis in the future. Since I can't give you an exact date and time, good luck trying to plan for it. Also, it will be different than the one that we are going through now but in some ways similar.
Johm Opie's comments on problems of forecasting are, not unexpectedly, on the nail.
I would add walk carefully away from any forcaster who boasts of how well his or her model fits the past. Confidence that the future will be just like the past is very dangerous. Worse, it is often infectious.
Not all the bankers, hedge funds, insurers, etc. limited their models to thin-tailed normal distributions. Some were a good deal more sophisticated. However, there was a common error in discounting the rare event which is hard to model; and sticking to handy normal distributions appears to have been the most common form of the error.
Arguably (i.e.,"I guess"), there was also a common error in under-estimating the correlation matrix between the different types of financial risk. I think that the common procedure was to build this up from the individual correlations between different risks. Conceptually, that seems inadequate.
Your point would be sound had Kurgman predicted numerous prior recessions that did not occur. But the only one you linked to is from Janauray of this year, and he suggests one may already be under way. That does not appear unreasoable.
I read him with some regularity, and I do not recall prior recession predictions. He is of course critical of tax policy over the last 8 years, no doubt, but I don't recall recession predictions. Perhaps I missed them. Can you elaborate?
So, let's take a look at your various prognostications and see which were right and wrong, then, eh, Megan?
Your discounting of Krugman is another classic example of you doing your own selection bias. He was right it was coming, though off by a number of years about when, so you go and claim that ZOMG HE'S ALWAYS WRONG!
I have no idea whether he was right or wrong, but all of your claims about him seem to obviously to be relevant to you. I mean, next you're going to attack the guy for breathing.
Does anyone have any quotes from Krugman showing him to be wrong, wrong, wrong, just lucky, wrong, wrong, wrong? This looks an awful lot like those people who were 'just lucky' about Saddam and WMD. Or were 'just lucky' about failing infrastructure, the levees around New Orleans, etc. How about this guy was he 'just lucky' too?
No, it seems to me from my reading that Krugman has been predicting a coming storm for years - the same storm for the same reasons. But by all means, produce all those quotes where Krugman mistakenly predicted a recession.
Sure. Search PKArchives.org for the word "recession", or the New York Times, and you will find that your memory is faulty. Paul Krugman has argued that we might be going into recession multiple times since Bush came into office, often right before record growth. The tendency of people to forget the failed predictions is the reason that they hail various pundits as geniuses when some predictions pan out. It's not as if he predicted the current crisis; he just said the fundamentals didn't look so hot. But after eight years of growth, it's a good mathematical bet that the economy is going to go into recession, no special genius required.
I think you should withhold judgement until you see the real numbers (unemployment and growth) for this quarter. My guess is that they are not going to be nearly as bad as advertised and that all of the fears of it being 1933 all over again will prove to be false.
Its about time someone called the Republicans termites.
The Austrians are the only economists as a class that really hit the nail on the head. They have not only predicted this banking crisis, but told you why it would happen, too. They have even predicted the governmental responses taken and why they will ultimately fail.
As for others, special note goes to Doug Noland at Prudentbear- he has seen the writing on the wall for quite a while. He analyzes credit in a weekly column. I learned more about the credit system from reading him over the last 7 years than reading anything else. His analytical framework was the correct one.
Megan today:
Megan yesterday:
Megan McArdle: God's gift to pseudo-intellectual, pseudo-libertarian English majors who don't understand economics yet are ostensibly paid to write about economics but instead come off sounding like 19 year old upper-middle class self-proclaimed "Objectivists."
By the way, how was The Kruggmeister's precience with respect to the Iraq Invasion? How was Megan's or "Jane Galt's"?
And how about with respect to the wildly regressive George Bush, Jr. tax cuts?
In answer to the question as to where are all these Krugman quotes that back up Megan's thesis, we get this:
Er. Um. No. _You_ made the claim. _You_ support it. We know what happens when people try to disprove conservative statementss: the conservative in a turnabout claims that the evidence presented 'doesn't satisfy him.' And this usually ends up with the conservative crowing that no one could prove they were wrong.
Hasn't this happened often enough by now that this is starting to look like some sort of mental illness?
Anyway, we still haven't seen these 'shrill' screeds by Krugman predicting 'eight of the last zero recessions.'
I have a copy of "The Bear Book" and it has a section on people who "predicted" recessions. Bottom line, there are people who are successful multiple times, but only because they predict one every year. And then there are people who predict once - but never get it right again.
Megan, but he did predict this specific bubble. He got the housing bubble right in 2005 and when a housing bubble bursts, a recession is inevitable. The fact that he didn't know exactly when and how it would pop is entirely understandabla
I can't speak for Krugman, I haven't been reading him this last decade. I can speak for myself, and I've predicted both this collapse and the dot-com bubble burst. I predicted each would happen about 4 years before it did. This shows I have a systematic bias towards believing people will pull away from insane pyramid schemes with capital thrown after non-existent markets or products earlier than they do.
This is not a statistical error, it is a systematic error.
I'm just curious what your take has been in over the last decade, Megan, on the wisdom of spending billions on internet sales companies that bankrupted one after another for years on end before and just after the turn of the century. I'm also curious what you said about the construction of thousands of homes for which there was no available market.
I don't think the question should be "why was he wrong 8 times, and right once?" I think the question is "why did it take so long for such an unstable practice to collapse?"
What Krugman did recognize (as early as 2005) was that the housing bubble was not sustainable, and that the "prosperity" fueled by people cashing in the dubious "equity" from their homes couldn't last. Right now, his views seem to make more sense than tho True Believers in the perfection of the unregulated free market who mocked him.
There's another bubble growing in credit card debt that may cause even more pain when it bursts. Credit-card issuers won themselves (via payola campaign contributions) the right to modify credit card contract terms at will, under Heads-I-win-Tails-You-Lose rules. Banks are allowed to charge extortionate fees for late payments, and to increase the interest rate at will. That means that a lot of the credit card "assets" on the banks' books are as phony and uncollectible as the mortgage assets were before the fall.
Fundamentals matter. When the ratio of the average cost of a home to the average household income increased by leaps and bounds, sensible people (including Krugman) smelled a rat. When continued "growth" in GDP is fueled not by production of real goods, but by increases in consumer debt, sensible people smell another rat, and don't assume that the party will never stop.
This is funny. Having seen argument after argument from McArdle --particularly regarding healthcare --that shows an extremely shaky grasp of the meaning of statistics, the spectacle of her lecturing people on the meaning of statistics is Monty Pythonish.
Personally, I think she's just jealous of Krugman. Whatever his strengths or weaknesses, he has a large body of work, much of it based upon statistics, that has gained wide-spread respect, and now a Nobel prize.
What does McArdle have? Irrational opinions galore, and a blog to sound off in.
It could be better, but that would require hard work. But it could be worse. She might lose the blog if the market for irrational fantasies diminishes.
There is always something for which to be grateful.
If we're flying in a plane and I see the window start to break, I might turn to you and say, "The windows seem to be breaking, shoddy construction, eh? This plane might very well go down."
Then, if the engines start to fail, I might again turn to you and say, "The engines seem to be aflame, it truly does seem to be that this plane will crash."
If the wing then snaps, sending us into a tailspin, are you really going to turn to me and say, "Well sure you're right about the crash, but you were WAY off as to why. What a crackpot."
Search Megan's archives for the word "recession" and you get 269 (now 270) hits. Does that mean Megan's been a perennial Gloomy Gus, too just like PK?
Reminds me of my conservative brother, who perennially “predicts” that terrorists will attack the US. I once told him that he may be right but he’ll never be rational.
Hilarious!
But why, if the US economy has been as strong during the Bush years as Krugman's critics maintain, has the growth in real incomes and average wages been so anaemic?
Given the contraction in real US income per capita from 2000 through 2003, calling recession during that period seems not unreasonable. At the very least, economists wanting to advance the view that all was rosy during that period have an uncomfortable amount of explaining to do.
And I'd reckon that anyone without an axe to grind might be inclined to find Krugman's 2005 article on the likely impact of the collapse of the housing bubble prescient rather than laughable:
"..But although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we'd be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession."
Megan, in that internet TV thing you did a while back you said your basic instinctive orientation was to tell people "don't panic".
Why don't you just concede that this basic orientation is ill suited to a historical moment at which, in retrospect, it would have been better to run around yelling "Panic! Panic! Panic!"
Caveat: I searched at PKArchive.org (note correction) as Meghan suggested but was unable to order by date, and there were too many hits. So I went to NYTimes.com, advance search and looked for Paul Krugman articles between 2002 and 2007, inclusive. There's a lot, and I just clicked on the ones that looked like they might talk about recession. I certainly may have missed the columns Meghan is alluding to. But the analysis I did find seemed pretty cautious and reasonable.
2002
2003
May 24th: The crucial question is whether we'll stumble into the swamp in the first place -- and the risks look uncomfortably high.
The particular type of quagmire to worry about has a name: liquidity trap. As the I.M.F. report explains, the most important reason to fear deflation is that it can push an economy into a liquidity trap, or deepen the distress of an economy already caught in the trap.
2004
2005
June 6th: When March's numbers came in much better than expected, I cautioned readers not to make too much of one good month. Similarly, we shouldn't make too much of June's disappointment. The question is whether, taking a longer perspective, the economy is performing well. And the answer is no.
If you want a single number that tells the story, it's the percentage of adults who have jobs. When Mr. Bush took office, that number stood at 64.4. By last August it had fallen to 62.2 percent. In June, the number was 62.3. That is, during Mr. Bush's first 30 months, the job situation deteriorated drastically. Last summer it stabilized, and since then it may have improved slightly. But jobs are still very scarce, with little relief in sight.
Bush campaign ads boast that 1.5 million jobs were added in the last 10 months, as if that were a remarkable achievement. It isn't. During the Clinton years, the economy added 236,000 jobs in an average month. Those 1.5 million jobs were barely enough to keep up with a growing working-age population.
2006
Aug 7th: The key point is that the forces that caused a recession five years ago never went away...Nonetheless, the economy grew fairly fast over the last three years, mainly thanks to a gigantic housing boom. This boom led directly to unprecedented spending on home construction. It also allowed consumers to convert rising home values into cash through mortgage refinancing, so that consumer spending could run far ahead of families’ incomes. (Americans have been spending more than they earn for the past year and a half.)
Even optimists generally concede that the housing boom must eventually end, and that consumers will eventually have to start saving again. But the conventional wisdom was that housing would have a “soft landing”
Oct 30: 1. Housing bubble? What housing bubble? “A national severe price distortion [in housing] seems most unlikely in the United States.” (Alan Greenspan, October 2004)
2. “There’s a little froth in this market,” but “we don’t perceive that there is a national bubble.” (Alan Greenspan, May 2005)
3. Housing is slumping, but “despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.” (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)
4. Well, that was a lousy quarter, but “I feel good about the U.S. economy, I really do.” (Henry Paulson, the Treasury secretary, last Friday)
5. Insert expletive here.
Dec 1st: But that’s still a minority position; most forecasters are still telling us not to worry. So whom should you listen to? And how can you avoid believing what you want to believe?
Maybe the best answer is to look at what the financial markets say. Not the stock market, which is a notoriously bad indicator of the economy’s direction, but the bond market. (Paul Samuelson, the Nobel Prize-winning M.I.T. economist, famously quipped that the stock market had predicted nine of the last five recessions).
Since last summer, when the housing bust became unmistakable, interest rates on long-term bonds have fallen sharply. They’re now yielding much less than short-term bonds. The fact that investors are willing to buy those long-term bonds anyway tells us that these investors expect interest rates to fall. And that will happen only if the economy weakens, forcing the Federal Reserve to cut rates. So bond buyers are, in effect, betting on a future economic slowdown.
How serious a slump is the bond market predicting? Pretty serious.
2007
June 27th: This tells us that investors still consider a recession, which would cause the Fed to cut interest rates, fairly unlikely.
Dec 29th: The housing bust has lived up fully to my expectations. So far, however, the economy has held up surprisingly well (ask me again in a few months). How come?
It’s the exports, stupid.
Paul Krugman is the stopped clock of recession prediction:
1. "Right now it looks as if the economy is stalling..." — Paul Krugman, September 2002
2. "We have a sluggish economy, which is, for all practical purposes, in recession..." — Paul Krugman, May 2003
3. "An oil-driven recession does not look at all far-fetched." — Paul Krugman, May 2004
4. "A mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." — Paul Krugman, April 2005
5. "If housing prices actually started falling, we'd be looking at an economy pushed right back into recession. That's why it's so ominous to see signs that America's housing market ... is approaching the final, feverish stages of a speculative bubble." — Paul Krugman, May 2005
6. "In fact, a growing number of economists are using the "R" word [i.e., "recession"] for 2006." - Paul Krugman, August 2005
7. "But based on what we know now, there’s an economic slowdown coming." - Paul Krugman, August 2006
8. "This kind of confusion about what’s going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession" - Paul Krugman, December 2006
9. "Right now, statistical models ... give roughly even odds that we’re about to experience a formal recession. ... The odds are very good — maybe 2 to 1 — that 2007 will be a very tough year." - Paul Krugman, December 2006
And incidentally, you just don't want to get yourself into an argument where you're essentially saying you understand what's going on better than the guy who just won a Nobel Prize in Economics does. You just don't want to position yourself that way.
@brooksfoe
There it is - I told you...
Just damn.
Looks like Mixner wins it
Paul Krugman is the stopped clock of recession prediction:
Which of Kruggs' statements were objectively loud wrong?
And just curious, Mixie, how'd Kruggs do with Iraq Invasion predictions? How'd you do?
Actually, this is the modeler's version of Murphy's Law. "In a crisis, correlations go to 1."
That's one of the really problematic issues with modeling; correlations are non-constant.
You sound great, Megan! Hope you're over all that bronchial stuff!!!
Your comment reminds me of the book Stumbling on Happiness, which beautifully shows how we (readers) over remember certain things and miss remember other things that were going on at around the same time and so come to faulty, though plausible, assumptions about what we think will make us happy and that because they're faulty, those assumptions invariably make us feel unhappy: like an overturned bowl of cherries (the cover).
Seems like there's lots of unhappy readers in your comments section! Not me! Your insights are terrific.
If you want a single number that tells the story, it's the percentage of adults who have jobs. When Mr. Bush took office, that number stood at 64.4. By last August it had fallen to 62.2 percent. In June, the number was 62.3. That is, during Mr. Bush's first 30 months, the job situation deteriorated drastically. Last summer it stabilized, and since then it may have improved slightly. But jobs are still very scarce, with little relief in sight....Bush campaign ads boast that 1.5 million jobs were added in the last 10 months, as if that were a remarkable achievement. It isn't. During the Clinton years, the economy added 236,000 jobs in an average month. Those 1.5 million jobs were barely enough to keep up with a growing working-age population.
There -- it's statements like this one that give critics like MM ample ground to criticize Krugman irregardless of broadly-defined professional awards handed out in Scandanavia.
It is generally not disputed by anyone that unemployment was at historic and unsustainable lows during the technology bubble years. Moreover, it is not a fact in serious dispute that the economy was cresting the bubble in late 2000 even before the election, or that the recession that followed was driven sharply lower by a small international skirmish over the height and placemnt of American skyscrapers. (Krugman, being a bright enough guy to merit a Nobel Prize, may have some recollection of it.)
Kruman, speaking as an economist, would have given more place to the above information in any real attempt to inform his readership about economics. Krugman, speaking as a political pundit, felt no such obligation and instead used data culled by economists to make pissy little points about politics. And even then his predictions fell wide and short of the mark.
And that is why he gets no quarter for "predicting" the current events. So he looked at the unsustainable direction of the housing market and said "can't go on forever" -- so what? Many other people who are not Nobel Prize-winning economists said the same thing. All were right, but unless anyone can point to the specific statements by Krugman that both nailed the current financial crisis AND were foresight-seperable from the noise of his previous incorrect predictions, the wolfpack needs to find some other antelope to chase.
bankers pricing security risk as if it were distributed along a normal curve with thin tails.
I would put the problem more to do with incorrect assumptions of independence between securities.
And just curious, Mixie, how'd Kruggs do with Iraq Invasion predictions? How'd you do?
Tu Quoque is such a powerful argument....
John Thacker,
I can't tell if your phrasing is just better rather than actually different than the one Megan quoted, but in any case, I think it the correct one. One can suppose, as the entire financial world comes under the umbrella of one owner, that all the credit derivatives will net out and all that credit risk will be shown to be completely unhedged.
I suggest upgrading Mixner's 1:04 PM comment to a post, or at least that Megan link to an old post supplying similar information.
Megan, you're illiterate. For Atlantic Monthly to retain you in ANY capacity, much less that of an economics writer, is preposterous. Krugman won a nobel prize. You're not even qualified to wear a hairnet and ask me if I want fries with that Coke.
Nobel Prize should be capitalized. All literate people should know this.
Tu Quoque is such a powerful argument....
So's skirting the question. Keep standing by Our Leader, G.
His statements from 2005 on are fairly accurate and describe the current crisis. The current crisis' roots started when home prices in 2006 stagnated and banks started to pull back on loans a little bit. It slowly unwound to the current financial crisis, but this crisis didn't start in 2008.
2004 isn't all that inaccurate either as rising oil prices certainly had an impact on the economy. I didn't notice him say when, but it is accurate to say that high oil prices is bad for the US economy.
We probably would have had a recession in 2002, if it hadn't been for the housing bubble as well.
I'm not sure what your point is, that from 2005 on Krugman warned that what was happening in the economy at that time spelled recession. Considering that 2005 is now considered the peak of the housing market, he was actually fairly accurate in his timing as well.
Shorter McArdle -Liberals are always wrong even when they're right.
I guess by 's theories Megan is due to be right about something sometime soon.
How hard is it to predict an economic crisis when the foundation of the monetary system is based on paper bills backed by...nothing? Guess what, in 10 years when Social Security will need to dig into the "surplus" (treasury bonds), government will need to find that extra money, and likely they will print it (since that's less damaging politically than reducing benefits, even though devaluing the currency by inflation does the same thing). Will it lead to a major crisis? Maybe. Will it make us all worse off? Of course. I don't think it's necessary to predict the day and time when your roof will collapse, so long as you understand that throwing your trash on the roof in the first place isn't a good idea and will inevitably lead to bad things happening. If the bad things happen to your children instead of you, that doesn't make you a chicken little.
Two things: Thanks to Mixner for his quotes. I need to take a look to see the full context, but even with just the blurbs, I don't see that these exactly trash Krugman's reputation. After all, the recovery was very sluggish and job creation fell below the level of new job seekers entering the economy in what, like 80-90% of the months since the recession ended? And "an oil driven recession is not farfetched" is hardly "I stake my reputation on a recession starting next month". And "A mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." was actually true. Or doesn't true count? And "If housing prices actually started falling, we'd be looking at an economy pushed right back into recession. " - "if" doesn't equal "I stake my reputation on it". His comments at the end of 2006 look pretty good too. The months that job creation equaled job seekers were becoming rarer, something that impacts people directly, as opposed to stock market yields.
Look, I'm not arguing that Krugman is a Delphic Oracle. If anything, like most experts, he shies away from predictions, tending to throw out a lot of "if's", "might be's" "on the one hand, on the other's". But the reality is that this recovery did not touch most Americans in a positive way. Most households saw income growth at or below the inflation rate, and jobs did not keep up with population growth. He has pretty consistently pointed this out. And by the end of the recession, most Americans will end up below where they started at the beginning of the 2000 recession. Krugman has been correct about that all along, not as a predictor, but as an observer or analyst.
Much of W's tenure has been recessionary in nature.
You might say that there ought to have been a recession 2001-2006 but it was kept away by low interest rates and then the housing bubble.
In other words, the patient was ill, but not bed-ridden, because he was injected with amphetamines and therefore cheerful and mobile.
I think around 10% of consumer spending in 2006 was HELOC withdrawals. Enjoying the fruits of an asset bubble is not a real economy, since actual value is not created when your house goes up in price and therefore this kind of spending is just borrowing from the future - spending on credit, no?
Hence, without the housing bubble 2001-2006 probably would have seen a recession or two.
The boom in 'financial services' similarly didn't create value, unless these financial services were removing inefficiency. In retrospect, it becomes apparent that they weren't removing inefficiency but just inventing value where there wasn't value (thinking of MBS's here, which apparently offered no-risk high-yield returns.)
So - yes - nobody knows when a recession will actually come, but it's not too hard to perceive unstable conditions.
"We're all Austrians now."
Why do you do this to yourself? Some liberal bloggers were mocking you, and rather than ignoring them you make yourself sound even more foolish. Ed at 12:23 perhaps best captures why you should have taken some deep breathes rather than blog while suffering from wounded ego. If you really wanted to strike back, you should have kept it to a interblog spat. Krugman's way out of your league, and not because he's a NYT's columnist.
"But why, if the US economy has been as strong during the Bush years as Krugman's critics maintain, has the growth in real incomes and average wages been so anaemic?"
Why indeed? You imply, but do not explain, that Bush is to blame. Why should I not blame the presence of mold between your toes for the same bad outcome? (said with a kidding poke to the ribs)
Also what is the effect of immigration on the average wage figures? Is it appropriate to strip out immigrants' wages, since the wages paid to immigrants tend to reduce the overall average wages paid? It may still be good policy to let immigrants in, but I think you do need to adjust average wages to account for the issue.
More generally, I am fascinated at how the metric du jour selected by ardent Bush detractors kept changing over the past eight years. Almost as if they were looking not for a valid economic measures but rather something to bark about....
So, if one predicted economic growth this year and next year and the next, and we finally saw some economic growth in 2011, that one would simply have been prescient about the economic growth?
If a clock read 12:00 at 8:00, it wasn't prescient, it was wrong. And it was still wrong, not prescient, at 9:00, 10:00, and 11:00, even though the time eventually did become 12:00.
Krugman once wrote, in a review of a book by Milton Friedman, that economics still had no explanation for the depression in the 1920s and 30s.
Anyone who could say that has no credibility, in my book.
Re: How hard is it to predict an economic crisis when the foundation of the monetary system is based on paper bills backed by...nothing?
Back in the days when the monetary system was based on one or two quite useless but cute metals whose only practical uses were in ornamentation economic crises were frequent and in some ways more severe than today.
You didn't have to be a nobel prize winning economist to see that the housing boom was at the breaking point years ago.
A lot of the defenders of Krugrman are deploying the same logic that gets people to stretch Nostradamus's work to fit the facts.
Every year he predicted a recession.
Recession did not come for years.
Granted, in hindsight the economy was obviously fundamentally sick during the period, but if that is what he was getting at, he should have said that.
If he said it every year, eventually he would be right. Predicting recessions is like predicting earthquakes in California; eventually, you will be vindicated.
It's OK to be wrong making predictions, its a fact of life. Anyone who dares to speculate about the future is going to look like an ass from time to time. But you don't turn around and say that Krugman was super smart because he finally got it right after 4 years of trying, or that the recession of 2008 proves his prediction in 2002 was on the money.
Krugman once wrote, in a review of a book by Milton Friedman, that economics still had no explanation for the depression in the 1920s and 30s.
Anyone who could say that has no credibility, in my book.
Your own credibility would increase rapidly if you could provide a citation. Thanks in advance. And thanks again for the Iraq Invasion. It's awesome.
Every year he predicted a recession.
We likely would have had a recession without the trillions of dollars of wealth created through the housing bubble starting in 2001. Where would consumer spending have been without $500+B a year in mortgage equity withdrawls? The only reason people were feeling richer the last few years was because they were able to extract hundreds of billions of dollars from their homes. Without it we would have felt the effects of lower wages and fewer jobs. Now that the party had ended, we have a global financial crisis and impending recession. Now that people can only spend what they earn, we're finding consumer spending is at unsustainable levels.
What the housing bubble did was kick the can down the road until today. He saw it in 2005, and this was a time where the CW was that housing was always going up and the DOW was going to 30,000+
I'd worry less about Krugman over-predicting recessions, and more about those who provided cover for the Bush economy. We had a weak recovery driven to unnatural growth by tax cuts and deficit spending. Those measures were supposed to be reserved for the other half of the business cycle, the phase we are entering now.
... but let's blame Krugman, right? Hasn't he been President for these 8 years ... er, hasn't he controlled congress .. er ...
yeah, I guess a third-rate blogger in the back (web)pages of a second-rate commentary magazine is smarter (or is that smarmier) than a nobel prize winning economist.
the technical term is "sour grapes".
... or when Krugman was the head of the Federal Reserve didn't he hold interest rates too low for too long! ... er ..
However Krugman Was right about the Bush. But even Bush Cabinet member Paul O'Neill was right. He was the early treasury secretary and even then knew that the Bush policies would lead to disaster and they have. But as we all know anyone who speaks out against the Bush admin is labeled a socialist ( All while the bush admin is bailing out wall st).
Giving Krugman credit for predicting that there will be a recession... sooner or later, makes about as much sense as giving a weatherman credit for saying "it will rain" at the start of a draught when the draught finally ends.
Let me play this game: After we recover from this recession, there will be another one!
It might take years or even decades for me to seem like a genius prognosticator because of this comment, but just you wait!!!
As the old saying goes, "even a broken clock is right twice a day."
As the old saying goes, "even a broken clock is right twice a day."
Compared to never right? Well, always right but more rarely correct. I am a Republican but I'm bothered by the Grover Nordquist style intellectual bankruptcy of the Party. Will there be a recession? Cue Grover to pop-up and say "I don't care, as long as I get my tax cut."
I'm sure the last stalwarts, the Republicans who can't look at the forest of our problems will want to stand in front of the tree all day ... and blame Krugman.
What? No one can actually find a quote where Krugman predicts a recession for 2001? Or 2002? Or 2003? Or 2004? etc. I'm shocked, shocked, I tell you. Just like I'm shocked when the usual suspects try to peddle quotes like "4. A mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." — Paul Krugman, April 2005" as 'predicting a recession' (note that it's not even a _prediction_, let alone a prediction about a recession.)
Nah. These people just plain and simple refuse to admit they're wrong. And - of course - if you can't make them admit they're wrong, they win. Whadda surprise.
Nah. These people just plain and simple refuse to admit they're wrong. And - of course - if you can't make them admit they're wrong, they win. Whadda surprise.
'tis possible. Of course, I would want to see a citation for that, since it's equally possible that "these people" don't feel that "Scent of Violets" is a compelling critic and/or would be edified by the presentation of such data, based on a history of being intractable and snippy.
Speaking of which, keep talking -- I'm collecting citations for the last possibility.
note that it's not even a _prediction_, let alone a prediction about a recession.
True, but if Krugman was wrong about what had "already arrived," surely that counts as an even stronger black mark against his analysis than an erroneous prediction. That applies to quotes 1 and 2, which are both present tense as well.
I have no idea, BTW, if he was right or wrong. As it happens, I don't care, either.
It may count; it may not. But what's being contested is a _prediction_. When the people going on about Krugman 'predicted eight of the las none of the Bush recessions' can't even produce quotes about predictions, let alone predictions about a recession and then crow that these quotes are proof that they're right, I'd have to say that they've let themselves in for some well-earned derision.
How about the derision deserved by those who assert that Fannie Mae and Freddie Mac were private entities from 1968 until September 2008, because a Wikipedia entry used the word "privatised"?
I like how people used the recent Nobel as an excuse to sift through the archives of people they don't like for criticisms of Krugman, which, as we now know, must have all been wrong.
"They nailed what to me is the core issue: bankers pricing security risk as if it were distributed along a normal curve with thin tails."
Are you sure about this? Banks are full of Chartered Financial Analysts (CFAs). Even Level 1 CFA candidates are taught that in finance non-normal probability distributions often apply. The quote below is from p.303 of last year's CFA Program Curriculum Volume 1 (Ethical and Professional Standards and Quantitative Methods):
How about the derision deserved by those who assert that Fannie Mae and Freddie Mac were private entities from 1968 until September 2008, because a Wikipedia entry used the word "privatised"?
In SoV's defense, Wikipedia counts as a citation, and this particular citation defended the left-leaning talking points while using foreign consanant inflections -- clear evidence that it was probably not written by wingers. Therefore, Freddie and Fannie were private entities.
If Krugman published an article each year without fail saying "this year, I predict recession," then you'd be right. But he didn't. The quotes above are far more analogous to your doctor telling you "your cholesterol is too high, you're at risk of a heart attack." (except for 'cholesterol' read housing bubble, and for 'heart attack' read 'recession'). Sure enough this year, the economy's cholesterol clogged up and it had a heart attack - not cancer, nor a broken leg, nor any number of other maladies, but a clogged up aorta and heart attack.
That is not only reasonable prescience, and people here saying "well, it was obvious in retrospect" don't impress anybody. If it was so obvious, why did all the big banks get caught with their pants so far down?
Come on Megan, everyone knew that the market doesn't follow a normal distribution. Mandelbrot and Taleb were just dicks about it.
Also, I would love to be attached to the prediction "something you really didn't expect will happen in the next ten years." Predicting that a black swan will happen, as I think Taleb says, is really easy. It's actually predicting the event which is difficult.
Jeez, Megan, you can't even link to the original post, you have to send us to Matt Yglesias telling us that Krugman "votes for doom"? Did you even read the Krugman post? I think that you didn't.
And maybe your strawman "liberal bloggers" didn't read it either.
My point being that both Krugman's and your (redacted) post suggest that "a recession seems likely-ish".
"Likely-ish" being the best positive outcome that the pseudo-science of Economics can ever produce.
Ah the Ann Coulter of finance, great post. I like this quote,"Krugman has the courage to be on the right side of this risk-reward tradeoff, even as too many economists prefer being slow, correct, but irrelevant to being fast, mostly right, and extremely relevant.-Justin Wolfers
Hey I've got a joke for you. It's a little old so stop me if you've heard it. What's the difference between Phil Gram and yourself? Lipstick.
Guys, the quality of Paul Krugman's recession predictions *this* year is the same as his recession predictions in earlier years. He did not state with certainty that we were going to have one in any case, only that he thought it possible or likely.
If you want to say that he didn't predict recessions in earlier years, that's a defensible position. But then it is not defensible to claim that he predicted this one. I was about as prescient at Krugman in noticing that there were vulnerabilities in the economy--indeed, virtually every single economics commentator who is not violently insane knew that there were vulnerabilities in the economy. Indeed, anyone who has been reading will have noticed that I have spent the last year wondering why the hell we aren't in technical recession. Am I a genius too?
The trouble with "aMouseforAllSeasons" comments, as with McArdle's, is that it asks for a level of proof from dissenters that they themselves do not even pretend to provide.
The default position is --"we have made some statement based upon poor statistical analysis or a very selective reading of history. It is up to you to disprove it."
But mouusie-san, the problem is --it isn't. I don't have to "disprove it". If my objections are more substantive than the flimsy justifications for your original statement, I have done my job.
In terms of talking to you or McArdle, all analysis is obviously a waste of time, since the answer has been delivered to you by divine revelation.
However, there are other readers, more capable of rational discourse.
The McArdle defense for slamming Krugman seems to be that his "market timing" is wrong.
Buffet has repeatedly commented that a focus on fundamentals precludes a concern with market timing. That is, if you get the fundamentals correctly, and are patient, the world will come around.
In fact, almost all Krugman's arguments that I have read over the last few years on his blog appear to be about fundamentals, and were far more buttressed with actual data than McArdle's ever are (I personally, question whether she even deserves the term economics blogger.) He frequently references other serious economics blogs, which McArdle almost never does.
Finally, as to why he DESERVED the Nobel prize, I refer you to Tyler Cowen, another serious economics blogger.
http://www.marginalrevolution.com/marginalrevolution/2008/10/paul-krugman-wi.html
It should be noted that neither Cowen, nor his compatriots at "Marginal Revolution" always agree with Krugman. But they disagree with him on discussable grounds, involving data and theory, not by suggesting that he is merely a child predicting doom, which is neither respectful nor accurate.
It is, however, all too typical of McArdle.
Ed said:
Your own credibility would increase rapidly if you could provide a citation. Thanks in advance. And thanks again for the Iraq Invasion. It's awesome.
Sorry, it took me a while to find the citation again. It is from the NY Times Review of Books, Volume 54, Number 2 · February 15, 2007. It's available on the web, here:
http://www.nybooks.com/articles/19857
The exact quote that struck me was, "And classical economics said that the answer to almost all problems was to let the forces of supply and demand do their job. But classical economics offered neither explanations nor solutions for the Great Depression."
(I should have found this and used the exact quote in my orignal comment.)
As for the comment about Iraq: Huh? What does that have to do with anything? If you think I had anything to do with the war in Iraq, you are greatly overestimating my influence.
Uncle Bill before:
when challenged for a citation, Uncle Bill finds:
One can only conclude that Uncle Bill knows not the difference between the subset of economics known as "classical economics" and the field of economics in general. Presumably Nobel Laurette Dr. Paul "Krugmeister" Krugman is aware of the distinction.
As for the Iraq Invasion quip, one can only presume that such ignorance about economics coupled with an attack on Dr. Professor Krugmeister's good name would come from an ardent supporter of the Iraq Invasion, one who helped as much as they could (even in small measures) to advance the horrible idea. If this is not the case, I regret the error.
But mouusie-san, the problem is --it isn't. I don't have to "disprove it". If my objections are more substantive than the flimsy justifications for your original statement, I have done my job.
Try to keep your enemies' list straight, would you? I'm way down on Page Five, about fifteenth or sixteenth from the top, in between D'Souza and that clerk from Home Depot who looked at you funny.
But since I'm here to help, let me correct a small misconception on your part: You haven't provided objections with any substance at all. When you get around to some, let me know, and I'll see if I can't provide a devestating counterpoint that might move me all the way up to those coveted orange-highlighter positions on Page One.
Ed wrote: "One can only conclude that Uncle Bill knows not the difference between the subset of economics known as "classical economics" and the field of economics in general. Presumably Nobel Laurette Dr. Paul "Krugmeister" Krugman is aware of the distinction."
Well, I'm not sure how Ed would define "classical economics," but I feel fairly confident that it would include the teachings of, say, Adam Smith, David Ricardo, and some of the people who followed them. As I recall from Econ 101 many years ago, these gentlemen believed in free enterprise, free markets, and the theory of comparative advantage.
So, I doubt if they would have thought that things like Smoot-Hawley, artificially-created jobs, and government control of wages and prices were good ways to deal with a recession.
As far as the Iraq war, my opinions are colored by the fact that I spent 1970-72 in the army (fortunately not in Viet Nam), and had a number of close friends killed in the war. So, I would describe my position now as being generally agnostic on the Iraq war. I think it was an honest attempt to deal with a real issue, but it may have been a very bad way to go about it. But none of us will really know the answer for another 10 or 20 years, at least.
Oh, wow, I saw that interview of Mandelbrot and Taleb.
Did anyone besides me notice this: Mandelbrot bears a striking resemblance to Yoda!