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Thanks, so it's clear from the article that Krugman didn't endorse any bubbles here. The sentence you quote is obviously sarcastic in context; particularly the

Thanks, so it's clear from the article that Krugman didn't endorse any bubbles here. The sentence you quote is obviously sarcastic in context; particularly the second to last paragraph, which blames the stock market bubble that had just popped partially on Alan Greenspan (chairman of the Fed): Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble. Just 2 weeks later, Krugman wrote: https://web.archive.org/web/20230607222048/http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html?pagewanted=2 https://web.archive.org/web/20230607222048/http://www.nytime... Back when I first got professionally obsessed with Japan's problems, around four years ago, I made myself a mental checklist of reasons that Japan's decade of stagnation could not happen to the United States. It went like this: ... 4. We may have a stock bubble, but we don't have a real estate bubble. I've now had to strike the first three items off my list, and I'm getting worried about the fourth. More and more people are using the B-word about the housing market. A recent analysis by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000. If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort. This does not sound like an endorsement to me; quite the opposite. The Baker analysis is here: https://web.archive.org/web/20150703032256/http://cepr.net/documents/publications/housing_2002_08.pdf https://web.archive.org/web/20150703032256/http://cepr.net/d... The important point to note here is that the housing bubble already existed in 2002, it was not created during the period of 2002-2004 when the Fed set low interest rates. See also "Understanding Recent Trends in House Prices and Homeownership", Robert J. Shiller, from 2007: https://web.archive.org/web/20101125115655/http://www.kansascityfed.org/publicat/sympos/2007/PDF/Shiller_0415.pdf https://web.archive.org/web/20101125115655/http://www.kansas... While home price booms have been known for centuries, the recent boom is unique in its pervasiveness. Dramatic home price booms since the late 1990s have been in evidence in Australia, Canada, China, France, India, Ireland, Italy, Korea, Russia, Spain, the United Kingdom, and the United States, among other countries.1 There ap- pears to be no prior example of such dramatic booms occurring in so many places at the same time. ... Conclusion The view developed here of the boom in home prices since the late 1990s has it operating as a classic speculative bubble, driven largely by extravagant expectations for future price increases. As such, the situation may well result in substantial declines in real home prices eventually. ... Monetary policy does not come out as central in the case studies examined here. Monetary policy is in an important sense concen- trated on the extreme short-term. The fundamental target variable in the U.S. is the federal funds rate, an overnight rate. And yet, eco- nomic decision makers are focused on a lifetime decision problem.

ETH_start 3y ago
>Thanks, so it's clear from the article that Krugman didn't endorse any bubbles here. Here is the excerpt in full: >To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. >Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging. So he writes that Greenspan "still thinks he can pull that off". What's "that"? It is creating a housing bubble. But then Krugman expresses pessimism in Greenspan being able to pull "that" off: "But the Fed chairman's crystal ball has been cloudy lately". This line refers to the Fed's predictions being off, which implies that Greenspan believing he'll be able to pull "that" off is not credible because he has been wrong in other predictions. The only pessimism Krugman has in this article is about Greenspan's ability to fuel a housing bubble using low interest rates, when he says: "And a sober look at recent data is not encouraging" in reference to Greenspan's ability to create, I quote, "a housing bubble". Why would you write that indications that the Federal Reserve will fail at creating a bubble are "not encouraging", unless you want a bubble created? That he's pessimistic about Greenspan being able to create a housing bubble implies that he considers a housing bubble as a good thing. He suggested that lowering interest rates could create a housing bubble that would fight the recession, and on repeated occasions from 2001 to 2004, called for the Fed to lower interest rates. It doesn't take a lot of deduction to see that if you argue something will fight a recession, and then call for the policy change that you argue will cause that something to happen, you want that something to happen. Again, to reiterate: * He wrote a low-interest-rate fueled bubble could fight the recession. * From 2001 to 2004, he repeatedly wrote that the Fed should lower interest rates: July 18, 2001 http://www.pkarchive.org/economy/ML071801.html http://www.pkarchive.org/economy/ML071801.html >"KRUGMAN: I think frankly it's got to be -- business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE). >DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she -- or I should say he and she, can they bring back this economy? >KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don't know" August 8th 2001 http://www.pkarchive.org/economy/ML082201.html http://www.pkarchive.org/economy/ML082201.html >"KRUGMAN: I'm a little depressed. You know, inventories, probably that's over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven't fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It's not a happy picture." August 14, 2001 http://www.pkarchive.org/column/81401.html http://www.pkarchive.org/column/81401.html >"Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery.... But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place. October 7, 2001 http://www.pkarchive.org/economy/ML071801.html http://www.pkarchive.org/economy/ML071801.html >"Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole. >In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package" Dec 28, 2001 http://www.pkarchive.org/column/122801.html http://www.pkarchive.org/column/122801.html >"The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged." As late as late 2004, he was advocating to keep interest rates low. Apparently the housing bubble wasn't big enough for him. http://www.pkarchive.org/column/081004.html http://www.pkarchive.org/column/081004.html >Oh, and on a nonpolitical note: even before Friday's grim report on jobs, I was puzzled by Mr. Greenspan's eagerness to start raising interest rates. Now I don't understand his policy at all.

ETH_start 3y ago

>Thanks, so it's clear from the article that Krugman didn't endorse any bubbles here. Here is the excerpt in full: >To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. >Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging. So he writes that Greenspan "still thinks he can pull that off". What's "that"? It is creating a housing bubble. But then Krugman expresses pessimism in Greenspan being able to pull "that" off: "But the Fed chairman's crystal ball has been cloudy lately". This line refers to the Fed's predictions being off, which implies that Greenspan believing he'll be able to pull "that" off is not credible because he has been wrong in other predictions. The only pessimism Krugman has in this article is about Greenspan's ability to fuel a housing bubble using low interest rates, when he says: "And a sober look at recent data is not encouraging" in reference to Greenspan's ability to create, I quote, "a housing bubble". Why would you write that indications that the Federal Reserve will fail at creating a bubble are "not encouraging", unless you want a bubble created? That he's pessimistic about Greenspan being able to create a housing bubble implies that he considers a housing bubble as a good thing. He suggested that lowering interest rates could create a housing bubble that would fight the recession, and on repeated occasions from 2001 to 2004, called for the Fed to lower interest rates. It doesn't take a lot of deduction to see that if you argue something will fight a recession, and then call for the policy change that you argue will cause that something to happen, you want that something to happen. Again, to reiterate: * He wrote a low-interest-rate fueled bubble could fight the recession. * From 2001 to 2004, he repeatedly wrote that the Fed should lower interest rates: July 18, 2001 http://www.pkarchive.org/economy/ML071801.html http://www.pkarchive.org/economy/ML071801.html >"KRUGMAN: I think frankly it's got to be -- business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE). >DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she -- or I should say he and she, can they bring back this economy? >KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don't know" August 8th 2001 http://www.pkarchive.org/economy/ML082201.html http://www.pkarchive.org/economy/ML082201.html >"KRUGMAN: I'm a little depressed. You know, inventories, probably that's over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven't fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It's not a happy picture." August 14, 2001 http://www.pkarchive.org/column/81401.html http://www.pkarchive.org/column/81401.html >"Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery.... But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place. October 7, 2001 http://www.pkarchive.org/economy/ML071801.html http://www.pkarchive.org/economy/ML071801.html >"Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole. >In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package" Dec 28, 2001 http://www.pkarchive.org/column/122801.html http://www.pkarchive.org/column/122801.html >"The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged." As late as late 2004, he was advocating to keep interest rates low. Apparently the housing bubble wasn't big enough for him. http://www.pkarchive.org/column/081004.html http://www.pkarchive.org/column/081004.html >Oh, and on a nonpolitical note: even before Friday's grim report on jobs, I was puzzled by Mr. Greenspan's eagerness to start raising interest rates. Now I don't understand his policy at all.