6 ms·

He's gotten remarkably good at not making testable recommendations or predictions. If an economy collapses, it's because the government didn't do any stimulus s

He's gotten remarkably good at not making testable recommendations or predictions. If an economy collapses, it's because the government didn't do any stimulus spending. If the government tries to stimulate but its economy still collapses, it's because it didn't stimulate enough. I don't think he's ever gone on record to say specifically how much stimulus is needed. Someone please correct me if I'm wrong.

skylan_q 14y ago
He's gotten remarkably good at not making testable recommendations or predictions. That's the problem with empirical economics with idealistic theories. You can't separate the variables, so there's always another excuse to weasel yourself out of having your hypothesis nullified.
mikeyouse 14y ago
You're wrong. http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/ http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithme... http://krugman.blogs.nytimes.com/2009/10/05/the-story-of-the-stimulus/ http://krugman.blogs.nytimes.com/2009/10/05/the-story-of-the... http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-know-the-stimulus-was-too-small/ http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-know-... http://krugman.blogs.nytimes.com/2008/01/21/stimulus-issues/ http://krugman.blogs.nytimes.com/2008/01/21/stimulus-issues/
- kevinskii 14y ago
  In most of these links he argues, true to form, that a certain stimulus proposal wasn't big enough. But nowhere did he actually say how big he thought it should be. The closest he came was in your first link, in which he demonstrated how one might theoretically calculate an adequate stimulus size. Yet this calculation depends on first choosing a value for the Okun's Law coefficient, and nowhere did he say what he thinks it would be. He just picked an "optimistic" value for the sake of demonstration. This single ambiguity easily gives him a few hundred billion dollars in wiggle room.
  - mikeyouse 14y ago
    From the first article: Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been. Finally, compare this with the economic outlook. “Full employment” clearly means an unemployment rate near 5 — the CBO says 5.2 for the NAIRU, which seems high to me. Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we’re looking at an economy that, absent stimulus, would have an average unemployment rate of 9 percent over the next two years; this plan would cut that to 7.3 percent, which would be a help but could easily be spun by critics as a failure. The math is obvious... if the economy was going to 9% unemployment without stimulus (which we now know was too optimistic), with the same composition of tax cuts : spending, $1T would be called for. Since we peaked at 10% unemployment, even with ~1T in stimulus (which should've had a ~4% impact on the rate), with this math, $2.25T could've been about right. The CBO looked back at real output / unemployment and made the following estimates.[1] - http://www.usnews.com/dbimages/master/29996/GR_120620_gdprecoveryact1.jpg http://www.usnews.com/dbimages/master/29996/GR_120620_gdprec... Which shows the impact of the ARRA. So it seems that between 2-3% reduction in peak unemployment with ~1T. So again, something like $2.5T would've been close. The point all along is that too little stimulus is far more damaging than too much, and with unemployment still above 7.5% five years later, that point seems to have some evidence. [1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/ARRA_One-Col.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/...
    - kevinskii 14y ago
      You're missing the point. Yes, the math is obvious. The correct coefficients to use are not, and those are what make all the difference.
martythemaniak 14y ago
Actually he did - it was about 2 trillion, which does not include tax cuts. http://www.nytimes.com/2009/01/09/opinion/09krugman.html http://www.nytimes.com/2009/01/09/opinion/09krugman.html This was not a unique opinion at the time - the people who correctly diagnosed the crisis of 2008 prescribed more or less the same medicine.
- skylan_q 14y ago
  Just curious... who do you include in that list of people who properly diagnosed the crisis? Personally, I would say Nouriel Roubini and Peter Schiff were spot-on with this since they started talking about it in 2003-2004.
  - _delirium 14y ago
    Schiff's prediction was that there would be an economic crisis soon, driven by hyperinflation and a dollar collapse. That is... not exactly what happened.
  - nl 14y ago
    Prediction is not the same as Diagnosis. Peter Schiff did predict problems in the housing market. He thought there would be hyperinflation, whereas the opposite occurred. Not sure if that is a good record or not.
    - lake99 14y ago
      > whereas the opposite occurred No opposite. There certainly is inflation. Just not hyperinflation. Some Austrian economists have also written on what exactly will bring about hyperinflation [1]. In short, it is when large amounts of money comes into circulation, i.e. when you and I can borrow that money to buy stuff. Peter Schiff follows the Austrian school of economics, but he is not an economist himself. His highest degree is a bachelors in finance and accounting. [1]: http://mises.org/daily/3390 http://mises.org/daily/3390
ritchiea 14y ago
He's also been pretty open about the fact that he views himself as a voice of the left and he's gradually seen himself as more political and less of an academic economist. So he's usually not trying to make testable predictions. I recall this being because he feels he has greater political impact that he did as an academic economist. If you're interested, the New Yorker did a fantastic profile of Krugman a year or two ago that covers how he views his writing for the Times [1]. That said, as other posters have pointed out you're wrong about the specific instance of the stimulus. 1. http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_...

skylan_q 14y ago

He's gotten remarkably good at not making testable recommendations or predictions. That's the problem with empirical economics with idealistic theories. You can't separate the variables, so there's always another excuse to weasel yourself out of having your hypothesis nullified.

mikeyouse 14y ago

You're wrong. http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/ http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithme... http://krugman.blogs.nytimes.com/2009/10/05/the-story-of-the-stimulus/ http://krugman.blogs.nytimes.com/2009/10/05/the-story-of-the... http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-know-the-stimulus-was-too-small/ http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-know-... http://krugman.blogs.nytimes.com/2008/01/21/stimulus-issues/ http://krugman.blogs.nytimes.com/2008/01/21/stimulus-issues/

kevinskii 14y ago
In most of these links he argues, true to form, that a certain stimulus proposal wasn't big enough. But nowhere did he actually say how big he thought it should be. The closest he came was in your first link, in which he demonstrated how one might theoretically calculate an adequate stimulus size. Yet this calculation depends on first choosing a value for the Okun's Law coefficient, and nowhere did he say what he thinks it would be. He just picked an "optimistic" value for the sake of demonstration. This single ambiguity easily gives him a few hundred billion dollars in wiggle room.
- mikeyouse 14y ago
  From the first article: Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been. Finally, compare this with the economic outlook. “Full employment” clearly means an unemployment rate near 5 — the CBO says 5.2 for the NAIRU, which seems high to me. Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we’re looking at an economy that, absent stimulus, would have an average unemployment rate of 9 percent over the next two years; this plan would cut that to 7.3 percent, which would be a help but could easily be spun by critics as a failure. The math is obvious... if the economy was going to 9% unemployment without stimulus (which we now know was too optimistic), with the same composition of tax cuts : spending, $1T would be called for. Since we peaked at 10% unemployment, even with ~1T in stimulus (which should've had a ~4% impact on the rate), with this math, $2.25T could've been about right. The CBO looked back at real output / unemployment and made the following estimates.[1] - http://www.usnews.com/dbimages/master/29996/GR_120620_gdprecoveryact1.jpg http://www.usnews.com/dbimages/master/29996/GR_120620_gdprec... Which shows the impact of the ARRA. So it seems that between 2-3% reduction in peak unemployment with ~1T. So again, something like $2.5T would've been close. The point all along is that too little stimulus is far more damaging than too much, and with unemployment still above 7.5% five years later, that point seems to have some evidence. [1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/ARRA_One-Col.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/...
  - kevinskii 14y ago
    You're missing the point. Yes, the math is obvious. The correct coefficients to use are not, and those are what make all the difference.

martythemaniak 14y ago

Actually he did - it was about 2 trillion, which does not include tax cuts. http://www.nytimes.com/2009/01/09/opinion/09krugman.html http://www.nytimes.com/2009/01/09/opinion/09krugman.html This was not a unique opinion at the time - the people who correctly diagnosed the crisis of 2008 prescribed more or less the same medicine.

skylan_q 14y ago
Just curious... who do you include in that list of people who properly diagnosed the crisis? Personally, I would say Nouriel Roubini and Peter Schiff were spot-on with this since they started talking about it in 2003-2004.
- _delirium 14y ago
  Schiff's prediction was that there would be an economic crisis soon, driven by hyperinflation and a dollar collapse. That is... not exactly what happened.
- nl 14y ago
  Prediction is not the same as Diagnosis. Peter Schiff did predict problems in the housing market. He thought there would be hyperinflation, whereas the opposite occurred. Not sure if that is a good record or not.
  - lake99 14y ago
    > whereas the opposite occurred No opposite. There certainly is inflation. Just not hyperinflation. Some Austrian economists have also written on what exactly will bring about hyperinflation [1]. In short, it is when large amounts of money comes into circulation, i.e. when you and I can borrow that money to buy stuff. Peter Schiff follows the Austrian school of economics, but he is not an economist himself. His highest degree is a bachelors in finance and accounting. [1]: http://mises.org/daily/3390 http://mises.org/daily/3390

ritchiea 14y ago

He's also been pretty open about the fact that he views himself as a voice of the left and he's gradually seen himself as more political and less of an academic economist. So he's usually not trying to make testable predictions. I recall this being because he feels he has greater political impact that he did as an academic economist. If you're interested, the New Yorker did a fantastic profile of Krugman a year or two ago that covers how he views his writing for the Times [1]. That said, as other posters have pointed out you're wrong about the specific instance of the stimulus. 1. http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_...