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The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended b

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. 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. Here's the whole paragraph for context. I don't know how it could be read any differently than as advocating this proposed solution.

danielweber 14y ago
I'm hardly Krugman's biggest fan, but, really, he's saying "the economy is so boned that he's going to need a housing bubble to get out of it." Like if I said "you have saved so poorly for retirement that your only hope is lottery tickets."
cromwellian 14y ago
"Tom lost all his money gambling in the market and now his bills are due. To overcome this, he'll have to run a Ponzi scheme." Do you think this endorses running Ponzi schemes? This old chestnut is continually dredged up by Krugman's detractors. Do you really think Krugman would publicly advocate for the creation of a bubble after just explaining the problems with the previous one? This is like believing Krugman advocates seriously for faking an alien invasion. BTW, let me finish your quote for you, here it is in full: "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." This paragraph is clearly critical of Greenspan and speaks about his motives.
icambron 14y ago
It does sound that way. Here's Krugman in 2005 reconsidering: "Nobody thought the economy could rely forever on home buying and refinancing. But the hope was that by the time the housing boom petered out, it would no longer be needed." He doesn't come off too well there either. Edit: read the whole article. http://www.nytimes.com/2005/05/27/opinion/27krugman.html http://www.nytimes.com/2005/05/27/opinion/27krugman.html
- coldtea 14y ago
  He is not reconsidering. Read the comment just above yours. He merely describes what the prevalent sentiment (on Wall Street et al) was, not what HIS was. Is reading comprehension a lost art? His writing is not even ironic (where one could be justifiably confused). It's straight out classical journalistic description of other's opinions and motives.
  - icambron 14y ago
    Until I read all of the context and the later article, I had the same interpretation as you, but it just doesn't hold up. From the article I quoted: "But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses. I've never fully accepted that view. But looking at the housing market, I'm starting to reconsider." That is him reconsidering; it says so right in the text. Did you read it? A careful reading of the 2002 article reveals that his criticism of Greenspan and Co isn't that they want to create a housing bubble, it's actually that the bubble will fail in lifting the economy. In other words, both articles are pessimistic, but one is about a bubble isn't bubbly enough and the other is him realizing it will burst and that's bad. So he missed the first time in the wrong direction and had to do a complete 180. And in that context, it's hard not to read his 2005 article as seriously advocating yet another bubble. I think you are vastly overestimating the negativity being attached to the word "bubble", and are thus simply reading Krugman as critical because he used a term you're putting in the "bad" bucket. But there simply isn't any support for that in the text. > Is reading comprehension a lost art? His writing is not even ironic (where one could be justifiably confused). Seriously?
lftl 14y ago
I don't think he advocated or clearly condemned the action in the article mentioned (and I haven't been reading Krugman long enough to recall any other posts on the issue). I think he's merely analyzing the actors involved, their motivations and their likely moves. I think this part of the article in question leads credence to that: The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble. So he's talking about what he thinks Greenspan and the administration will do and why. He doesn't appear to me to be offering any opinion on the wisdom of the course.

danielweber 14y ago

I'm hardly Krugman's biggest fan, but, really, he's saying "the economy is so boned that he's going to need a housing bubble to get out of it." Like if I said "you have saved so poorly for retirement that your only hope is lottery tickets."

cromwellian 14y ago

"Tom lost all his money gambling in the market and now his bills are due. To overcome this, he'll have to run a Ponzi scheme." Do you think this endorses running Ponzi schemes? This old chestnut is continually dredged up by Krugman's detractors. Do you really think Krugman would publicly advocate for the creation of a bubble after just explaining the problems with the previous one? This is like believing Krugman advocates seriously for faking an alien invasion. BTW, let me finish your quote for you, here it is in full: "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." This paragraph is clearly critical of Greenspan and speaks about his motives.

icambron 14y ago

It does sound that way. Here's Krugman in 2005 reconsidering: "Nobody thought the economy could rely forever on home buying and refinancing. But the hope was that by the time the housing boom petered out, it would no longer be needed." He doesn't come off too well there either. Edit: read the whole article. http://www.nytimes.com/2005/05/27/opinion/27krugman.html http://www.nytimes.com/2005/05/27/opinion/27krugman.html

coldtea 14y ago
He is not reconsidering. Read the comment just above yours. He merely describes what the prevalent sentiment (on Wall Street et al) was, not what HIS was. Is reading comprehension a lost art? His writing is not even ironic (where one could be justifiably confused). It's straight out classical journalistic description of other's opinions and motives.
- icambron 14y ago
  Until I read all of the context and the later article, I had the same interpretation as you, but it just doesn't hold up. From the article I quoted: "But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses. I've never fully accepted that view. But looking at the housing market, I'm starting to reconsider." That is him reconsidering; it says so right in the text. Did you read it? A careful reading of the 2002 article reveals that his criticism of Greenspan and Co isn't that they want to create a housing bubble, it's actually that the bubble will fail in lifting the economy. In other words, both articles are pessimistic, but one is about a bubble isn't bubbly enough and the other is him realizing it will burst and that's bad. So he missed the first time in the wrong direction and had to do a complete 180. And in that context, it's hard not to read his 2005 article as seriously advocating yet another bubble. I think you are vastly overestimating the negativity being attached to the word "bubble", and are thus simply reading Krugman as critical because he used a term you're putting in the "bad" bucket. But there simply isn't any support for that in the text. > Is reading comprehension a lost art? His writing is not even ironic (where one could be justifiably confused). Seriously?

lftl 14y ago

I don't think he advocated or clearly condemned the action in the article mentioned (and I haven't been reading Krugman long enough to recall any other posts on the issue). I think he's merely analyzing the actors involved, their motivations and their likely moves. I think this part of the article in question leads credence to that: The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble. So he's talking about what he thinks Greenspan and the administration will do and why. He doesn't appear to me to be offering any opinion on the wisdom of the course.