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Krugman's article dialect borders on the offending. The point he was making can be easily summed as the peculiarities of the macroeconomic Trilemma[1]. If Sco

Krugman's article dialect borders on the offending. The point he was making can be easily summed as the peculiarities of the macroeconomic Trilemma[1]. If Scotland honours the pound, then it must either lose monetary independence or restrict capital inflows. Every country must make this decision, whether they are in an economic union or not. Scotland's situation is interesting because effectively, a fixed exchange rate situation with Britain will mean less monetary policy mechanisms for Scotland to play with. Of course, it can always attempt to maintain economic stability with fiscal policy; it suffices here to say they have their individual purposes. Krugman is a very well known advocate of monetary policy, especially in the 2008 recession. For this reason, it's clear he has a disposition towards favouring his own tools of choice. Of course, for being a left wing economist, it isn't difficult to see a possible reason why he favours monetary policy: it devalues currency, taking more from those who hold large cash balances. Economists, like all other professions, should strive to be fair and balanced in their articles. Krugman's article is certainly not balanced. [1]http://en.wikipedia.org/wiki/Impossible_trinity http://en.wikipedia.org/wiki/Impossible_trinity

tptacek 12y ago
Without sticking up for Krugman's article, which I'm not qualified to judge, isn't he capturing some of that "fiscal policy" level when he talks about Spanish austerity?
MarkPNeyer 12y ago
> a possible reason why he favours monetary policy: it devalues currency, taking more from those who hold large cash balances i understand that logic, but currency devlauation ends up making things worse for pretty much everyone but the extremely wealthy. in a deflationary economy, all you have to do in order to prepare for the future is just spend less than you earn. that's it. the savings will be more valuable in the future than it is now. in an inflationary economy, not only must you spend less than you earn, you must now take on risk just to maintain the value of what you already have. the entire financial system exists because for most people, investing (choosing loans or investments) requires more resources and knowledge than they have on their own. you're _forced_ to play a game you don't really understand: picking companies to invest in. most people who 'get it' will tell you to just buy and hold - but all of that would be totally unnecessary if currency were deflationary or just kept its value. of course, the extremely wealthy have much more money to invest, and can spend their whole lives managing their portfolios, because working isn't necessary for them. they benefit from the increased flow of cash into investment markets, enabling the existence of a financial industry that is necessary to service _everyone's_ 401(k) and pension fund - because "spend less then you earn" isn't enough.
ef4 12y ago
> Of course, for being a left wing economist, it isn't difficult to see a possible reason why he favours monetary policy: it devalues currency, taking more from those who hold large cash balances. This is one of those memes that just won't die: currency devaluation isn't bad for the rich. It's bad for the poor. The rich hold the vast majority of their wealth in inflation-proof assets. Their housing costs are fixed because they own houses. The poor hold what little liquid wealth they have in cash, and their housing costs are variable because they rent. If inflation was the pro-poor policy, you could be damn sure we wouldn't have experienced it consistently for a hundred years. This confusion springs from the idea that inflation is a pro-debtor policy. But the biggest debtors by far are rich people and institutions. Nobody lends poor people tens of thousands of dollars to buy securities on margin, or millions to build real estate developments.
- MarkPNeyer 12y ago
  > This confusion springs from the idea that inflation is a pro-debtor policy. we have made debt slightly less awful to be in, at the cost of making the entire world run on debt, and putting as many people into debt as possible. a situation where everyone had all their needs met and didn't need to spend any money would cause the world to come falling apart at the seams. ridiculous.
- parasubvert 12y ago
  The reality is more complicated. Wages tend to be sticky downwards, therefore the main way to dig a country out of a balance sheet recession is through currency devaluation, which forces a haircut through other means. It's how Canada and Germany rebounded in the 90s. Yes, this hurts the poor and middle class, as inflation does (though it also can help - people that bought houses in the 70s effectively got a discount), but unemployment hurts more.
guelo 12y ago
The point is that the pound's monetary policy would be set to favor England's economy while the Scots would lose any say in the matter. You make no counterargument other than name calling.
panarky 12y ago
No, professionals should not strive for "balance". They should strive for reason based on evidence. And when the evidence changes, their conclusions should change accordingly. If some people say the Earth is flat and others say it's round, I don't want my geologist to say, "opinions differ on the shape of the planet". Many influential people claimed that easy money after the 2008 collapse would cause massive devaluation of the dollar and sky high inflation and interest rates. Krugman's models and historical evidence suggested that, contrary to popular opinion, inflation and interest rates would actually stay very low for many years, and that the dollar would maintain its value. Six years later, the results are in. Look at the evidence and challenge your model, or you're just spouting baseless ideology. If you'd invested with Krugman, the guy with a model who showed his work, you'd have made a lot of money. If you'd invested with the Wall Street Journal, CNBC, and the others who have an ideology without a model, you'd have lost a lot of money. Go with the evidence.
MaysonL 12y ago
> Krugman is a very well known advocate of monetary policy, especially in the 2008 recession. Huh? Throughout the recession and still to this day, ever since the Fed ran into the zero bound, he's been banging the drum for expansionary fiscal policy. Unconventional monetary policy (i.e. quantitative easing) is decidedly a second choice for him, given the zero bound on interest rates.

tptacek 12y ago

Without sticking up for Krugman's article, which I'm not qualified to judge, isn't he capturing some of that "fiscal policy" level when he talks about Spanish austerity?

MarkPNeyer 12y ago

> a possible reason why he favours monetary policy: it devalues currency, taking more from those who hold large cash balances i understand that logic, but currency devlauation ends up making things worse for pretty much everyone but the extremely wealthy. in a deflationary economy, all you have to do in order to prepare for the future is just spend less than you earn. that's it. the savings will be more valuable in the future than it is now. in an inflationary economy, not only must you spend less than you earn, you must now take on risk just to maintain the value of what you already have. the entire financial system exists because for most people, investing (choosing loans or investments) requires more resources and knowledge than they have on their own. you're _forced_ to play a game you don't really understand: picking companies to invest in. most people who 'get it' will tell you to just buy and hold - but all of that would be totally unnecessary if currency were deflationary or just kept its value. of course, the extremely wealthy have much more money to invest, and can spend their whole lives managing their portfolios, because working isn't necessary for them. they benefit from the increased flow of cash into investment markets, enabling the existence of a financial industry that is necessary to service _everyone's_ 401(k) and pension fund - because "spend less then you earn" isn't enough.

ef4 12y ago

> Of course, for being a left wing economist, it isn't difficult to see a possible reason why he favours monetary policy: it devalues currency, taking more from those who hold large cash balances. This is one of those memes that just won't die: currency devaluation isn't bad for the rich. It's bad for the poor. The rich hold the vast majority of their wealth in inflation-proof assets. Their housing costs are fixed because they own houses. The poor hold what little liquid wealth they have in cash, and their housing costs are variable because they rent. If inflation was the pro-poor policy, you could be damn sure we wouldn't have experienced it consistently for a hundred years. This confusion springs from the idea that inflation is a pro-debtor policy. But the biggest debtors by far are rich people and institutions. Nobody lends poor people tens of thousands of dollars to buy securities on margin, or millions to build real estate developments.

MarkPNeyer 12y ago
> This confusion springs from the idea that inflation is a pro-debtor policy. we have made debt slightly less awful to be in, at the cost of making the entire world run on debt, and putting as many people into debt as possible. a situation where everyone had all their needs met and didn't need to spend any money would cause the world to come falling apart at the seams. ridiculous.
parasubvert 12y ago
The reality is more complicated. Wages tend to be sticky downwards, therefore the main way to dig a country out of a balance sheet recession is through currency devaluation, which forces a haircut through other means. It's how Canada and Germany rebounded in the 90s. Yes, this hurts the poor and middle class, as inflation does (though it also can help - people that bought houses in the 70s effectively got a discount), but unemployment hurts more.

guelo 12y ago

The point is that the pound's monetary policy would be set to favor England's economy while the Scots would lose any say in the matter. You make no counterargument other than name calling.

panarky 12y ago

No, professionals should not strive for "balance". They should strive for reason based on evidence. And when the evidence changes, their conclusions should change accordingly. If some people say the Earth is flat and others say it's round, I don't want my geologist to say, "opinions differ on the shape of the planet". Many influential people claimed that easy money after the 2008 collapse would cause massive devaluation of the dollar and sky high inflation and interest rates. Krugman's models and historical evidence suggested that, contrary to popular opinion, inflation and interest rates would actually stay very low for many years, and that the dollar would maintain its value. Six years later, the results are in. Look at the evidence and challenge your model, or you're just spouting baseless ideology. If you'd invested with Krugman, the guy with a model who showed his work, you'd have made a lot of money. If you'd invested with the Wall Street Journal, CNBC, and the others who have an ideology without a model, you'd have lost a lot of money. Go with the evidence.

MaysonL 12y ago

> Krugman is a very well known advocate of monetary policy, especially in the 2008 recession. Huh? Throughout the recession and still to this day, ever since the Fed ran into the zero bound, he's been banging the drum for expansionary fiscal policy. Unconventional monetary policy (i.e. quantitative easing) is decidedly a second choice for him, given the zero bound on interest rates.