Now, being curious, I took a look at Krugman's blog, to see how he does it. The guy writes a lot. He'll have at least one, and maybe two posts per day. They are short thoughts, with typically a strong opinion stated. Of course, I'm not opposed to strong opinions - I certainly have a few of those myself. However, let's take one of these blog posts apart to see how it works. For May 26, here, Krugman has a post called "Reasons to Despair." Certainly a dramatic title - sounds like a Thomas Hardy novel. Here's the first paragraph:
For some reason today’s papers made me feel especially grim about the prospects for economic recovery — not the economic news so much as what one sees about the mindset of policy makers.So, we are in despair because the policy makers are doing something wrong, or we think they are about to do something wrong. What is it? Next paragraph:
Here’s where we are: growing GDP, but mass unemployment still the law of the land, with only tiny progress so far. What can be done?Yes, GDP certainly is growing - it's been doing so for three quarters now. The rest is loaded language. Krugman likes the term "mass unemployment." Obviously he thinks the unemployment rate is too high, but relative to what? Does he have some insight as to what an optimal unemployment rate might be at this time? Note that he does not point out that employment is growing, and the unemployment rate did not fall last time around because of an influx of workers into the labor force. There are more people searching because they think the their prospects look a lot better. Let's see what he thinks we should do about the mass unemployment.
Well, we could have more fiscal stimulus — but Congress is balking even at the idea of extending aid for the ever-growing ranks of the long-term unemployed. Fiscal responsibility, you see — hey, and let’s make sure estate taxes stay low!Even if you were a diehard Keynesian, this is strange talk when you have a recovery well underway - everyone knows that employment lags output, and the unemployment rate takes a long time to fall in a recovery. Our unemployment benefits could certainly be more generous though. As Kartik Athreya would say: "insure people, not firms." Here's what's next:
We could get tough with China, which continues its currency manipulation and, in the face of a world of grossly inadequate demand, is actually tightening monetary policy to avoid an overheating economy — when basic textbook economics says that it should be appreciating its currency instead, which would not only rebalance China’s economy but help the rest of the world. So given China’s outrageous behavior, Geithner went to China, got nothing .. and pronounced himself very pleased.I did not realize Krugman was a China basher. How unseemly. I'm not sure what textbook Krugman was reading, but it wasn't mine (I know, shameless advertising). I thought notions that a country could somehow "manipulate" it's exchange rate to its advantage, or that economic policy was about "balancing" something were long ago relegated to the garbage dump, but apparently not. On we go:
We could do more through monetary policy. Macro theory suggests that the theoretically right answer, if you can do it, is to get central banks to commit to a higher inflation target. But the Fed and the Bank of Japan say no, because … well, that’s not what central bankers do.What macro theory? The right answer to what? I don't know what Krugman wants the Fed to be doing. Krugman is a liquidity trap guy, so how does he think we get more inflation from the central bank in the current state of the world? The Fed could reduce the interest rate on reserves to zero, but that won't get us much more inflation. I don't know about the Bank of Japan, but it's hard to characterize the Fed as under the control of a bunch of inflation hawks - Bernanke is decidedly dovish on inflation, for example. And finally:
It’s depressing: shibboleths and conventional wisdom are blocking all routes out of this slump. And I worry that policy makers will just sit there, for years and years, all the while congratulating themselves on the soundness of their policies.I have seen "shibboleth" before, but I looked it up to make sure I knew what it meant. This is actually a cool word. The strange thing here is that Krugman wants to characterize himself as the outsider, despairing that his obvious truths are falling on the deaf ears of the insiders. But Krugman is the insider. His views are in fact those of the majority of policymakers who have any power in this country. I would not characterize those policymakers as sitting on their thumbs congratulating themselves though. They are actually working hard to figure this thing out.