Posts Tagged ‘Paul Krugman’

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stimulus for manufacturing

Sunday, February 5th, 2012

Berkeley economist Christina Romer writes that there is no convincing reason for the United States government to single out its manufacturing sector for special treatment.

Everyone seems to be talking about a crisis in manufacturing. Workers, business leaders and politicians lament the decline of this traditionally central part of the American economy. President Obama, in his State of the Union address, singled out manufacturing for special tax breaks and support. Many go further, by urging trade restrictions or direct government investment in promising industries.

A successful argument for a government manufacturing policy has to go beyond the feeling that it’s better to produce “real things” than services. American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada. ….

As an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established.

Christina D. Romer, “Economic View: Do Manufacturers Need Special Treatment?“, New York Times, 5 February 2012.

Christina Romer was the chairwoman of President Obama’s Council of Economic Advisers. Read the entire column. It is excellent. I have excerpted only the first two paragraphs, and the conclusion.

Especially interesting to me was Ms Romer’s opinion that the benefits from clusters of manufacturing plants “while real, may often be small”. Paul Krugman, in contrast, emphasizes the importance of industrial clustering. See, for example, the paper he wrote two years ago for a meeting of the Association of American Geographers, or his recent defence of the auto bailout.

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the doomed euro

Monday, October 24th, 2011

Princeton economist Paul Krugman writes that “it’s looking more and more as if the euro system is doomed”, and explains that this is due largely to political, not economic, constraints.

Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies. If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.

Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. ….

[But] the European elite, in its arrogance, locked the Continent into a monetary system that recreated the rigidities of the gold standard, and — like the gold standard in the 1930s — has turned into a deadly trap.

Paul Krugman, “The Hole in Europe’s Bucket“, New York Times, 24 October 2011.

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a profile of Paul Krugman

Tuesday, April 26th, 2011

Journalist Benjamin Wallace-Wells has written a lengthy profile of economist Paul Krugman for the current issue of New York Magazine. It is an excellent essay that covers a lot of ground. What most distinguishes it are passages like the following, that focus on Krugman’s personality.

Paul Krugman is a lonely man. That he is comfortable in his solitude, that he emphasizes its virtues, that his intelligence gives it a poetic gloss, none of this diminishes the poignancy of his isolation. Krugman grew up an only child and is deeply self-conscious. He will list his shortcomings as though he’d been preparing for the chance: “Loner. Ordinarily shy. Shy with individuals.” He is married but has no children nor—rare for a Nobelist—many protégés. When I asked him if there were any friends of his I could talk to in order to understand him better, he hesitated, then said, “That’s going to be hard.” ….

Krugman is short and has a very round, very full belly; he is both generally agreeable and chronically rushed, and this gives him a myopic, distracted air. When he talks about himself, his ideas always arise only from his scholarship, as if once, long ago, he had erected a wall between his immersion in the world and his study of it. At Yale, he says, he formed no impression of the aspiring New York bankers and Washington lawyers who were his peers. Later, though he traveled frequently to Japan and met often with government ministers in the years when the country slipped into its lost decade, he says those meetings did nothing to shape his analysis. He has wondered often about why Larry Summers chose to support a smaller stimulus, but though he and Summers spoke every month or two when Summers was in the White House, Krugman never asked him. “He’s not oblivious to human nature; he will have conversations about this person or that and their motivations,” [his wife, Robin] Wells says. “But he does keep it separate.”

…. Krugman is gleeful about being right, joyous in the revelation of his correctness, and many of his most visible early fights were with free-trade skeptics on the left. Of Robert Reich, for instance, Krugman wrote: “talented writer, too bad he never gets anything right.”

Benjamin Wallace-Wells, “What’s Left of the Left: Paul Krugman’s lonely crusade“, New York Magazine, 2 May 2011.

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more on patients as consumers

Sunday, April 24th, 2011

Further to my earlier post, via Paul Krugman here are prophetic words drafted long ago by health economist Rashi Fein.

A new language is infecting the culture of American medicine. It is the language of the marketplace, of the tradesman, and of the cost accountant. It is a language that depersonalizes both patients and physicians and describes medical care as just another commodity. It is a language that is dangerous.

Rashi Fein, “What Is Wrong with the Language of Medicine?“, New England Journal of Medicine 306 (April 1982), pp. 863-864.

Two years later, UBC health economist Robert Evans expressed much the same view in a preface to his book, Strained Mercy.

[I]t seems to me that the insights and generalizations of experienced and thoughtful health care people are often much more reliable guides to understanding how health care systems “work” than are patterns of thought derived from off-theshelf economic analyses of idealized “consumers,” “firms,” and “markets.” …. A simple-minded “demand-and-supply” story …, which treats health care services as commodities analytically indistinguishable from litres of milk, is worse than useless.

Robert G. Evans, Strained Mercy: The Economics of Canadian Health Care (Butterworth, Toronto, 1984). (downloadable as pdf files)

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patients are not consumers

Thursday, April 21st, 2011

Paul Krugman had an excellent post yesterday, explaining why it is wrong to refer to patients as consumers. I fully agree. Patients do not ‘consume’ healthcare. There are no ‘medical care markets’ analogous to markets for bread or vegetables. UBC economist Robert G. Evans , who belongs to an older generation of health economists, is also an outspoken critic of the practice.

We used to know better than this.

Medical care is an area in which crucial decisions — life and death decisions — must be made; yet making those decisions intelligently requires a vast amount of specialized knowledge; and often those decisions must also be made under conditions in which the patient is incapacitated, under severe stress, or needs action immediately, with no time for discussion, let alone comparison shopping.

That’s why we have medical ethics. That’s why doctors have traditionally both been viewed as something special and been expected to behave according to higher standards than the average professional. There’s a reason we have TV series about heroic doctors, while we don’t have TV series about heroic middle managers or heroic economists.

The idea that all this can be reduced to money — that doctors are just people selling services to consumers of health care — is, well, sickening. And the prevalence of this kind of language is a sign that something has gone very wrong not just with this discussion, but with our society’s values.

Paul Krugman, “Patients Are Not Consumers“, The Conscience of a Liberal, 20 April 2011.

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praise for the IMF

Tuesday, March 8th, 2011

This comes from an unlikely source.
 

[T]he IMF has been doing terrific research work, and has been a breath of fresh air in policy debates.

Paul Krugman, “Does IMF Stand for Impressive Macroeconomic Flexibility?”, The Conscience of a Liberal, 7 March 2011.

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WTF

Sunday, February 13th, 2011

In his State of the Union address last month, President Obama set the stage for a coming policy debate and his re-election bid with a catch phrase. Six times, he called on Americans to “win the future.” ….

No doubt, the phrase appealed to White House political advisers and speechwriters. It is always better for presidents to focus on our future potential than the immutable past. And who doesn’t want to win? ….

Yet this catch phrase is also problematic. For one thing, “Winning the Future” was the title of a 2005 book by Newt Gingrich. …. And then there is that pesky abbreviated form of the phrase — WTF — that does not exactly inspire confidence.

More troublesome to me as an economist, though, is that calling on Americans to “win the future” misleads us about the nature of the policy choices ahead. Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team.

N. Gregory Mankiw, “Economic View: Emerging Markets as Partners, Not Rivals“, New York Times, 13 February 2011.

Harvard economist Greg Mankiw goes on to explain the principle of comparative advantage and why trade is not a competitive game, with winners and losers. Everyone gains from free trade. This is an excellent column, but Princeton economist Paul Krugman long ago conveyed the same message with even better prose. Here is an abstract of Krugman’s paper.

The view that nations compete against each other like big corporations has become pervasive among Western elites, many of whom are in the Clinton administration. As a practical matter, however, the doctrine of “competitiveness” is flatly wrong. The world’s leading nations are not, to any important degree, in economic competition with each other. Nor can their major economic woes be attributed to “losing” on world markets. This is particularly true in the case of the United States. Yet Clinton’s theorists of competitiveness, from Laura D. Andrea Tyson to Robert Reich to Ira Magaziner, make seemingly sophisticated arguments, most of which are supported by careless arithmetic and sloppy research. Competitiveness is a seductive idea, promising easy answers to complex problems. But the result of this obsession is misallocated resources, trade frictions and bad domestic economic policies.

Paul Krugman, “Competitiveness: A Dangerous Obsession“, Foreign Affairs, March/April 1994.

Click on the link for the full paper. According to Google Scholar, this article has been cited 1271 times. Read (or re-read) it and be impressed. Paul Krugman is a gifted writer who breathes life into standard economics.

In praising Krugman, I do not wish to slight Mankiw. To compare of a 900-word column with a 17-page article is unfair. Ample space is needed to explain economic concepts in plain English, without jargon. That is why I enjoyed so much the articles Krugman used to write for the online magazine Slate. The short columns he now writes for the New York Times sometimes disappoint me. In Slate, Krugman was able to focus on economics. In the New York Times he often focuses on politics.

Krugman’s Slate writings are still available. One of the best is “In Praise of Cheap Labor” (21 March 1997). For more of Krugman’s Slate articles, go to this link.

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the joy of research

Monday, February 7th, 2011

Paul Krugman explains why he writes columns.

[W]hat I really love is doing the research — puzzling out how health systems work, what’s going on with monetary policy, how to access and interpret data about the wheat market.

But wouldn’t I be doing research even if I had never strayed beyond academics? Yes, but; the trouble with being a successful senior academic is that it’s all too easy to get into a rut, to spend your time doing minor twiddles on the work that made you a big wheel; plus, even great economists rarely do pathbreaking work by the time they’re my age. That’s why lots of first-rate economists seek out second careers of one kind or another, whether it’s in administration, in public affairs, or whatever.

In my case it’s writing for the broader public. The great thing about the column is that it more or less forces me to keep learning new tricks, to keep scoping out areas I’d never thought much about before. Then it forces me to find a way to talk about those areas in plain English.

Paul Krugman, “The Joy of Research“, The Conscience of a Liberal, 6 February 2011.

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the myth of a failing Europe

Friday, January 28th, 2011

The official Republican response to President Obama’s State of the Union address, delivered by Representative Paul Ryan, urges lawmakers to cut spending quickly, to avoid the mistakes of European countries. But Republicans place European countries in a single bag, assuming that all behaved like Greece.

We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first. ….

Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

“Remarks of Congressman Paul Ryan (R-WI)“, Washington, DC, 25 January 2011.

Paul Ryan (1970-), who has represented Wisconsin’s 1st district in the US Congress since 1999, now chairs the House Budget Committee.

Princeton economist Paul Krugman, in a NY Times column, exposes the Republican “myth of a failing Europe”, the myth of “a collapsing society groaning under the weight of Big Government”.

It’s a good story: Europeans dithered on deficits, and that led to crisis. Unfortunately, while that’s more or less true for Greece, it isn’t at all what happened either in Ireland or in Britain, whose experience actually refutes the current Republican narrative. ….

Let’s talk about what really happened in Ireland and Britain.

On the eve of the financial crisis, conservatives had nothing but praise for Ireland, a low-tax, low-spending country by European standards. …. And the truth was that in 2006-2007 Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.

So what went wrong? The answer is: out-of-control banks; Irish banks ran wild during the good years, creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.

The lesson of the Irish debacle, then, is very nearly the opposite of what Mr. Ryan would have us believe. It doesn’t say “cut spending now, or bad things will happen”; it says that balanced budgets won’t protect you from crisis if you don’t effectively regulate your banks ….

What about Britain? Well, contrary to what Mr. Ryan seemed to imply, Britain has not, in fact, suffered a debt crisis. True, David Cameron, who became prime minister last May, has made a sharp turn toward fiscal austerity. But that was a choice, not a response to market pressure.  ….

[T]here’s certainly no sign of the surging private-sector confidence that was supposed to offset the direct effects of eliminating half-a-million government jobs. And, as a result, there’s no comfort in the British experience for Republican claims that the United States needs spending cuts in the face of mass unemployment.

Paul Krugman, “Their Own Private Europe“, New York Times, 28 January 2011.

Elsewhere in the news today, contrary to Republican expectations, there is increased confidence in the euro, and in Europe’s ability to overcome its debt crisis.

[S]ince hitting a low of $1.2871 against the dollar on January 10, the euro has surged 6.9 per cent, notching up a two-month peak of $1.3759 on Thursday.

Sentiment towards the euro has improved dramatically ….

Thomas Stolper, strategist at Goldman Sachs, says there is potential for further gains in the euro. He forecasts a move to $1.40 against the dollar in three months followed by a gradual drift higher to $1.50 later in a year.

Peter Garnham and Richard Milne, “Sudden shift in euro catches traders off guard“, Financial Times, 28 January 2011.

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the US political divide

Friday, January 14th, 2011

One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.

The other side believes that people have a right to keep what they earn, and that taxing them to support others, no matter how needy, amounts to theft. That’s what lies behind the modern right’s fondness for violent rhetoric: many activists on the right really do see taxes and regulation as tyrannical impositions on their liberty.

There’s no middle ground between these views. ….

In a way, politics as a whole now resembles the longstanding politics of abortion — a subject that puts fundamental values at odds, in which each side believes that the other side is morally in the wrong. Almost 38 years have passed since Roe v. Wade, and this dispute is no closer to resolution.

Yet we have, for the most part, managed to agree on certain ground rules in the abortion controversy: it’s acceptable to express your opinion and to criticize the other side, but it’s not acceptable either to engage in violence or to encourage others to do so.

What we need now is an extension of those ground rules to the wider national debate.

Paul Krugman, “A Tale of Two Moralities“, New York Times, 14 January 2011.

Krugman’s column today is exceptionally good. Read it.

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