Saturday, May 25, 2013

Mark Thoma — 'The Hangover Theory' [Paul Krugman]


Moralizing versus math. Paul Krugman did the math at the time of the Asian crisis and got it right. So why is he resistant to MMT now?

Economist's View

'The Hangover Theory'
Mark Thoma

15 comments:

Tyler Healey said...

So far as I can tell, Krugman is in complete agreement with MMT. He isn't calling for FICA tax abolition, but I'm okay with that because a greater priority is America's infrastructure deficit.

Unknown said...

The so-called "morality" is ass-backwards; people are DRIVEN into debt by the counterfeiting cartel (the banking system) else they are priced out of the market by those who do borrow. Therefore, the population doesn't deserve a hangover; it deserves restitution in the form of new fiat so it can payoff its debt.

As for the counterfeiters, their cartel can be abolished with a little forethought and a sense of ethics.

Bob Roddis said...

Thanks for more proof that Krugman does not understand the first thing about Austrian analysis (and like LK, doesn't want to). Do a search of the article for "price distortions". Do a search for "prices". Do a search of the article for the concept of prices as information.

It's always a victory for the good guys when the Keynesians must resort to lies and distortions of the Austrians.

Unknown said...

The Austrians think that someone forced to drink should nevertheless suffer a hangover.

That's moral? Think God agrees?

Oh, wait. Most of the Austrian leading "lights" were agnostic or atheist.

Unknown said...

"Thanks for more proof that Krugman does not understand... etc"

Actually bob, I think it has become increasingly obvious that it is in fact YOU who does not understand the theories which you claim to represent.

Ralph Musgrave said...

Bob Roddis,

Anyone who has got past the first few pages of an introductory economics text books knows that “prices are information”.

The problem with Austrians is that they’ve tumbled to a few VERY ELEMENTARY ideas like the “prices are information” one, and they think they’ve come up with an original idea.

The reality is that Austrians are just plain stupid.

Matt Franko said...

It's been a long time since Krugman wrote this... back then Cheney quipped "Reagan showed us deficits dont matter (politically)..."

So since then the Peterson people have worked 24/7/365 for 10 years to now "make the deficit matter"...

So now it matters so much that Krugman is caught up in this falsehood and cant see himself saying "the deficit doesnt matter" these days as he would jeopardize his VSP credentials and Democrat Party connections and his membership in the Academe would also come into question by the majority over there too...

iow, Paul Krugman is not about to take a lesson from Mike Norman...

rsp,

Bob Roddis said...

Anyone who has got past the first few pages of an introductory economics text books knows that “prices are information”.

Then why do Keynesians, monetarists and their hangers-on always omit or suppress the key Austrian concept that Keynesian funny money prices are mis-information? Whether that is true or not, it is the central Austrian concept from which all else follows in Austrian analysis. The reason the concept is suppressed is because it is self evident and true. Keynesians would have to twist themselves into knots trying to explain it away. It's better just to lie about what Austrians are saying, right?

Unknown said...

Look Bob, what would gold-bugs know about "funny money" unless they mean gold itself?

Tom Hickey said...

Then why do Keynesians, monetarists and their hangers-on always omit or suppress the key Austrian concept that Keynesian funny money prices are mis-information? Whether that is true or not, it is the central Austrian concept from which all else follows in Austrian analysis.

Money is a human social construct and depends on criteria that humans choose in setting institutional rules. The ideal is to arrive a criteria that are as unchanging as possible, but such criteria are few in a relative changing universe, e.g., the speed of light.

Some believe that commodities are the place to look in monetary economics, but the value of commodities is also relative to supply and innovation that affects cost of recovery. For example, there was a tremendous inflation in Europe at the time of importation of gold from the New World.

But most importantly, the value of money may not be the most important matter in the larger context of social and political considerations in addition to economic. After all, the purpose of money is to facilitate commerce and make possible that which would be either impossible or difficult without its convenience.

Credit is an aspect of money that plays a key role in this. Credit predates the use of coinage historically, for instance. Therefore, creating institutional rules that restrict the use of credit may have a greater expense socially, politically, and economically than limiting it through strict rules for "sound money."

The soundest money, according to proponents, is bullion with no fractional reserve lending. Granting that this might be the most stabile from of money for the sake of argument, it would greatly limit the scope of economic activity and greatly restrict government's policy space. It would also result in mercantilist trade.

Countries with large supplies of the commodity chosen would have a free ride. And if through innovation, the commodity could be produced in quantity less expensively, e.g., recovering gold from sea water through electrolysis using solar energy, then inflation would result in spite of the rule.

Wile this is a useful discussion to have, it's not as though it has not been ignored by non-Austrians. MMT economists have addressed it terms of govt policy space, for instance. If one wants to reduce govt policy space, then institute a fixed rate currency and if one wishes more expansive policy space, then institute a flexible rate currency.

So the argument turns on preferences differences based on social, political and economic results. Very few people think that such matters should be decided on economic criteria alone, and they are mostly neoliberals with a hidden social and political agenda., i.e., reducing or eliminating the social and political aspect of classical and social liberalism.

So framing this as it were exclusively or primarily an economic issue biases the case through the framing.

Unknown said...

"the key Austrian concept that Keynesian funny money prices are mis-information?"

you just repeat this gibberish slogan over and over again without ever bothering to explain what you actually mean by it. I doubt you even know what you mean.

LK said...

"Then why do Keynesians, monetarists and their hangers-on always omit or suppress the key Austrian concept that Keynesian funny money prices are mis-information?"

They do not suppress it, idiot.

They are perfectly well aware of Austrian and neoclassical price theory, which attributes to prices a role that generally they simply do not have in modern capitalism.

Your theory is that flexible prices moved by human action communicate the information signals necessary to equate demand with supply.

But most of the modern market has fixprice markets where private businesses just shun flexible prices of that type. Prices are not *distorted* because they were never set in the way Austrian/neoclassical theory requires in the first place, and remain relatively inflexible in relation to demand changes.

Therefore most REAL WORLD prices already do not have the Austrian/neoclassical "information signalling" role to clear markets, and economic coordination in the sense of equating supply with demand is achieved by direct output changes.

Real world economies can achieve high real output growth, good productivity growth, innovation, high employment, good real wage growth without fantasy world flexible prices.

But you're such a jackass, roddis, that this has been explained to you time and again, but you're still such an idiot you do not understand it.

And you've already told us you don't even understand the very concept of a "market clearing price":

"I do not like the term “market clearing prices”. I don’t use it and I do not think it is particularly helpful in understanding reality. When I see the term used, my reaction is always “WTF are you actually trying to say”?"

http://mikenormaneconomics.blogspot.com/2013/05/daniel-little-what-about-marx.html?showComment=1369144674917#c9135395801097278615

Idiot.

Bob Roddis said...

LK, you lying ignorant bastard. Your "fixprice" example is your complete evisceration. Why that is so has been explained to you again and again.

So keep using it. You lying ignorant bastard.

LK said...

"LK, you lying ignorant bastard."

Oh? What am I "lying" about?

(1) that fixprice markets do not exist?

(2) that fixprices aren't set to clear markets and are relative inflexible in relation to demand changes?

(3) that you told us that don't properly understand the very concept of a "market clearing price"?
------

Oh, and it follows from (3) that you're still ignorant of basic Austrian concepts. Some "Austrian" you are, when you openly admit that you can't understand the idea of a "market clearing price". lol.

LK said...

Correction:

(1) that fixprice markets DO exist?