Minnesota’s Economic News — W/E 10/15/21
State and local taxes and spending KSTP: State of Minnesota considering ways to cover unemployment fund debt Hometown Focus: Minnesota counties receive $36.3 million in PILT revenue Labor market KAAL…
The New York Times’ columnist shows why he is one of the most consistently uninsightful pundits in America.
The second Star Wars trilogy (those released from 1999 to 2005) tells how a young Jedi named Anakin Skywalker becomes the evil Darth Vader. “When that happened, he betrayed everything and everyone that he had ever believed in,” Obi-Wan Kenobi subsequently explains. “The good man who was your father was destroyed.”
Well, except for the names and a few other changes, if you talk about Paul Krugman, the story is the same one. When I was an undergraduate, one of his papers—“A Model of Balance-of-Payments Crises” from 1979—was on my reading list. When he won the Nobel Prize for economics in 2008, it was for his work on “International Trade and Economic Geography,” which was derived mainly from his 1991 paper “Increasing Returns and Economic Geography” and also was on my reading list. Given that these papers are first-rate academic economics, they were on most undergraduates’ economics reading lists.
But about two decades ago, around the time Krugman became a columnist for The New York Times, the excellent economist was destroyed—comparable to Darth Vader destroying Anakin Skywalker—and was replaced by a peddler of lunatic clickbait.
Even The Atlantic has noticed this. A review of his latest book—Arguing with Zombies: Economics, Politics, and the Fight for a Better Future—is titled “Cool It, Krugman: The self-sabotaging rage of The New York Times columnist.” It notes that:
He writes amusingly and fluently. His combination of analytic brilliance and linguistic facility recalls Milton Friedman or John Maynard Keynes. But Krugman can also sound like a cross between a bloodthirsty Robespierre and a rebarbative GIF. Week after week, he shakes his fist righteously at Republicans and anyone who defends them: You’re shilling for the fat cats. You’re shilling for the fat cats. Over and over. Again and again.
This is true. Krugman is one of the most consistently uninsightful pundits in America, a title for which competition is stiff. Most tragically, his extreme partisanship has destroyed his ability to talk sensibly about economics. In the wake of President Trump’s election, he added this to his legendarily long list of bad predictions: “We are very probably looking at a global recession, with no end in sight.” In fact, the economy boomed until COVID-19 hit, which is hardly President Trump’s fault.
Still, The Atlantic gives Darth Krugman too much credit. Many passages of his book underscore how thunderingly right he’s been on the big questions of the past 15 years or so: on the overriding postcrisis need for maximum economic stimulus….
This is false. Krugman has certainly not been proved “thunderingly right” on the question of “stimulus” versus “austerity.” Another recent book by economists Alberto Alesina (who passed away in May), Carlo Favero, and Francesco Giavazzi titled Austerity: When It Works and When It Doesn’t, both summarizes the research on this topic and makes new contributions of its own. The evidence shows, in fact, that Krugman was thunderingly wrong.
In his 2012 book End This Depression Now! for example, Krugman wrote about the British government, elected in 2010, that enacted “austerity,” using spending cuts rather than tax hikes to get its budget deficit under control. The result, he said,
…is an economy that remains deeply depressed…. [T]here is a real sense in which Britain is doing worse in this slump than it did in the Great Depression: by the fourth year after the Depression began, British GDP had regained its previous peak, but this time around its [sic] still well below its level in early 2008. And at the time of this writing, Britain seemed to be entering a new recession.
One could hardly have imagined a stronger demonstration that the Austerians had it wrong.
In fact, looking more rigorously at more data, Alesina, Favero, and Giavazzi show that this is wrong.
The Conservative government implemented a program of budget cuts. Over a five-year period, exogenous fixed measures amounted to almost three percent of GDP, two-thirds expenditure cuts, and one-third tax hikes. It was harshly criticized by the IMF, which predicted a major recession. The latter did not materialize and the IMF later publicly apologized. The UK grew at respectable rates.
Their prose is less flowery, which might, in part, account for why their argument has cut through less successfully, but the argument is clear.
Tax [hike]-based plans lead to deep and prolonged recessions, lasting several years. Expenditure [cut]-based plans on average exhaust their very mild recessionary effect within two years after a plan is introduced….
This finding should be of particular interest to policymakers in St. Paul as they confront Minnesota’s looming budget deficit. Austerity isn’t written “amusingly and fluently,” but it is right.
The same cannot be said about Arguing with Zombies, which is simply a collection of Krugman’s spittle-flecked invective for The New York Times. This is unappetizing fare at the best of times, never mind consuming 464 pages of the stuff in one go. No doubt it will be good fun for partisans, but it adds little to the intellectual life of the country, which is a tragedy, because the path-breaking contributions of the much-missed Anakin Krugman all those years ago did.