Krugman: Destructive Creativity

[eridani]

http://krugman.blogs.nytimes.com/2013/04/21/destructive-creativity-2/?smid=tw-NytimesKrugman&seid=auto

But the truth is that basic macroeconomics — IS-LM type macro, the stuff that’s in Econ 101 textbooks — has performed spectacularly well in the crisis.

The true test of an analytical framework is how it performs in unusual or extreme circumstances, how well it predicts “out of sample”. What we have experienced since 2007 is a series of huge policy shocks — and basic macroeconomics made some very counterintuitive predictions about the effects of those shocks. Unprecedented budget deficits, the model said, would not drive up interest rates. A tripling of the monetary base would not cause runaway inflation. Sharp government spending cuts wouldn’t free up resources for the private sector, they would depress the economy more than one-for-one, so that private spending as well as public would fall.

Quite a few people considered these predictions not just wrong but absurd; they braced for soaring rates and inflation, they waited for the good news from austerity. But the model passed the test with flying colors. Remember how Romer and Bernstein were savaged for assuming a multiplier of around 1.5? Four years later, after much soul-searching from the IMF about why it underestimated the costs of austerity, estimates seem to be converging on a multiplier of … about 1.5.

So how is it that economists look so bad? The answer is that too many prominent economists chose, for one reason or another, to reject the existing model. Maybe they were just trying to score points by being different; maybe they were sucked in by the approbation of the VSPs, the rewards that came from telling important people what they wanted to hear.

[Demeter]

1. Because the VSPs are all gamblers who live by the Gaming Code:

"This time it's gonna be different!"

The REAL VIPs in this world have been shut out of the conversation:

The experts, like Krugman and the like, who use real data, proven theories, and logic. It doesn't matter WHAT they are expert in: economics, science, ecology, human processes, education....they've been pushed aside by greed, indifference to results, and magical thinking. By gamblers, con men and cheats.

The 99%, who create and drive the REAL economy.

The true public servants, those not bought and owned by Corporations or banksters.

The Gamblers infest government policy at home and abroad. They've destroyed our foreign relations with all other nations. They've destroyed economies on all scale: local, state, national, international. They've destroyed democracy because the only way they can win is by Fascism. And Winning is the only thing--but their idea of winning is a Win-Lose scenario. They can't tolerate the idea that all parties in a deal could come out ahead...because that wouldn't be WINNING, you see. Not in their twisted frame of reference.

And we the People have to fight back, before they destroy the entire human race and the ecology that keeps us alive. Preferably without torches and pitchforks, but when all else fails, as it is....there may not be any alternative.

[tclambert]

3. Yeah, winning isn't enough for these guys. They have to make others lose.

Yet basic economics doesn't work that way. Person A has a surplus of one thing and a shortage of another. Person B has a shortage of one thing and a surplus of the other. The two get together and make a trade--a mutually beneficial trade. That pretty much sums up the basis for economics. Cheating others, tricking them, robbing them of their valuable resources is NOT how the elementary textbooks describe the functional purpose of economic transactions. None of them propose lying, cheating, and stealing as a model for any nation's economy.

Still, here we have a predator class (or parasite class) that lives off the profits from lying, cheating, and stealing. Where did this economic theory--make everybody else lose--come from?

[House of Roberts]

2. "A tripling of the monetary base would not cause runaway inflation."

But it did. Since all that money went to the 'portfolio class', it inflated the one place where all their disposable income goes.
Why do you think the DJIA is above 14,000?
What didn't go into investments went into offshore accounts.

[eridani]

4. That is not "inflation" as defined by any known economist

Sure, the benefits of 'recovery' all went to the 0.1%, but that is not the same thing as inflation.

[Doctor_J]

5. Many economists are on the Koch payroll

They now publish and predict what their benefactors want to hear instead of what is correct. And their is no hit to be taken when they're wrong, since the Kochs will keep paying. It is sort of like William Kristol on the political side - he is wrong about absolutely everything, but the 1% will keep dumping cash on him for catapulting the propaganda.

[stevebreeze]

6. I would say that is only partly true.

A heck of a lot of economists are on the payroll of the big banks. Both are important to keeping the vast public ignorant of useful economic information.