Mankiw vs Krugman. Who is right?

A Paul Krugman Post [Template]
Posted by Economics of Contempt at 12:22 AM

I'm troubled by this statement from Obama:

"[Insert extremely broad, generic presidential statement about the economy.]"

In effect, what Obama is saying is: [insert Ridiculous Proposition, completely unrelated to above statement by Obama].

Let me explain why this is so ridiculous: [insert brutal, utterly devastating takedown of Ridiculous Proposition].

Of course, this completely vindicates me, because I said a long time ago that [insert warning about Ridiculous Proposition from the 2008 primaries or early 2009].

http://economicsofcontempt.blogspot.com/2011/02/paul-krugman-post-template.html

MONDAY, NOVEMBER 02, 2009

isn't there enough current crap for you to paste without your having to post a blog entry that's almost a year and a half old?

Gladstone or Disraeli?

And now round II.

Steve Keen vs Krugman and classical economics.(Keen: Krugman is wrong. He missed the economic crisis)

http://www.nakedcapitalism.com/2012/04/keen-vs-krugman-cage-match-will-there-be-a-round-2.html

"Krugman is wrong. He missed the economic crisis"

Krugman started writing about a real estate bubble in 2005, as you can see from the archive of his blogs. He started getting very worried about it in 2006, and also about the over-leverage of banks. He said in late 2008 that the crises would be much worse than either Obama or the Republicans were saying. In just about every prediction, he was correct. I mean not just these issues, all sorts of others.

....And as I posted earlier, the Economist in 2011 (I think it was them) listed who the most accurate forcasters had been over the past 3 years, and they found that far and away Krugman was #1 out of the 20 pundits - including Mankiw, that they looked at. As in, they read their columns from 2007/8/9 and saw what had and had not come true by 2011.

The Economist must have been refering to this:

Press release

Pundits predict no more accurately than a coin toss
Krugman tops, Cal Thomas bottom of accurate predictors, according to study at Hamilton College

CLINTON, N.Y. – Op-ed columnists and TV’s talking heads build followings by making bold, confident predictions about politics and the economy. But rarely are their predictions analyzed for accuracy.

Now, a class at Hamilton College led by public policy professor P. Gary Wyckoff has analyzed the predictions of 26 prognosticators between September 2007 and December 2008. Their findings? Anyone can make as accurate a prediction as most of them if just by flipping a coin.

Their research paper, “Are Talking Heads Blowing Hot Air? An Analysis of the Accuracy of Forecasts in the Political Media” will be presented via webcast on Monday, May 2, at 4:15 p.m., at www.hamilton.edu/pundit. The paper will also be available at that address at that time. Questions during the presentation can be posed via Twitter using #hcpundit.

The Hamilton students sampled the predictions of 26 individuals who wrote columns in major print media and who appeared on the three major Sunday news shows – Face the Nation, Meet the Press, and This Week – and evaluated the accuracy of 472 predictions made during the 16-month period. They used a scale of 1 to 5 (1 being “will not happen, 5 being “will absolutely happen”) to rate the accuracy of each, and then divided them into three categories: The Good, The Bad, and The Ugly.

The students found that only nine of the prognosticators they studied could predict more accurately than a coin flip. Two were significantly less accurate, and the remaining 14 were not statistically any better or worse than a coin flip.

The top prognosticators – led by New York Times columnist Paul Krugman – scored above five points and were labeled “Good,” while those scoring between zero and five were “Bad.” Anyone scoring less than zero (which was possible because prognosticators lost points for inaccurate predictions) were put into “The Ugly” category. Syndicated columnist Cal Thomas came up short and scored the lowest of the 26.

Even when the students eliminated political predictions and looked only at predictions for the economy and social issues, they found that liberals still do better than conservatives at prediction. After Krugman, the most accurate pundits were Maureen Dowd of The New York Times, former Pennsylvania Governor Ed Rendell, U.S. Senator Chuck Schumer (D-NY), and former House Speaker Nancy Pelosi – all Democrats and/or liberals. Also landing in the “Good” category, however, were conservative columnists Kathleen Parker and David Brooks, along with Bush Administration Treasury Secretary Hank Paulson. Left-leaning columnist Eugene Robinson of The Washington Post rounded out the “good” list.

Those scoring lowest – “The Ugly” – with negative tallies were conservative columnist Cal Thomas; U.S. Senator Lindsey Graham (R-SC); U.S. Senator Carl Levin (D-MI); U.S. Senator Joe Lieberman, a McCain supporter and Democrat-turned-Independent from Connecticut; Sam Donaldson of ABC; and conservative columnist George Will.

Landing between the two extremes – “The Bad” – were Howard Wolfson, communications director for Hillary Clinton’s 2008 campaign; former Arkansas Governor Mike Huckabee, a hopeful in the 2008 Republican primary; former House Speaker Newt Gingrich, a Republican; Sen. John Kerry of Massachusetts, the Democratic nominee for president in 2004; liberal columnist Bob Herbert of The New York Times; Andrea Mitchell of NBC; New York Times columnist Tom Friedman; the late David Broder, former columnist for The Washington Post; Chicago Tribune columnist Clarence Page; New York Times columnist Nicholas Kristof; and Hillary Clinton.

The group also found a link between conditional predictions and accuracy, that is, a prediction that was conditional (“If A, then B”) was less likely to be accurate. Finally, those prognosticators with a law degree were more likely to be wrong.

Krugman is an ivory-towner academic who has demonstrated little understanding of the topics on which he writes. Following Krugman for advice on fiscal policy or regulation of markets is akin to hiring a dentist to treat your skin rash.

I've taken Krugman's ivory tower ideas and applied them in the real world...and protected a lot of money doing so. So he happens to be a very skilled dentist when it comes to treating a skin rash.

then you're a rare, lucky one, jas. can you elaborate?

krugman was a paid advisor to Enron.

"Krugman is an ivory-towner academic"

You are a fucking moron. The topic is Krugman versus Mankiw. Krugman is a Princeton professor, Mankiw a Harvard one.

No, Krugman gets it wrong here. His specialty is international trade, not banking. He believes that bank are strictly intermediaries between depositors and borrowers, which just does not work in a fractional reserve banking system. Because Krugman and the classical economists don't get this fact and MMT for that matter, they failed to "get" the banking crisis for all its dimensions.

http://www.cnbc.com/id/46944145

There’s a tremendously important debate being waged across a bunch of different websites, including Paul Krugman’s at The New York Times, about how banking really works.

Krugman really provoked the MMTers by claiming that the idea of a loanable funds market is basically correct. Banks, he argued, make loans from deposits. That is, deposits create “loanable funds” that banks can lend out. Interest rates, he argued, are determined by loanable funds and liquidity preference.

“Banks don’t create demand out of thin air any more than anyone does by choosing to spend more; and banks are just one channel linking lenders to borrowers,” Krugman wrote.

This idea of loanable funds runs directly contrary to what MMT claims about banking. Instead of bank deposits creating the opportunity for loans, loans create bank deposits. The funds needed to create the loan are manufactured out of thin air when the bank credits a borrowers account with the amount lent.

Two days later, Keen responded by arguing that banks do not need deposits to create loans. To support this claim, Keen points to a 1969 paper by Alan Holmes, then senior vice-president for the New York Federal Reserve.

“In the real world, banks extend credit, creating deposits in the process, and look for the reserves later,” Holmes wrote.

Keen went on to summon the ghost of long-dead economist Joseph Schumpeter to back up the notion that banks introduce additional demand into the economy, not by transferring purchasing power between depositors and borrowers, but by creating new funds “out of nothing.”

This brought forth Scott Fullwiler, an MMT economics professor. Fullwiler says that Krugman’s posts on banking amount to a flashing sign announcing “I DON’T KNOW WHAT I’M TALKING ABOUT.” It’s really just a matter of double entry book-keeping, Fullwiler argues. When a bank makes a loan it creates a liability for itself—a customer deposit—and an asset for itself—the loan. The customer, of course, has the mirror opposite: an asset called a bank deposit and a liability in the form of an amount owed to the bank.

http://www.youtube.com/watch?feature=player_embedded&v=EqHUBYfxh4k

HAHAHAHAHAHAHAHA!

That is a HILARIOUS video, Riversider! Hilarious! And it demonstrates that the speaker never even took Money and Banking 101.

At least Krugman never allows politics to get in the way of economics .... right .... maybe ..... hmmmmm

All I can say is bring back Glass Steagal or the games will continue

The Glass–Steagall Act is a term often applied to the entire Banking Act of 1933, after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.[1] The term Glass–Steagall Act, however, is most often used to refer to four provisions of the Banking Act of 1933 that limited commercial bank securities activities and affiliations between commercial banks and securities firms.

I agree on Glass Stegall except it't not directly relevant to budget deficits, inflation or full employment.

I know; but the talk seemed to be heading back to the banks and the banking crisis and away from the initial direction

Obviously no one here actually reads Paul Krugman. He predicted there would be no inflation during a liquidity trap and he was 100% right. He also said interest rates would remain at the zero bound during a liquidity trap and he was also 100% right for the past 4 years. Every time the 10year inched up, conservative pundits said inflation was coming and Krugman reiterated his views. Krugman and Keynes have advocated for depression policies during a depression which is what we experienced in 2008. Bernanke finally got it with the latest QE policy of inflation and employment targets. Japan is also finally getting it after 20 years. And for the record, Krugman completely opposed the bank bailouts and called for a Swedish type restructuring where junior and subordinated debt gets equitized and existing equity would get wiped out.

The budget deficit is a) getting smaller as a % of GDP; b) mostly the result of George the Younger's 2 unfunded wars, tax cuts, and c) quasi-depression economic collapse.

There is no inflation by any means; deflation has been the problem.

Full employment is a demand issue; it will take time for demand to grow after the 2008 disaster.

And that video on "paper" won't fix any of the problems. But it does make for a good laugh.

who cares about what Krugman says? he's the smartest moron writing in the NYTimes

http://www.bloomberg.com/video/walker-spending-too-much-on-defense-mPPznM9rTyaabGd_g~Dyag.html

http://www.youtube.com/watch?feature=player_embedded&v=1iUXERALOOs

With all due respect, you really should watch the video before posting it. Walker effectively agrees with Krugman that you need to make infrastructure investments in the short term to grow the economy. He also agreed that there is no social security problem right now. The social security trust fund keeps social security solvent until 2033. By linking increases to chain CPI increases that date increases by another 5-10 years. Medicare is solvent for another 10 years as well and medical cost expenses are actually slowing down. It is also a fact that hawks fail to realize is that from the 1950s until Clinton's surplus years, we ran a budget deficit EVERY year and yet our debt to GDP went from 130% to 40%.

On your second video. No one denies that public spending is inefficient compared to private spending. Everyone, including Kurgman, would agree that private spending is more productive (although the housing bubble fueled by securitizations contradict this) than public spending but when the private sector is not spending, public spending is the only game in town. And don't post anything on Austrian economics. However appealing it may seem (that we need to pay for our credit indulgences), it has never shown to work. Look at England today.

"No one denies that public spending is inefficient compared to private spending."

Actually, a lot of people do, including Krugman. Government spending on healthcare is far more efficient than private spending, proved by the VA, Medicare, and every other developed nation in the world. Government spending on armies is far more effective than everyone having his own private militia.

But Riversider's rants on Austrian economics are hilarious, and his rants on "fiat" currencies are even funnier. A currency is an accounting unit; that's basically it. The gold standard doesn't work, and that's why it's been dropped, and had been dropped every time there was an economic crisis in the past when there was a need to increase the money supply, for whatever reason.

Really it's time for Riversider to admit that everything he said in the past was wrong, and apologize. But pigs don't fly, either.

"No one denies that public spending is inefficient compared to private spending. Everyone, including Kurgman, would agree that private spending is more productive"

Totally incorrect. Krugman is favor of single-payer health care, like Canada, and thinks that this is unambiguously a more efficient health care system than our own. He writes about this endlessly. He constantly points out how Medicare and Medicaid spending have grown much more slowly per person than private health insurance plans over the past 10-, 20-, 30- or 40 years. He thinks that there are a few areas where the private market is not the best solution.

From steve- "The budget deficit is a) getting smaller as a % of GDP; b) mostly the result of George the Younger's 2 unfunded wars, tax cuts, and c) quasi-depression economic collapse."

a) The deficits for the last three years are more than double what the deficit was in 2008.

b) I assume you really mean the debt here. Actually, most of the debt is a result of Medicaid, Medicare and defense spending. The costs of the wars and the tax cuts on the highest income earners account for less than 15% of the debt.

c) Adjusted for inflation, tax revenues for 2012 are only about 10% less than what they were in 2008 and 5% less than what they were in 1999. Also adjusted for inflation, federal spending is almost double what it was in 1999.

The problem is too much government spending!

Peter Schiff on inflation:

But if you simply focus on price, especially on those staple commodity goods and services that haven't radically changed over the years, the underreporting of inflation becomes more apparent.

We randomly identified price changes of 10 everyday goods and services over two separate 10 year periods, and then compared those changes to the reported changes in the Consumer Price Index (CPI) over the same period. The 10 items, which we selected are: eggs, new cars, milk, gasoline, bread, rent of primary residence, coffee, dental services, potatoes, and electricity.

We know that people do not spend equal amounts on the above items, and we know their share of income devoted to them has changed over the decades. But as we are only interested in how these prices have changed relative to the CPI, those issues don't really matter. We chose to look at the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy. But they straddle the time in which the most significant changes to inflation measurement methodology took effect. And while nominal price increases rose much faster in the 1970's, the degree to which the prices rose relative to the CPI was much, much higher more recently.

Between 1970 and 1980 the officially reported CPI rose a whopping 112%, and prices of our basket of goods and services rose by 121%, just 8% faster than the CPI. In contrast between 2002 and 2012 the CPI rose just 27.5%. But our basket rose by nearly double that rate – 52.1%! So the methods used in the 1970's to calculate CPI effectively captured the price changes of our goods, but only got half of those movements more recently. How convenient.

http://www.investmentnews.com/article/20130122/BLOG09/130129993

From the same article:

Just to make sure, we ran the same experiment with 10 different goods and services. This time we chose: sugar, airline tickets, butter, store bought beer, apples, public transportation, cereal, tires, beef and veal, and prescription drugs. The results were notably similar. The basket increased 1% faster than the CPI between 1970 and 1980 and 32% faster between 2002 and 2012. In both cases we selected a random array of food and non-food items.

To be convinced that the CPI does a poor job in gauging the cost of living, all one needs to do is look at health insurance. According to the Kaiser Survey of Employer Sponsored Health Insurance, the average annual total cost for family health insurance in 2012 was $15,745, or more than one third of the median family income of $45,018 per year. Yet these costs are largely factored out of the CPI. In 2011, health insurance costs did not even merit a one percent weighting in the CPI. Furthermore, as far as the Bureau of Labor Statistics is concerned, health insurance costs are well contained. From 2008 through 2012, the BLS' “Health Insurance Index” increased just 4.3% (total), which is far below the general rise of the CPI. In contrast, the Kaiser Survey showed family coverage rising 24.2% over that time.

To LICC:

a) Because the economy kind of tanked in 2008, if you recall. Therefore tax collections fell significantly, and government spending on Medicaid, unemployment insurance, etc., all rose.

Which is precisely what is supposed to happen when the economy tanks. That's what those countercyclical programs are for.

b) The debt isn't mostly "a result of Medicaid, Medicare and defense spending." You can't pick and choose what programs to allocate the debt to. The debt is simply Revenue - Expenditures = a negative number.

Government spending, on the other hand, is mostly Medicaid, Medicare, and defense, and if Medicare and Medicaid were structured as capitation systems, instead of fee-for-service, that would correct itself. But I'm afraid the political will to do that isn't there. Nor, I'm afraid, is the political will there to cut defense by as much as it probably can.

c) I don't know where you get those figures so I can't confirm or deny them. However, currently federal government revenue is about 15% of GDP; the postwar mean is 21%. Based on that the problem is revenue, which will increase as employment goes up. But that alone won't make up the difference.

Peter Schiff has been crying inflation for years now, and it's never happened. From what I can tell he's not an economist, though he does have his own economic ideas, most of them bad, including the gold standard.

According to you, he picked "10 different goods and services." How about a bigger sample:

http://bpp.mit.edu/usa/

The Billion Price Project, which though it doesn't include services is remarkably comprehensive. It shows inflation to be almost exactly what the Bureau of Labor Statistics says it is.

The "Health Insurance Index" is not intended to be a comprehensive reflection of inflation: "The CPI began publishing a health insurance index in January 2006. The weights in the CPI do not include employer-paid health insurance premiums or tax-funded health care such as Medicare Part A and Medicaid."

http://www.bls.gov/cpi/cpifact4.htm

Methinks Mr. Schiff is looking around for data to support his discredited inflation theory. Good luck to him.

BTW I don't disagree with you that spending on healthcare can fall a lot. Unfortunately raising the Medicare age won't do it. The only way to effectively control healthcare costs is through a capitation system.

Case in point - my uncle just had hip surgery. To prevent blood clots they gave him Cumidin, instead of, say, aspirin, which is a lot cheaper. Then his blood got so thin that they had to readmit him to the hospital overnight and give him more medication to counteract the Cumidin. And of course they had to give him a CAT scan even though he was having no symptoms of anything but low blood pressure. And and ECG, to boot.

A complete waste, and even he knows it, and if doctors had to adhere to a budget, or follow prescribed protocols, all of that would stop. But doctors and insurance companies LOVE Medicare Advantage, even though what they're doing is driving us all to the poorhouse.

>The only way to effectively control healthcare costs is through a capitation system.

Off with their heads!

Wow. I came looking for real estate advice and stumbled onto an economic policy debate. Pretty good reading here. Thanks!

Peter Schiff is not the only one pointing out the government's inaccurate inflation statistics:

To address this, we have revised the Everyday Price Index to allow for constantly adjusting weights. Weights are simply the proportion of your total expenditure that you spend on each good or service you purchase each month. Dynamic weights allow for day-to-day changes in consumer behavior related to price changes.

This weighting results in a 2011 average annual inflation rate of 8 percent as measured by the Everyday Price Index, compared to a mere 3.1 percent from the CPI.

https://www.aier.org/article/7557-epi-reflects-basic-economic-change

Measuring tax revenue as a percentage of GDP is not a good indicator of whether tax burdens are too high. High rates can lead to economic downturn which leads to higher unemployment and less tax revenue relative to the lower GDP. The expectation of higher taxes because of massive deficits can also slow economic growth.

Paul Krugman has a very poor record of predicting economic outcomes. He predictions follow his politics.

http://www.nationalreview.com/articles/269428/paul-krugman-prophet-socialism-donald-luskin?pg=1

Peter Schiff has been wrong about inflation forever. Empiraccly, Krugman has been THE most correct pundit. I repost:

Press release

Pundits predict no more accurately than a coin toss
Krugman tops, Cal Thomas bottom of accurate predictors, according to study at Hamilton College

CLINTON, N.Y. – Op-ed columnists and TV’s talking heads build followings by making bold, confident predictions about politics and the economy. But rarely are their predictions analyzed for accuracy.

Now, a class at Hamilton College led by public policy professor P. Gary Wyckoff has analyzed the predictions of 26 prognosticators between September 2007 and December 2008. Their findings? Anyone can make as accurate a prediction as most of them if just by flipping a coin.

Their research paper, “Are Talking Heads Blowing Hot Air? An Analysis of the Accuracy of Forecasts in the Political Media” will be presented via webcast on Monday, May 2, at 4:15 p.m., at www.hamilton.edu/pundit. The paper will also be available at that address at that time. Questions during the presentation can be posed via Twitter using #hcpundit.

The Hamilton students sampled the predictions of 26 individuals who wrote columns in major print media and who appeared on the three major Sunday news shows – Face the Nation, Meet the Press, and This Week – and evaluated the accuracy of 472 predictions made during the 16-month period. They used a scale of 1 to 5 (1 being “will not happen, 5 being “will absolutely happen”) to rate the accuracy of each, and then divided them into three categories: The Good, The Bad, and The Ugly.

The students found that only nine of the prognosticators they studied could predict more accurately than a coin flip. Two were significantly less accurate, and the remaining 14 were not statistically any better or worse than a coin flip.

The top prognosticators – led by New York Times columnist Paul Krugman – scored above five points and were labeled “Good,” while those scoring between zero and five were “Bad.” Anyone scoring less than zero (which was possible because prognosticators lost points for inaccurate predictions) were put into “The Ugly” category. Syndicated columnist Cal Thomas came up short and scored the lowest of the 26.

Even when the students eliminated political predictions and looked only at predictions for the economy and social issues, they found that liberals still do better than conservatives at prediction. After Krugman, the most accurate pundits were Maureen Dowd of The New York Times, former Pennsylvania Governor Ed Rendell, U.S. Senator Chuck Schumer (D-NY), and former House Speaker Nancy Pelosi – all Democrats and/or liberals. Also landing in the “Good” category, however, were conservative columnists Kathleen Parker and David Brooks, along with Bush Administration Treasury Secretary Hank Paulson. Left-leaning columnist Eugene Robinson of The Washington Post rounded out the “good” list.

Those scoring lowest – “The Ugly” – with negative tallies were conservative columnist Cal Thomas; U.S. Senator Lindsey Graham (R-SC); U.S. Senator Carl Levin (D-MI); U.S. Senator Joe Lieberman, a McCain supporter and Democrat-turned-Independent from Connecticut; Sam Donaldson of ABC; and conservative columnist George Will.

Landing between the two extremes – “The Bad” – were Howard Wolfson, communications director for Hillary Clinton’s 2008 campaign; former Arkansas Governor Mike Huckabee, a hopeful in the 2008 Republican primary; former House Speaker Newt Gingrich, a Republican; Sen. John Kerry of Massachusetts, the Democratic nominee for president in 2004; liberal columnist Bob Herbert of The New York Times; Andrea Mitchell of NBC; New York Times columnist Tom Friedman; the late David Broder, former columnist for The Washington Post; Chicago Tribune columnist Clarence Page; New York Times columnist Nicholas Kristof; and Hillary Clinton.

The group also found a link between conditional predictions and accuracy, that is, a prediction that was conditional (“If A, then B”) was less likely to be accurate. Finally, those prognosticators with a law degree were more likely to be wrong.

LICC: "High rates can lead to economic...."

All of that is true AT SOME POINT. We're not at that point yet, or even close to it; we have among the lowest government spending of any major industrialized country. Where Milton Friedman was CORRECT was at marginal tax rates of 90%; his theories don't hold up at 40%.

"Measuring tax revenue as a percentage of GDP is not a good indicator of whether tax burdens are too high."

Actually, it's the only way to measure tax burdens. Now, you might not like the way those tax burdens are distributed - I don't, because they're too regressive - but in an advanced society with things that have to be paid for uhm, like, the #7 train, it takes money to do it.

You can believe Donald Luskin if you would like, but he is famous for his September 2008 prediction that the stock market and the economy were healthy, right before the world economy tanked.

One of the "Stupidest Predictions of 2008": "[A]nyone who says were in a recession, or heading into one especially the worst one since the Great Depressionis making up his own private definition of recession." Donald Luskin, The Washington Post, Sept. 14, 2008

He is also an ardent supporter of the completely laughable Laffer Curve, so discredited that it is no longer even drawn on the backs of envelopes.

Jason, your article looks at only a very narrow window of time. The article I cited looks a lot farther back and also since 2008, and Krugman's record is really bad.

Jason draws long term trends from 1 month's worth of data.

The U.S. federal tax system is the most progressive in the world among developed nations. The country collects more than enough tax revenues to provide needed services, defense and infrastructure. The problem is out of control social entitlement programs.

If Keynesian borrow, tax and spend policies worked, France would be the world's leading economy instead of the basket case that it is.

Mankiw is a total douche. I much prefer the DeLong commentary. No real media bias.

Licc, you idiot. We have a largely Keynesian economy, and it's still the world's largest.

The problem is out of control defense spending.

We don't need no defense spending.

"We don't need no education
we don't need no thought control..."

How's it goin', huntersburg?
Hope all has been well.

Badges? We don't need no stinking badges !

If Keynesian borrow, tax and spend policies worked, France would be the world's leading economy instead of the basket case that it is.
----------------------------------------------------------
Sacrebleu!
--------------------

http://www.independent.co.uk/news/world/europe/france-is-totally-bankrupt-french-jobs-minister-michel-sapin-embarrasses-francois-hollande-with-shocking-statement-on-state-of-the-countrys-economy-8471077.html

'France is totally bankrupt': French jobs minister Michel Sapin embarrasses Francois Hollande with shocking statement on state of the country's economy

“There is a state but it is a totally bankrupt state,” Mr Sapin said. “That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.”

Mr Sapin’s “totally bankrupt” statement is likely to cause huge embarrassment for President Francois Hollande, who will be left to undo the potential damage to his socialist government’s reputation.

It also calls into further question Hollande’s controversial “tax and spend” policies that have seen numerous entrepreneurs and high profile celebrities leave the country.

The comments came as President Hollande attempts to improve the image of the French economy after pledging to reduce the country’s deficit by cutting spending by €60bn (£51.5bn) over the next five years and increasing taxes by €20bn (£17bn).

Keynsian spending = excuse for gov't waste. Just look at Vermont's trains

http://ac360.blogs.cnn.com/2013/01/25/new-taxpayer-funded-train-just-28-min-faster/

LICC & RS, there is no such thing as "Keynesian spending," and France has nothing to do with the US.

What Keynes DID say was that in economic downturns governments should act anti-cyclically, and spend to make up for a lack of private spending. Contrarily he said that in economic booms governments should do precisely the contrary, and lower spending and pay down debt.

You will note that under George II we did exactly the opposite - we lowered taxes while simultaneously increasing spending, and massively. It has led to a financial mess.

France does not have its own currency, nor does Greece nor does Spain nor does Italy. Their situations are not remotely the same as ours. The UK and Japan are much closer, both in terms of the structure of their economies and the fact that the have their own currencies. Japan's debt-to-GDP ratio is more than twice the US's, and they pay a lower interest rate. The UK embarked upon austerity in the middle of a recession, and things only got worse. Tax revenues went DOWN rather than up, and the deficit actually increased as a result.

France also has a pretty sclerotic labor market, and heavy government involvement in the private sector, with massive farm subsidies that far exceed our own (which are pretty massive, still). They don't have their own currency to borrow in, and they don't set their own interest rates.

I don't disagree with either of you in that in the medium- to long-term the debt situation has to be dealt with. That will require a wholesale reorganization of the healthcare system in the US, and massive cuts to defense, as well as streamlining the tax system and collecting more revenue. The government spends too much on healthcare, and too much on defense. The latter can be dealt with by cuts, the former requires a supply-side reorganization to a capitation system, or a single payer system, or a combination of the two. Fee-for-service has to be done away with.

But drop the whole "Keynesian spending" mantra, and the allusions to France, because neither is true, and they take away from what valid points you do make. Sound bites and Freedom Fries won't convince many people of what actually has to be done. A cogent argument will.

And Donald Luskin most definitely won't.

France controls its taxing and spending, and the ECB has followed similar monetary policy as the U.S.

The UK never imposed actual austerity. What they call auserity has been increased taxes and slower growth of spending, not spending cuts.

http://www.theamericanconservative.com/articles/the-myth-of-british-austerity/

As for Japan, for the last 20 years it has tried Keynesian borrow and spend policies, and it has had slow to zero real economic growth and double the unemployment rate that it historically had prior to 1992.

Luskin's article cites Krugman's predictions and shows the results. I never said Luskin was a good prognosticator, but the substance of that article is very clear.

France does control its fiscal policy, not its monetary policy.

The ECB has NOT followed a similar monetary policy as the US. Not even close. No QE1, QE2, QE3, nothing.

Sorry about your American Conservative article, but the information is false. Take a look here:

http://www.ukpublicspending.co.uk/total_spending_2013UKbn

2013 spending = 677 billion pounds
2012 spending = 688 billion pounds
2011 spending = 681 billion pounds
2010 spending = 661 billion pounds

So they are in fact cutting spending in nominal terms, when they should be increasing it.

http://www.cnbc.com/id/100407313/UK_GDP_Drop_Raises_Risk_of_TripleDip_Recession

Japan did NOT try Keynesian "borrow and spend policies" for the past 20 years. They waited 10 years after the collapse, and did not do what they should have done, which is to increase the monetary base. That is why they are suffering from deflation. Japan is, in fact, a paragon of what NOT to do after a financial collapse.

I don't see anything in that Luskin article that is remotely impressive.

The U.S. economic downturn in 2008 wasn't caused by tax policy, it was caused by a housing bubble that was fueled by bad Federal Reserve monetary policy and bad government intervention in the mortgage market (and contributing factors of reckless behavior by banks and consumers.

steve- the numbers you posted show that UK spending was higher in 2011 than in 2010, and higher in 2012 than in 2011. Those are nominal spending increases, not cuts. The UK also raised taxes.

thx steve--good read

let's not forget the defunding and neutering of all of our financial regulators, coincident with the growth in derivatives among other scams run by our banks (ours when they fail, that's for sure)

look what the invisible hand had wrought

brooksley born--google her

Of course the ECB has been easing. They may not do it the exact same way as the Fed, but their policy has been similar:

The ECB, despite its previous reluctance to buy sovereign debt, last December under the leadership of Mario Draghi, inflated its balance sheet with the announcement of €3 trillion in cheap 3-year loans to banks.

This unprecedented balance sheet increase, as the following figure shows, relative to the previous ECB largest credit injection in August 2007 when the ECB lent €95billion, has been viewed as a major monetary policy change (with a 44% increase from late 2011 to late 2012 to the end of this year), but consistent with its credit in late 2008/early 2009, aiming to restore bank liquidity and economic activity in the Euro zone. This quantitative ease (QE) also mirrors the enormity of the economic and financial problem the Eurozone has faced since the beginning of the 2007 financial crisis followed by the debt crisis of its periphery. The ECB’s massive QE injection helped reduce somewhat the cost of government borrowing for Italy (from 6% to 5%) and Spain (from 7% to 5%) during the January- March 2012, but the yields for both countries are up again at 6% and expected to rise further. Hence, the ECB’s loose monetary policy had only made a small dent in the market’s sovereign risk perceptions.

http://blogs.lse.ac.uk/europpblog/2012/05/29/ecb-inflation/

Here is an ECB Executive Board Member speaking about the ECB's easing policies, interest rate setting, bond purchases, etc.

http://www.ecb.int/press/key/date/2011/html/sp111021_1.en.html

On Japan's Keynesian failures:

http://www.theatlantic.com/business/archive/2010/12/japan-and-the-limits-of-keynesianism/68619/

http://blogs.telegraph.co.uk/finance/thomaspascoe/100019765/at-last-japan-may-be-about-to-abandon-its-disastrous-keynesian-consensus/

And: "After falling from its 1989 peak, the Japanese “bubble economy” collapsed in 1991. The government responded with a long series of stimulus packages and (after a lag) interest rate reductions as well. Between 1993 and 2005, Japan’s budget deficit averaged 6.3 percent per year, and the government’s gross debt rose from 67.6 percent to more than 175 percent of GDP. Nonetheless, economic growth averaged an anemic 1.1 percent during that period—the worst performance in the industrialized world."

http://www.newrepublic.com/blog/william-galston/75228/the-case-against-keynes-some-questions-krugman-too#

"the numbers you posted show that UK spending...."

Yes I know what they showed - the Conservatives weren't elected until May 2010, so the policies took some time to implement. They are now going full-steam ahead, first by reducing the growth in spending (which should have increased in poor economic times, according to Keynes) and then by reducing it in nominal terms. It's not something that can be done right away.

However, their tax increases are also part of "austerity," as it decreases the amount of money in circulation.

"Cheap loans to banks" is a far cry from all of our QE's - very little of it actually made its way into the economy.

You summed up the problem with Japan in 3 words: "after a lag." That was the problem.

But the analysis is faulty - first because a global financial crisis intervened in 2008, and second because the Japanese economy would have been far worse without that additional spending; just look at Greece, Spain, Ireland, which have all cut spending, rather than increase it. And all of Japan's debt has not resulted in soaring inflation or high interest rates, the conclusion being that they did not do enough to stoke inflation, which is the purpose of QE. On the other hand, countries like G,S,I have extremely high interest rates at the same time as they have depression like economic contraction and unemployment.

If you want to see austerity, look there, and to a lesser degree the UK (where austerity is partially offset by Bank of England QE); if you want to look at a country not doing enough to foster growth after a bubble, look at Japan. Thus far the US has done the best job at avoiding catastrophe.

"If Keynesian borrow, tax and spend policies worked, France would be the world's leading economy instead of the basket case that it is."

That is not Keynes, idiot. That's socialism. Keynes says WHEN IN A RECESSION and monetary policy won't be effective (i.e. lower bound or zero bound) then government spending is the best option. Its not pro-government for government's sake or for a big or small government. What a fucking moron you are if you ACTUALLy think that France is what Keynes had in mind.

>That is not Keynes, idiot
>What a fucking moron you are

Angry much?

Nuts much?

C0lumbiaC0unty much?

Were you drummed out of hunters burg? Couldn't keep up your payments?

C0lumbiaC0unty!

You seem pretty manic. You ok?

C0C0, your silence is deafining on this thread: http://streeteasy.com/nyc/talk/discussion/33807-williamsburg
Can't you find any, any, support for Aboutready's purchase in Wiliamsburg?

You're clearly over excited. What's happening? New meds? No meds?

No meds C0lumbiaC0unty.

Aboutready, did you see, C0lumbiaC0unty is criticizing meds.

Looks like you shouldn't have stopped so precipitously.

If i had to guess I'd think he's asking if you need different meds. Good luck, I agree.

Are you two doctors?

Colummbiacounty, will you be buying in Williamsburg? It's not too late!

maybe you should hit the street, and self-medicate?

whatever works, just do something--status quo not good

Brooksley Born should be a household name. Total rockstar who still has not been properly recognized IMHO for foreseeing and trying to avert the disaster that came to pass.

>maybe you should hit the street, and self-medicate?

I agree, and there are plenty of outlets for street meds in Williamsburg for her to choose from.

Seems the Vikings are on to something...Krugman will not like this.
--------------------------
http://www.economist.com/news/leaders/21571136-politicians-both-right-and-left-could-learn-nordic-countries-next-supermodel?frsc=dg|c&fsrc=scn/tw_app_iphone

Since then the Nordics have changed course—mainly to the right. Government’s share of GDP in Sweden, which has dropped by around 18 percentage points, is lower than France’s and could soon be lower than Britain’s. Taxes have been cut: the corporate rate is 22%, far lower than America’s. The Nordics have focused on balancing the books. While Mr Obama and Congress dither over entitlement reform, Sweden has reformed its pension system (see Free exchange). Its budget deficit is 0.3% of GDP; America’s is 7%.

On public services the Nordics have been similarly pragmatic. So long as public services work, they do not mind who provides them. Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private for-profit schools competing with public schools. Denmark also has vouchers—but ones that you can top up. When it comes to choice, Milton Friedman would be more at home in Stockholm than in Washington, DC.

Yes, as soon as we start exporting oil in the prodigious quantities that Norway does, we can probably cut taxes, too.

You really need to look at the data, too. In the US, government share of GDP is 17%. Norway's is 22%. Sweden's is 26%. 2011 data - latest available, from IMF, here:

http://data.worldbank.org/indicator/NE.CON.GOVT.ZS?order=wbapi_data_value_2011+wbapi_data_value+wbapi_data_value-last&sort=asc

So there goes that theory. Sweden's government share of GDP is 29% higher than the US.

"Denmark and Norway allow private firms to run public hospitals."

So do we. Moreover, we let private firms run Medicare (Medicare Advantage) and allow them to run our healthcare system. And the result is CATASTROPHIC: in 2010, we spent 17.6% of GDP on healthcare, about 50% public, 50% private. Denmark spent 11.1%, 80% public. Norway spent 9.4%. Our per-capita healthcare expenditures in ws $8,233. But Norway "ranked the second highest among OECD countries in 2010 (after the United States), with spending of 5388 USD (adjusted for purchasing power parity), well above the OECD average of 3268 USD."

Meaning we spent 53% more per capita on healthcare than Norway, which was the SECOND most expensive one.

http://www.oecd.org/norway/BriefingNoteNORWAY2012.pdf

A lot of good it's doing them, eh, Riversider?

You want me to keep on going, or do the REAL NUMBERS (you can look them up) change your preconceived notion about how efficient the private sector is, and exactly how little the US government spends as a percentage of GDP?

Oh, and regarding your nonsense about school vouchers, this from today's NYT:

"With thousands of charter schools now operating in 40 states, and more coming online every day, neither of these promises has been kept. Despite a growing number of studies showing that charter schools are generally no better — and often are worse — than their traditional counterparts, the state and local agencies and organizations that grant the charters have been increasingly hesitant to shut down schools, even those that continue to perform abysmally for years on end.

"That is the clear message of continuing analysis from the Center for Research on Education Outcomes at Stanford University, which tracks student performance in 25 states. In 2009, its large-scale study showed that only 17 percent of charter schools provided a better education than traditional schools, and 37 percent actually offered children a worse education."

http://www.nytimes.com/2013/02/02/opinion/more-lessons-about-charter-schools.html?hp

You really need to stop believing in the things you WANT to be true, Riversider, and stick to the real facts supported by real data, whether in healthcare or in education or in the gold standard. The FACTS don't support anything you believe.

Yet you keep on believing it.

Truly amazing.

Hey Riversider, unless you were born yesterday or live under a giant rock in Central Park, you know damn well that NOBODY pays the full corporate tax rate. NOBODY. So saying that the US has a higher tax rate than Sweeden is a load of bull.

Peter Schiff merely tries to scare people abotu hyper inflation in order to make money. He's a discredited scam artist.

https://www.youtube.com/watch?v=z5qdkPlwvrc (there's 14 more vidoes just like this one on You Tube)

Here's a piece that you might like, RS, and it even includes a link to that Youtube Comedy that you posted above, about paper money.

http://www.angrybearblog.com/2013/02/how-to-debae-paul-krugman.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A blogspot%2FHzoh %28Angry Bear%29

I guess real numbers or actual outcomes don't matter - the private sector is always more efficient, even when it isn't.

http://www.reuters.com/article/2013/02/01/us-poll-french-idUSBRE9100CM20130201

Reuters) - French manufacturing activity fell at the fastest pace in four months in January as new orders dropped the most since the global financial crisis, a survey showed on Friday, boding ill for the sector's outlook.

The Markit final manufacturing PMI came out at 42.9 for the month, down from 44.6 in December, well below the 50 mark separating expansion from contraction and unchanged from a preliminary estimate.

New orders fell at the fastest pace since March 2009, when France and much of the developed world was mired in recession caused by the global financial crisis.

What's your point, RS? That France spends too much? That its taxes are too high? That is has too much external debt? That they have implemented something that in your mind is Keynesian when it decidedly is not?

Or simply that its Purchasing Managers Index fell?

We are not France, RS. Not even close. Not our tax rates, because are nowhere near as high, not even in #1 Tax State California, or #2 Tax State NYC (which has an income tax that most of the rest of the state doesn't have). Not our labor laws, because you can just about fire anybody you want here, unlike in France. Not our agricultural subsidies, because though they exist here, they're not even close. Not our industrial policy, because we don't have one. Not our interest rates, because ours are 0%, negative real rates. Not our currency, because we have our own & France does not.

So what precisely is your point, RS?

But does France have gold?

Not only is the ECB implementing QE in Europe, so is the Fed:

http://www.zerohedge.com/news/2013-02-09/feds-bailout-europe-continues-record-237-billion-injected-foreign-banks-past-month

NIALL FERGUSON: Okay, I Admit It—Paul Krugman Was Right

Read more: http://www.businessinsider.com/niall-ferguson-paul-krugman-was-right-2012-1#ixzz2LRpy19Ik

http://www.theatlantic.com/business/print/2013/06/should-we-trust-economists/276497/

To start, we need to talk briefly about what it is economic theorists do. Essentially, they make models, which are mathematical tools that are supposed to describe how the economy functions. The problem is that economists haven't really built a model of the whole economy that works. A lot of smart people have spent a lot of time creating tools with names like "dynamic stochastic general equilibrium." But as of this moment, those models can't really forecast the economy like our meteorologists can forecast the weather. Furthermore, they contain a lot of obviously wrong assumptions. To give just one example, many of the models stipulate that companies are only allowed to change their prices at random times! Crazy, right? Economists include things like that to make the models easier to use, and they hope that those zany assumptions are actually decent approximations to the way the world really works. But even with these kludges in place, none of the existing models can do much to predict the economy.

The best economists are well aware of their ignorance. During his recent graduation speech at Princeton, Federal Reserve Chairman Ben Bernanke half-joked to the crowd that "Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much." Greg Mankiw, one of the world's most famous macroeconomists (and my PhD advisor's PhD advisor) put the sentiment this way in a 2011 New York Times column:

"After more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don't know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention -- the ups and downs of the business cycle -- is where I find myself most often confronting important questions without obvious answers..."

So when you listen to economists, the key is to try to understand why they think what they think. For example, Paul Krugman thinks that monetary policy doesn't work well in a depression, because nominal interest rates can't go below zero, and because the Fed is not always good at convincing people that it will allow inflation in the future. Robert Barro thinks that fiscal policy doesn't work, because people anticipate the future taxes needed to pay for today's stimulus,

Unfortunately Barro has been proved wrong by Europe and the whole Great Depression / WWII thing, and Krugman has been proved right.

I am not sure why you posted this. As I have pointed out a few times, independent analysis confirms that Krugman has been by FAR the most accurate pundit for the past 5 years or so, and Mankiw and also your Austrian/Austerian sources have been amongst the worst. There is the thing called the Internet where you can look up what they said would happen in 2008-2012 versus what actually happened.

>I am not sure why you posted this. As I have pointed out a few times,

Well, if it has been pointed out by Jason - multiple times no less - then that decides it.

Krugman was horribly inaccurate for decades. He wrote "Age of Diminished Expectations" right before the megaboom.

Written by Krugman...in 1996.

http://www.nytimes.com/1996/09/29/magazine/white-collars-turn-blue.html?pagewanted=all&src=pm

That’s exactly what I was saying in this post. Like Bernanke, I don’t believe that the flow of Fed purchases has been an important factor holding bond rates down, and hence don’t believe that they will jump when the purchases end.

http://krugman.blogs.nytimes.com/2011/04/30/bernankes-stock-answer/?_r=0

So I don’t buy the notion that rates are low only because the Fed is doing QE2; if there were really a problem with the marketability of US debt, rates would be high regardless. And so I don’t expect rates to spike when QE2 ends unless there’s good economic news that gives us a reason to believe that the zero-rate policy on short-term rates will end sooner than expected.

http://krugman.blogs.nytimes.com/2011/04/19/stocks-flows-and-pimco-wonkish/

"I don’t believe that the flow of Fed purchases has been an important factor holding bond rates down"

Tell that to renterjoey.