Home > Austrian School, Mainstream failure > Paul Krugman’s predictions for 2010: There is no solution to the criminal chaos I helped create

Paul Krugman’s predictions for 2010: There is no solution to the criminal chaos I helped create

Paul Krugmaniac is nothing if not consistent.  His career has been a study in obsequiousness to the current power oligarchy and shameless self-promotion at the cost of truth, integrity and any other noble virtue a human can possess.

First, he actively promoted the housing bubble as a way of “recovering” from the dot.com bust.  See the discussion regarding his writings during this period here.

Then, he shamelessly denies he promoted the housing Ponzi scheme by flippantly saying his advocacy of low interest rates and a new trillion-dollar Ponzi scheme in housing was supposed to be taken as a joke (in other words, the writings of a Nobel Prize-winning economist should not be taken seriously when he doesn’t want to be).

Then, he remains deathly silent about the bubble until it’s too late to do anything about it.

Then, he screams for govt bailouts and govt spending to ensure the US govt ends up bankrupt and the US dollar is worthless. 

Then, when that doesn’t work, he claims that his remedy would work if only the US govt bankrupted itself even more quickly and claims that anyone (including Ben Helicopter Bernanke) who wants to ease up on the madness is “deeply irresponsible“.

Finally, when he realises the disaster he’s caused, when he sees the stimulus not working, when he understands that the Ponzi scheme he helped created has blown up in the face of the American people, he doesn’t run in shame, he doesn’t apologise, he doesn’t reflect on the madness of his policy prescriptions for both the U.S. and Japanese economies over the last two decades, he doesn’t offer to return his Nobel Prize, he doesn’t offer to kill himself as a sacrifice to the God of Economic Karma…  no. 

He races in to claim that he knew this would end in disaster all along, and now predicts (surprise, surprise!) catastrophe from the polices he helped create.

Plunging prices of houses and CDOs … don’t produce any corresponding macroeconomic silver lining. … This suggests that we’re unlikely to see a phoenix-like recovery from the current slump. How long should recovery be expected to take?

Well, there aren’t many useful historical models. But the example that comes closest to the situation facing the United States today is that of Japan after its late-80s bubble burst, leaving serious debt problems behind. And a maximum-likelihood estimate of how long it will take to recover, based on the Japanese example, is … forever. OK, strictly speaking it’s 18 years, since that’s how long it has been since the Japanese bubble burst, and Japan has never really escaped from its deflationary trap.

This line of thought explains why I’m skeptical about the optimism that’s widespread right now about recovery prospects. The main argument behind this optimism seems to be that in the past, big downturns in the world’s major economies have been followed by fast recoveries. But past downturns had very different causes, and there’s no good reason to regard them as good precedents.

Living in a crisis-ridden world

Looking back at U.S. commentary on past currency crises, what’s striking is the combination of moralizing and complacency. Other countries had crises because they did it wrong; we weren’t going to have one because we do it right.

As I’ve stressed, however, crises often – perhaps usually – happen to countries with great press. They’re only reclassified as sinners and deadbeats after things go wrong. And so it has proved for us, too.

And despite the praise being handed out to those who helped us avoid the worst, we are not handling the crisis well: fiscal stimulus has been inadequate, financial support has contained the damage but not restored a healthy banking system. All indications are that we’re going to have seriously depressed output for years to come. It’s what I feared/predicted in that 2001 paper: “[I]ntellectually consistent solutions to a domestic financial crisis of this type, like solutions to a third-generation currency crisis, are likely to seem too radical to be implemented in practice. And partial measures are likely to fail.”

Maybe policymakers will become wiser in the future. Maybe financial reform will reduce the occurrence of crises: major financial crises were much rarer between the end of World War II and the rise of financial deregulation after 1980 than they were before or since. Meanwhile, however, the fact is that the economic world is a surprisingly dangerous place.

The title of his blog is “The Conscience of a Liberal”.  It should be renamed “The Shameless Chutzpah of a Know-Nothing Soulless Self-Promoter”.

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: