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Paul Krugman: "We’ll Only Feel Prosperous During Bubble Periods"
While hardly able to match the wit, sophistry or, allegedly, satire of yesterday's MarketWatch grandslam in market insight "Why This Stock Market Will Never Go Down", we are confident readers will enjoy the following interview from none other than the Nobel prize winner in Keynesianomics, Paul Krugman, who in this interview with Princeton Magazine, had some comments on bubbles, inflation, student loans, minimum wages, artificially low rates, the Fed's dual mandate, and, of all things, Bitcoin.
From Princeton Magazine:
Are bubbles good or bad and do we need them to create strong economic growth and reach higher levels of employment?
Bubbles are bad if you have an economy near full employment, where they divert resources from their proper use and set the stage for financial instability. In a depressed economy, even ill-conceived spending can help create jobs, so bubbles aren’t necessarily bad. There are reasons to believe that we’re facing an era of persistent economic weakness, which means that we’ll only feel prosperous during bubble periods.
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New York’s minimum wage is currently $8 per hour. Germany is introducing a national minimum wage next year of 8.50 euros, equivalent to $15 an hour. Swiss voters recently rejected increasing their minimum wage to 22 Swiss francs or nearly $25 per hour. What would you like to see the minimum wage be in the US?
I’m for raising the minimum to something over $10 nationally, which would bring it back in real terms and as a share of average non-managerial wages to its level in the 1960s. High-productivity centers, like New York, could justify going higher.
How has studying economics at a Ph.D. level changed since you were a student?
I’m actually struck by how little it has changed. The basic structure of course-work that lays a foundation, followed by dissertation, is the same; the math and statistical level has risen, but it was already pretty high in 1975! The content of some fields has changed, of course, mostly though not everywhere for the better. On the whole, though, the structure both of education and of the career track for young economists has been remarkably stable. I think that’s starting to change now, as the web and the proliferation of think tanks shake up the sources of career success. But that’s just happening, after decades of stability.
Do you have any concern that mounting student loan debt will eventually impact the economy and housing market?
It’s already happening. Household formation is very low, and debt has to be part of the explanation.
How much inflation is appropriate and why has the inflation rate remained low despite the expansion in the money supply?
Inflation is a tradeoff—higher inflation raises some costs of doing business, but low inflation or deflation have the effect of prolonging slumps. In the ’90s there was a sort of consensus that 2 percent made the most of that tradeoff, but subsequent experience shows that the costs of low inflation are much bigger than we thought. So I’d advocate something like 4. As for why inflation hasn’t picked up—both theory and historical experience told us that in a depressed economy with near-zero interest rates increases in the quantity of money would just sit there. Some of us were saying that over and over back in 2009 and 2010; what will it take for people to admit that we were right?
Please comment on how artificially low interest rates have impacted the current value of baby boomers’ retirement portfolios and should this be a consideration of the Federal Reserve?
Oh, boy. What do you mean “artificially low”? Compared to what? The appropriate level of the interest rate, most economists would say, is the rate that gives us full employment without inflation; since we don’t have full employment, that says that rates are too high.
And no, the Fed’s job is to stabilize the economy, not to protect incomes of some groups at the expense of that mandate.
Do you think Bitcoin will gain momentum and become a viable currency?
No. I could be wrong, but Bitcoin is harder to use than other forms of electronic payment, and lacks any fundamental source of value (unlike dollars, which can be used to pay taxes). It’s possible that Bitcoin will somehow become self-supporting, but for now my guess is that it’s largely a fad that will collapse one of these days.
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That said, should anyone take these musings and observations seriously? We leave that up to the reader. But here is what Krugman said about the internet and technology in 1998.
The growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law'–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.... As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.
So probably not.
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economists fall into 2 catagories. Crones of The Fed. Crones of bankers. Both are shite at economics as The Feds sole mandate is to prop up bankers ..banker's are that bad they needed dedicated institutionalised life support
so don't expect their puppets like Krugman to know anything
On a side note, Harry Dent was dead wrong in 2011, quoted here on ZH, when he claimed the Dow would go to 3300 in 2014.
So maybe, just maybe, we can avoid seeing any more articles about that bloviating prick?
OK, guys, so there is a vast conspiracy to understate inflation. Please tell me how gas prices have been concealed from the public. Take a look at gas prices since 2008. They dipped during the recession and are now back to where they were in 2008 - six years later. If we have big-time inflation as a result of "money printing," why has it not been reflected in gas prices?
Double post. Fat Finger.
So called QE was never intended to cause inflation. It was never intended to directly cause asset prices (stock market) to rise.
QE was designed for one thing only: to transfer leverage from the banks over to the public sector. Every dollar of debt taken on by the Treasury and the Fed was offset by a decline in bank leverage. It was a resounding success and QE is phased out.
Now that the banks have been refinanced, we can move on to the next phase, which is to erode the national debt via higher taxation, higher inflation, and reduction in transfer payments like Social Security, Medicare and Obamacare (recently renamed entitlements). This phase will start as soon as the EU is finished with their QE, as then all the major players will have had their shot at loading up the public balance sheet with debt which can then be simultaneously repudiated.
According to EIA data, the average price of a gallon of regular unleaded gasoline in the United States was $1.838 on Jan. 19, 2009--the day before Obama took office.
MIT's Billion Prices project also confirms low US inflation. More conspirators at work? Keynsian economics just can't work, can it - because a national economy is just like a household, right?
Credibility test.
Tell Krugman to show people this EVERY TIME he writes or speaks.
http://www.showrealhist.com/yTRIAL.html
Interest rates are TOO HIGH at 0%? lol.
Every time he opens his mouth the value of a college degree goes down.
Extra funny since to this day he still can't grasp even the basic concept of the word 'value' much less its implications...while simultaneously waxing philosophical about postbac degrees in economics.
nice to read Krugman because he's such an economic retard he makes you feel knowledgeable
Oh how I would love to debate that clown live and in person in public.
I don't know about feeling prosperous but we'd all feel a lot better if only Krugman would STFU.
I think he predicted the Internat was a fad, back in the 1990s.
Man, this guy is a real idiot! How is it that he hasn't received a job offer from this godawful administration?
krugman gives hope to thousands of potential phd candidates that they are, indeed, smart enough to attain their goal.
any moron knew the internet was revolutionary back in 1993 forcing a paradigm shift in the entire world not seen since the telephone.
http://dilbert.com/strips/comic/1992-03-04/
he was right. Information economy does sound silly.
Obviously he is not from Q99X2.
The recent drum beats and flames of war have distracted many people from focusing on the economy. The markets are extended beyond beyond, all this comes at a time when the IMF is calling for more QE. It seems this might be a good time to review the reasons this is economically unsound and a bad idea while markets are setting new record highs and economies continue to struggle.
The policies of the last six years have yet to produce the desired and expected results promised. As a consolation many economist, bankers, and those who have benefited greatly tell us we would be in far worse shape if we had not taken this course. Now it seems Central Banks and the IMF are clueless on how to proceed and a policy going forward. More on the lack of a clear path in the article below.
http://brucewilds.blogspot.com/2014/09/central-banks-and-imf-clueless-on...
“Evil is the world as it is and as it has been. Misfortune is the world as it never should have been. The transformation of evil into misfortune is the most lucrative industry of the twentieth century.”
—Jean Baudrillard
I keep thinking of that scene from "Good Fellas" where Joe Pesci paul krugman gets the life knocked out of him, with a shovel...
“As California goes, so goes the nation”?
So how’s that working out for Jerry Brown and his trumpeted “brown power” that he predicts will soon take back the state of California for Mexicans only… where “power always shifts, including in the United States"…where there’s ”always new waves coming”…. “what we call brown power.”
Well, more than 30% of the nation’s welfare recipients are Californians – even though California has just 12% of the nation’s population, says Thomas Del Beccaro on Forbes. And with more than 38 million residents and despite net losses of millions of residents to other states, California continues to grow through immigration; Latinos just surpassed the number of non-Hispanic whites in California.
California, the heart of Fed recovery, where Governor Brown recently signed a huge tax increase featuring a top rate of 13.3%..
Weak Los Angeles Job Market Breeds More Illegal Street Vendors –Looking Like Third World CitySeptember 9, 2014 By Stephen Frank
The City of Los Angeles is taking on the look and feel of a Mexican or Central American city. Push carts vendors selling churros, ice slurpees, pineapples and other delicacies roam downtown, East LA, parts of the San Fernando Valley and even on the Westside. Most carts would never pass a health department inspection, some smell and no one is sure, really, of the safety of the food sold. Then you have street vendors selling knock offs and phony Gucci products—a Rolex watch could be had for $5.
This is a city with over one million illegal aliens, 40% of the workers get paid, per the Mayor, minimum wage. The city is quickly becoming one large slum.
“Notably, the Times makes no mention of the recent report that one out of four immigrants, (1.1 million out of 4.4 million), in Los Angeles are here illegally and may gravitate to this kind of work, given that it is unregulated and requires few skills such as speaking English.
A recent report by the Los Angeles chief legislative analyst’s office claims that more and more men are running vending booths because of the scarcity of good construction and restaurant jobs. Moreover, Janet Favela, an organizer with the Los Angeles Street Vendor Campaign contends that younger vendors in their 20s and 30s are becoming much more prevalent.”
http://www.capoliticalreview.com/capoliticalnewsandviews/
Travel to Mexico City annually and yeah LA increasingly is reminding me more and more of it with the exception the people with money in LA live by the beach/close to it or in the hills. Slums are still on the hills in Mexico City.
As someone who got his PhD in economics from UMichigan in the past decade, how can Krugman possibly say that obtaining an PhD in economics is very similiar to 1975? WTF.
It completely disregards the revolution in computing power and its impact on economics as a whole which have been nothing short of revoluntionary. Stuff that would require special access to run statistics on and the painstaking program can now be done at home on a personal laptop/desktop using an array of statistical commerical applications. Ditto the revolution in other fields which have shot pot holes into the highly flawed and antiquiated 'homo enonomicus' which was the dominant model through the 70s.
If Krugman really believes what he said, it would explain a lot why he is so highly partisan and prone to having views which are frozen in amber.
Unfortunately, modern economics, whilst concentrating on its wonderful models, failed to realise most of the fundamantal assumptions, the models are based on, are totally wrong.
Did the crash of 2008 show up in a single model?
What we are seeing is not Keynsian economics.
It is an upside down, supply side version of Keynesian ideas.
Instead of incresing demand by investing in infrastructure and creating jobs and wages and thus demand; they have pushed money into the top of the system, banks, and just blown asset bubbles giving money to the wealthy who are not going to spend anymore than they do already.
When true Keynsian stimulus ends you are left with infrastructure projects completed and that needed doing anyway.
When the supply side, Keynsian stimulus ends you are left with exactly the same stuff, but at much higher prices due to the blowing of asset bubbles, these bubbles then burst and things are worse than before.
Keynsianism may have worked the supply side version doesn't.
Other than to make insanely stupid statements like this does Krugman ever pull his head out of his ass to see the reality of what is going on?
On the whole, though, the structure both of education and of the career track for young economists has been remarkably stable. I think that’s starting to change now, as the web and the proliferation of think tanks shake up the sources of career success. But that’s just happening, after decades of stability.
Yes blame it on the internet...think tanks are using the same crony bullshit economics and policies you propose...
What a fucking shill!