Paul Krugman: If Hillary Wins in 2016

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July 8, 2013, 2:01 pm 82 Comments

Urp Versus Derp

Jared Bernstein writes from Europe about the complete unwillingness of European policy makers to learn from their mistakes; call it Euroderp. And it is indeed a remarkable thing: despite overwhelming evidence that austerity doesn’t work as advertised, there has been essentially no relaxation of the orthodoxy, and no admission of error.



Along the way, Bernstein mentions the Blanchard-Leigh (pdf) analysis of multipliers, in which these IMF economists admit that the Fund failed to appreciate how much damage austerity would do because it underestimated multipliers by about two-thirds. And this illustrates a point I think many readers fail to grasp: the difference between urp, which is forgivable,and derp, which isn’t.



By urp I mean just getting something wrong — and then conceding, as evidence rolls in, that you did indeed get it wrong: “Urp! That was a bad call!” Obviously if someone urps all the time, his credibility is diminished; but everyone is going to do it now and then. To urp is human.



Derp, on the other hand, means being proved wrong but continuing to loudly assert the same thing again and again regardless. Blanchard and Leigh urped, but they didn’t derp; the inflationistas, on the other hand, just keep on derping.



As I said, some people don’t seem to get this distinction. They point to mistakes I’ve made in the past — mainly my bad call on deficits and interest rates in 2003 — and say, “You derp too!” But I’ve admitted that this was a bad call, and adapted my analysis accordingly. I wish I’d gotten it right, but everyone with the possible exception of the Pope urps now and then; all I can say is that I think I have fewer urps than most, and I really, really try not to derp.



So don’t accuse me of derp; I’m not that kind of perp.



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July 8, 2013, 1:32 pm 48 Comments

Safer Sweatshops

A long, long, long time ago I used to believe that the central political and economic debate facing our nation was going to be about globalization — not realizing that it would instead revolve around a powerful movement to roll back the clock here at home, and bring back the Gilded Age. (As I once said, I think to Robert Kuttner, while he and I were arguing about tariffs, Sauron was gathering his forces at Mordor). Anyway, back then, as a columnist for Slate, I wrote a piece arguing that low wages and poor working conditions by Western standards were necessary and inevitable in poor countries — provoking the predictable outrage.



All these issues have faded into the background, but they’re still out there — and the Bangladesh factory horror has bought some of them back to prominence. And there are now serious moves to impose stricter safety and working conditions standards in third-world apparel producers. So what’s my view?



The answer is, I’m all for them — and no, I don’t think that’s a contradiction of my earlier views.



It remains true that given their low productivity, countries like Bangladesh can’t be competitive with advanced countries unless they pay their workers much less, and provide much worse working conditions too. The Bangladeshi apparel industry is going to consist of what we would consider sweatshops, or it won’t exist at all. And Bangladesh, in particular, really really needs its apparel industry; it’s pretty much the only thing keeping its economy afloat.



At this point, however, there really isn’t any competition between apparel production in poor countries and rich countries; the whole industry has moved to the third world. The relevant competition is instead among poor countries — Bangladesh versus China, in particular. And here the differences aren’t as dramatic: McKinsey (pdf) estimates Bangladeshi productivity in apparel at 77 percent of China’s level.



Given this reality, can we demand that Bangladesh provide better conditions for its workers? If we do this for Bangladesh, and only for Bangladesh, it could backfire: the business could move to China or Cambodia. But if we demand higher standards for all countries — modestly higher standards, so that we’re not talking about driving the business back to advanced countries — we can achieve an improvement in workers’ lives (and fewer horrible workers’ deaths), without undermining the export industries these countries so desperately need.



So, can we act to improve the lot of workers in low-age, labor-intensive manufacturing? Yes, we can, as long as the goals are realistic and the measures appropriate in scale. And we should go ahead and do it.



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July 8, 2013, 9:50 am 105 Comments

Political Inflationistas

Continuing the ongoing attempt to characterize the economists and economist wannabes who keep warning about inflation from the Fed’s efforts to do something about a weak economy, Noah Smith suggests that none of the inflationistas really believe what they’re saying. Instead, he writes, they’re either trying to defend economic models that defined their careers, but failed; lashing out because they personally have been made to look like fools; or playing to a lucrative audience of grumpy old rich white men, who are natural goldbugs:



So to sum up, there are three main reasons for predicting inflation, in defiance of both market expectations and recent past experience. These are 1. Commitment to a research paradigm, 2. Emotive expressions of political and personal anger, and 3. Cynical affinity manipulation.



I’d go along with most of this, with two caveats.



One is that my guess is that even the worst of these guys probably aren’t as self-consciously cynical as Smith seems to suggest. Snidely Whiplash types, twirling their mustaches and smirking over their evilness, do exist, but they’re rare. For the most part, people have an amazing ability to rationalize their actions: objectively, they’re cynically exploiting the rubes, but in their own minds they’re honest warriors for Truth, Justice, and the Austrian Way.



More important, I think Smith has missed an important category. Look at the 23-economist letter warning Bernanke against QE, and you’ll see several people who really don’t fit his typology. Michael Boskin, Douglas Holtz-Eakin, John Taylor, and several others have not, historically, been equilibrium-macro types, devoting their careers to the proposition that monetary policy can do nothing but cause inflation. On the contrary, their analytical models have always, whether they admit it or not, been more or less Keynesian. The same is true for a few other monetary hawks who didn’t sign this letter, e.g. Allan Meltzer and Martin Feldstein. (Way back, one colleague described Meltzer’s work with Karl Brunner as “Just Tobin with some original errors”)



So what is it that makes these guys — whose analytical framework, when you come down to it, doesn’t seem very different from Bernanke’s, or mine — so hostile to expansionary monetary policy? What do they have in common? The obvious answer is that they’re all very committed Republicans. And it’s hard to escape the suspicion that what’s really going on is that they’re bitterly opposed to expansionary policy when a Democrat is in the White House.



We could have tested that proposition if Mitt Romney had won. But doing that test would have been a clear case of unethical human experimentation.



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July 8, 2013, 9:23 am 92 Comments

Not Like Ike

David Warsh has a meditation on the possibilities of a Hillary Clinton presidency, suggesting that she might be — of all things — the next Dwight Eisenhower. That’s an interesting thought, although I believe it’s quite wrong. But the good thing about Warsh’s suggestion is that it forces me to ask why, exactly, I think it’s so wrong.



The first thing is to understand Eisenhower’s significance. What you need to realize is that Republicans spent much of the early postwar period still trying to dismantle the New Deal. It took their shocking upset defeat in 1948 to drive home the fact that it just wasn’t going to happen. And Eisenhower became the symbol of a GOP that was not going to try to return to Gilded Age capitalism; in his famous letter to his brother he wrote:



Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas.Their number is negligible and they are stupid.



Of course, that tiny splinter group now controls the GOP.



So, what would a Hillary Clinton presidency be like? She would not be a figure of reconciliation — that would take a moderate Republican. And right now there are no moderate Republicans, more or less by definition: show any signs of moderation, and you are excommunicated.



That will, one hopes, eventually change — but it’s going to take several big electoral defeats, and it’s not going to happen by 2016. If she becomes president, which does look fairly likely, Clinton will almost surely face the same environment Obama has faced all along — a completely obstructionist, hate-filled opposition. The only thing that might change this would be if her victory is really shocking — say, Democrats retake both houses of Congress and Clinton herself carries Texas.



So, she won’t be like Ike. But that needn’t stop her from doing a lot of good.