Wednesday, November 27, 2013

Taking on Krugman

This is one of the most conceited things I can do probably, but I'm doing it anyway. Im going to challenge Mr Krugman (and Joseph Stiglitz) on an economics matter. Ive never taken an econ class and he's a Nobel winner but I still believe he can be wrong...... dead wrong,  on some matters.  He would probably admit as much but not here, on the matter Im going to discuss, likely.

Krugman and Stiglitz (another Nobel winner) were having another public dispute about our current economic "crisis".  I use air quotes because no one in Washington is treating this like an actual crisis. They call it such when they are appealing to voters in front of cameras but I see no interest in treating this crisis. Anyhoo, their disagreement is around the idea that inequality in income distribution is responsible for the lackluster recovery. Stiglitz believes it is, Krugman is having none of it.  Its not so much that he disagrees that gets me its the reason he gives, and I see no evidence that Stiglitz even begins  to have a way to challenge his objection. Pauls response to Stiglitzs' claim is that he sees no evidence that the upper class are under consuming at present.   Well, of course they aren't.  Thats not a claim that should be being made by those who believe that distribution matters in these income things. If thats what Mr Stiglitz is implying then thats just  silly.  The maldistribution of income isn't a cause of whats wrong today...........its a RESULT!!  Everything we have done the last 30-40 years is whats wrong and this wide disparity is the evidence at the end of it all (and I do think its the end, not to be too apocalyptic).  And by doing what we have always done we will stay right here.  There is no mechanism within the "market" to reverse or change this.

Where we go wrong is in thinking of our system like a poker game or anything else where we willingly participate and pay and make bets (choices) and we see how we fare at the end of the night. However we end up is supposedly  determined by how well we estimated potential disasters and avoided them, how well we foresaw great opportunity and took a risk on it.  Thats a nice sounding story but its laughably untrue. Using that analogy we look at one guy with almost all the chips, and the game slowing down because the other nine guys can't even pay an ante and start offering "solutions" like;  "Hey lets make the ante only half a chip".... Okay but this will only extend the pain for the losers. They can always be outbid and pushed out of games because they can't call anymore. Another one is "Those other guys can just borrow form the leader",  riiiiiight, that will last only so long as well, as the chips required just to pay back the interest will drive others out of the game.  You really can't borrow your way out of this when you have no increased income prospects. "Someone can just give everyone more chips" is another solution heard. This is the best of the three but the most politically difficult to pull off in an environment where everyone misunderstands their chips and how they get value.  Too many people think this would devalue their current stock of chips too much, especially the guy with almost all of them but if they realize that playing the game IS the point not tallying up your chips, they might get past this.

None of those solutions though will really make up for the fact that we just need to play a different game


  1. Greg -

    Krugman is human, and can be wrong. I don't think he's completely wrong in this case, though. A thing can be both an effect and a cause. That's how we get sequences of events.

    I suspect PK understands this very well. The fact that he's talking about something as a cause does not mean he's is ignoring history. But he devotes his blogging and column energy to what strikes him as important in the here and now.

    By the way, a link to what you're talking about would be helpful. Context is important.


  2. Hey Jazz

    This has been an ongoing discussion that Im sure you've seen. Thats why I didn't link to it.

    I just think the underconsumption of the rich is the wrong reading of it. No one should be arguing that is what is happening. They are consuming at the same or higher levels, its the rest of us that aren't because we are losing jobs, losing income and paying off old debts.

    I think when you call the inequality argument the same as saying that the rich are under consuming you are simply viewing it as a math equation. Yes there are people with the capacity to consume more (and save less) but to say they should consume more or that they are under consuming is not quite right. What they need to do is stop fighting the govts efforts to consume more. They can consume at whatever level they please but don't stop the one entity that can increase their consumption easily from doing so. By doing so they leave the true under consumers needing to take on more debt to consume or fight with the other unemployed for lower pay, which is of course THE POINT of the riches actions..... increased indebtedness and lower wages.