If you get the bubble you wished for, it´s easy to predict “there´s a bubble”: The case of Krugman

In 2002, worried about the “jobless recovery”, PK “voted” for a house bubble (to replace the “internet bubble”):

The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

In 2005, he “predicted” the house bubble pop:

Now we’re starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone – not just those who own Zoned Zone real estate – should be worried.

And he gets incensed when “accused” of not having “predicted” something:

Dean Baker is annoyed, and rightly so, at claims that Keynesians failed to predict the slow recovery. Dean and I were both tearing our hair out in early 2009, warning that the Obama stimulus was too small and too short-lived.

No matter that the slow recovery had little or nothing to do with the size of Obama´s “stimulus”. How do we know that? Because the “drive towards austerity” beginning in 20010, whose epic moment was the 2012-13 “fiscal cliff”, did not make a dent in real growth, which kept humming along at a (low) 2.2% clip during the last four and a half years!

And folks, that was and is.99% due to monetary policy!

2 thoughts on “If you get the bubble you wished for, it´s easy to predict “there´s a bubble”: The case of Krugman

  1. It is just painful to watch “macroeconomics” being debated.

    1. As Nunes says, macroeconomics is 99% monetary policy for any reasonable stretch of time in a modern economy (yes, long-term we must invest in infrastructure, education, plant and equipment etc, Civil courts, a good tax code and so. But when all of that is in place, monetary policy rules).

    2. But when even economists talk about monetary policy, it is with an insane fixation on obtaining absolutely dead prices, as measured by subjective indices.

    How about we talk about monetary policy, with an eye on robust real growth? Just for a few years! Please!

  2. So if too many dollars chasing too few goods causes inflation, what happens when there are suddenly too few dollars and for the goods that exist? Even it were true that the Great Recession was caused by people gorging on credit, leading to the inevitability of a debt-driven deflationary spiral, debt-driven deflationary spirals require acquiescence by the monetary authorities. There isn’t any way around it. And if Krugman et. al. want to talk about in terms of interest rates, fine. But that story should at least accurately describe the outcome as a monetary phenomenon or there is something wrong with the story.

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