Tuesday, July 6, 2010

Krugman takes on the Pain Caucus - but aren't they simply Paper Tigers?

[To the right: a photo from an early morning white-paper presentation by the economists of the Pain Caucus.  The pages of the paper in question must have been scattered during the passionate post-presentation Q&A session.]

Krugman, below, correctly takes the insufferable David Brooks to task for mindlessly agreeing with the Pain Caucus - the idiots that, independent of evidence, think that inflation is a risk and stimulus must stop now, recovery or not.  Anything that takes these dopes down a notch is welcome.

On the other hand, too much is made of the Pain Caucus. Where is the government with the guts to cut their stimulus before the full recovery? Maybe Ireland displayed real guts, maybe the ex-Soviet satellite states displayed real guts - these are practically the only places with leaders with the guts to pull off real structural reform (cutting the stimulus without a plan for structural reform is just meaningless self-flagellation). Greece will go down that road toward structural reform kicking and screaming, but, *now*, *other* places in Europe have more violent protests. Everywhere else you see wimps - they talk about pain, but they keep paying off the voters today, with debt to be serviced by future generations, without the benefit of a foundation of sound structural reform. The Pain Caucus are paper tigers, so it is hard to get too worked up by their stupidity and hypocrisy.

Economics and Politics - Paul Krugman Blog - NYTimes.com - David Brooks and the Pain Caucus; Arguments From Authority

A quick note on David Brooks’s column today. I have no idea what he’s talking about when he says,
The Demand Siders don’t have a good explanation for the past two years
Funny, I thought we had a perfectly good explanation: severe downturn in demand from the financial crisis, and a stimulus which we warned from the beginning wasn’t nearly big enough. And as I’ve been trying to point out, events have strongly confirmed a demand-side view of the world.
But there’s something else in David’s column, which I see a lot: the argument that because a lot of important people believe something, it must make sense:
Moreover, the Demand Siders write as if everybody who disagrees with them is immoral or a moron. But, in fact, many prize-festooned economists do not support another stimulus. Most European leaders and central bankers think it’s time to begin reducing debt, not increasing it — as do many economists at the international economic institutions. Are you sure your theorists are right and theirs are wrong?
Yes, I am. It’s called looking at the evidence. I’ve looked hard at the arguments the Pain Caucus is making, the evidence that supposedly supports their case — and there’s no there there.
And you just have to wonder how it’s possible to have lived through the last ten years and still imagine that because a lot of Serious People believe something, you should believe it too. Iraq? Housing bubble? Inflation? (It’s worth remembering that Trichet actually raised rates in June 2008, because he believed that inflation — not the financial crisis — was the big threat facing Europe.)
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