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Paul Krugman

@paulkrugman

20 Dec

Still thinking about the R effort — apparently abandoned as a practical matter — to prevent the Fed from acting to prevent crises. I still think sabotage was the main motive. But I wonder also whether the Fed's very integrity upset them. 1/

One of the shocking things about the past four years was the ease with which Trump undermined the professionalism of technocratic agencies, from the Weather Service to, of course, the CDC. But the Fed, protected by its quasi-independence, remained competent 2/

In particular, it quickly controlled a financial crisis that for 2 weeks looked worse than the fall of Lehman 3/

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Paul Krugman

@paulkrugman

19 Dec

Putting the Republican attempt to hobble the Fed in perspective: important to realize that financial crises have been a defining feature of the world economy these past 25 years 1/ nytimes.com/2020/12/17/us/…

The run arguably began with Mexico's tequila crisis in 1995; then there was the Asian crisis of 1997-8, the horrifying global crisis of 2008, the euro crisis of 2010-12, and a brief but very scary breakdown in March 2020 2/

I generally think of these crises in terms of the framework Shleifer and Vishny offered in 1997, explaining how it's possible for some assets to become massively underpriced; why don't buyers rush in? 3/

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Paul Krugman

@paulkrugman

19 Dec

I don't see any way to avoid seeing this last-minute R demand that the Fed be hobbled as economic sabotage — an attempt to increase the odds of a financial crisis on Biden's watch 1/ nytimes.com/2020/12/17/us/…

It's true that financial markets are currently operating smoothly — precisely because the Fed stepped in back in March, when we came very close to a catastrophic financial meltdown 2/

Of course, this happened under Obama too: Rs attacked the Fed for trying to do its job. But back then they at least tried to offer a rationale, making (false) predictions of runaway inflation 3/

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Paul Krugman

@paulkrugman

18 Dec

The absence of state aid is a huge problem, because state and local governments, unlike the federal gov, are required to balance their budgets. But why? Important question 1/ nytimes.com/2020/12/17/bus…

In general, discussions on this point emphasize the impact of the rules but don't say much about their justification 2/ taxpolicycenter.org/briefing-book/….

My take is that the difference from the federal rules is ultimately driven by the difference in likely permanence of economic shocks. The nation as a whole can be expected to bounce back from a recession, which means that revenue will return 3/

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Paul Krugman

@paulkrugman

15 Dec

Some people have suffered terribly in the pandemic; others have done OK. This sets us up for a lot of misery in the first half of 2021, especially if there isn't a relief bill — but also for a strong recovery 1/ nytimes.com/2020/12/14/opi…

Over the next few months millions of Americans will be in desperate straits — savings exhausted, quite possibly evicted and homeless. But laid-off workers tend to be low-wage, which is why GDP has recovered much more than employment (Macro Advisers data) 2/

And the higher-wage workers who haven't been hurt much by the pandemic have been saving a lot, and are now flush with cash 3/

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Paul Krugman

@paulkrugman

11 Dec

The GOP spent most of 2020 rejecting science in the face of a deadly pandemic; now it's rejecting democracy in the face of a clear election loss. How did we get to this point? One step at a time, of course. But I'd argue that the wrong turn began under Reagan 1/

Republicans have, of course, done their best to beatify Reagan — mainly on the basis of an economic recovery that he didn't cause and the collapse of Communism, which he also didn't cause. What actually happened on his watch? 2/

Well, for one thing it was the beginning of the great mortality divergence. America used to have about the same life expectancy as other rich countries; since 1980, however, we've fallen far behind 3/

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