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Paul Krugman

@paulkrugman

21 Mar

Now that the big Biden package has been enacted, we're hearing warnings from some economists — well, one economist — about stagflation. As always, history is extremely useful in thinking about such things; and I've been reviewing the great inflation panic of 2010-11 1/

My sense is that this episode has been widely forgotten, but it's very relevant. Here's what happened: as the economy began to recover from the 2007-9 recession, headline inflation picked up to almost 4% 2/

Producer prices — basically wholesale prices — were rising at a double-digit clip 3/

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Paul Krugman

@paulkrugman

20 Mar

A friend recently reminded me of this classic case of inflationista scare tactics during the Obama years; what we should have been getting ready for was unjustified inflation panic 1/ wsj.com/articles/SB124…

For a brief moment after the GOP took over the House, Rs went all in on accusing Ben Bernanke of debasing the dollar, basically because of a surge in commodity prices 2/ nytimes.com/2011/02/10/bus…

The Fed, however, stood its ground, because there was no surge in core inflation, which it (correctly) considered a much better guide to policy 3/

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Paul Krugman

@paulkrugman

17 Mar

There's been a fair bit of Econotwittering about this J.W. Mason post on the American Rescue Plan and what it says about economic theory. I agree with a lot although not all of it, and in any case think some might be interested in my take 1/ jwmason.org/slackwire/the-…

The ARPA definitely marks a big break with the austerity/debt obsession that crippled recovery after the 2008 crisis. That's a very big deal. And even the debate over the bill was very different from what went before 2/

One thing people should realize, however, is that policy orthodoxy in, say, 2011 did NOT reflect macroeconomic orthodoxy in the sense of what the standard models said. In crucial areas it was in flat defiance of what Macroeconomics 101 would have recommended 3/

Read 15 tweets

Paul Krugman

@paulkrugman

14 Mar

Private-sector economic forecasters — who are, in practice, very Keynesian — are incredibly optimistic. GS is predicting full Morning in America growth 1/

This may look like a prediction of inflationary overheating, but actually not so much. GS believes we have a 6% output gap, with potential growing ~2% a year. So 8 percent growth only brings us roughly back to capacity by end 2021 2/

And with most of the stimulus behind us, slower growth in 2022 and after. Other forecasts have smaller output gap but also slower growth, so again no major overheating. The overall picture looks like this Brookings chart 3/

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Paul Krugman

@paulkrugman

13 Mar

There's a real Morning in America vibe among economic observers right now 1/ nytimes.com/2021/03/13/ups…

Surveys of forecasters are very upbeat after the passage of the American Rescue Plan 2/ bloomberg.com/news/articles/…

This comes after predictions of disaster from the Trumpists. (Yes, I made a bad call when Trump won in 2016; I retracted it and apologized three days later). So what will they do? We already know the answer: they'll do what they did in the 1990s 3/

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Paul Krugman

@paulkrugman

12 Mar

I just debated Larry Summers, again, over overheating and all that, for Fareed Zakaria. Not going to try and spin it; watch for yourself. Also, debating people who are neither idiots nor political hacks is weird, and will take getting used to. But I do have some meta thoughts 1/

You still sometimes hear economists, even those with a public intellectual role, say that their job starts and ends with giving the best possible policy advice; it's up to politicians what they do with it. But in America 2021 that's not a sustainable position 2/

In fact it's not sustainable even if good policy is all you care about, because we have so much polarization and so many political figures acting in bad faith that it's irresponsible not to consider the political implications of your recommendations 3/

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