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Paul Krugman Profile picture
@paulkrugman
May 21 • 2 tweets • 1 min read Twitter logo Read on Twitter
So much writing on the debt ceiling right now seems utterly behind the curve. The question now is what does Biden do if Rs refuse any deal that doesn't effectively give them complete control of US policy? Or maybe even actively seek financial crisis? 1/
Unilateral actions might fail — or be blocked by a partisan Supreme Court. But what are people pointing out these risks saying that Biden should do? Capitulate completely? (Even that might not be enough). If that's the plan, say it clearly 2/

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More from @paulkrugman

Paul Krugman Profile picture
May 21
OK, something that isn't about the d*** c*******. Obituaries have acknowledged his brilliance and huge influence, all of which is true. But I think it's important to realize that his project to reform macroeconomics was a failure 1/ nytimes.com/2023/05/17/bus…
Lucas sought to make business cycle theory a branch of conventional microeconomics, with perfectly rational individuals and all markets in equilibrium. But in such a world, how can decisions by central banks have large real consequences? 2/
After all, with flexible prices and rational actors, money should be "neutral" — double the money supply, and all prices will double, with no effect on the real economy, which only depends on *relative* prices 3/
Read 11 tweets
Paul Krugman Profile picture
May 19
So my project on prospects for a soft landing is up. I tried to highlight the common ground in this discussion (which is often testy), and also distinguish between two kinds of problems 1/ nytimes.com/interactive/20…
There is, I think, a fairly wide consensus that the US economy is running too hot, although a lot of debate about how much cooling is needed: just a return to normal temperatures, or an extended period of slack? 2/
Also a debate about what cooling will involve. Need it involve a large rise in unemployment, or can we normalize things without large job losses? Reasonable people differ! 3/
Read 6 tweets
Paul Krugman Profile picture
May 18
So, I have a long form discussion of prospects for a soft landing. I tried to explain rather than preach: this is a tough topic on which smart, well-informed people have very different views 1/ nytimes.com/interactive/20…
So far, disinflation has been much easier than it was in the 1980s; back then we went through many years of high unemployment 2/ Image
This time we've come down substantially without any rise in unemployment at all — so far 3/ Image
Read 5 tweets
Paul Krugman Profile picture
May 17
On the inflation front, we know that conventional measures have been distorted by the pandemic and aftermath. So I rely a lot on people who carefully parse the data in an attempt to figure out what's happening to "underlying" inflation. But ... 1/
Here's Joey Politano saying that it's clearly cooling 2/ apricitas.io/p/core-inflati…
And Matt Klein saying that it's clearly moving sideways 3/ theovershoot.co/p/disinflation…
Read 5 tweets
Paul Krugman Profile picture
May 8
A few thoughts on managing the debt crisis. I am neither a legal nor a market expert, although I don't think anyone knows how this will go. But surely the starting point has to be just how disastrous it will be if extortion succeeds. 1/
Another crucial starting point is that payments on existing debt must be maintained, so that it continues to be usable as collateral in the financial system 2/
So, if the administration goes 14th Amendment, concerns that it might have trouble selling new debt because of risk that the courts will declare the debt invalid. But isn't this a question of price? Basically bridge financing with junk bonds? 3/
Read 6 tweets
Paul Krugman Profile picture
May 7
Thinking about debt, and some common misconceptions. I thought I'd start with a picture that needs explaining, although it's just a new way to make a point many economists — but not many other people — already know 1/ Image
What got me started was the mail I get every time I write about debt and the debt ceiling — stuff along the lines "you forgot to mention that debt is 100% of GDP and debt service is rising". Of course I didn't forget. But this sort of thing reflects two big misunderstandings 2/
First is that 100% is an especially significant number, and historically unprecedented. But it's a ratio of a stock to a flow; it depends on the convention of measuring GDP on an annual basis. If we used quarterly it would be 400%! 3/
Read 10 tweets

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