Wednesday, June 17, 2009

Is that the best you've got?

Arnold Kling and Megan McArdle outsource their economic analysis to Reason commenters in the always enjoyable "out of context quoting game"... trying to gotcha Krugman from a 2002 article:
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.
Reading this paragraph, it almost sounds like Paul Krugman is begging Greenspan to inflate a housing bubble so the economy will recover... and this is exactly what Kling et al want you to think... either that or they were too lazy to read the 800 word article they linked to and quoted from. But it only takes a cursory glance to realize that he wasn't proposing any policy or making judgments on the positives/negatives of any particular course of action... he was just providing economic analysis. He said that the Fed and Bush Administration had a lot of incentive for a strong recovery... the former because of their role in the NASDAQ bubble and the latter to justify their massive tax cut package... and that this was likely to be achieved through inflating of a housing bubble to replace the stock market one.

Isn't this exactly what happened?

I guess you can fault him for not arguing strongly against the inflation of another bubble... he seems fairly neutral to it... but it seems to me that it goes without saying that bubbles are bad, since by definition they burst.

Regardless, with all the stuff Krugman's written about the economy and various bubbles, is that really the best you can do? Accurate prediction and economic analysis? He really must piss those libertarian economic types off for them to try so hard... better luck next time, guys!

UPDATE: Kling clarifies the meaning of his post, which mitigates the appearance of mindless Krugman bashing... though I don't completely agree with his interpretation; it's a perfectly reasonable viewpoint. No word from McArdle.