Opinion

Felix Salmon

Krugman vs Summers: The debate

By Felix Salmon
November 15, 2011

x Munk Debates TST-CIA108.jpg

I’m glad I found myself in Toronto this evening, because tonight’s Munk Debate was illuminating and enjoyable. The motion was that “North America faces a Japan-style era of high unemployment and slow growth”; Paul Krugman was arguing for it, while Larry Summers was arguing against.

Krugman found himself with the home-team advantage through being paired with Canadian economist David Rosenberg; Summers had strong rhetorical backup from Eurasia Group’s Ian Bremmer. But at heart, this was Krugman vs Summers, which is an inspired match-up: especially in election season, one of the most important criteria for any debate is that it not cleave easily and obviously along party-political lines. That way people just end up voting their party and rehearsing tired party-political talking points.

This debate, because it took place within a basically Keynesian, leftist worldview, was very interesting. Both Krugman and Summers spent a lot of time saying that they agreed with each other — with one big difference. They both quoted Keynes as diagnosing “magneto trouble” — the engine of the economy is broken, and it needs to be fixed. Summers has faith that, in Churchill’s phrase, “Americans can always be counted on to do the right thing, after they have exhausted all other possibilities” — the right thing, here, being to fix the magneto with expansionary fiscal and monetary policy. Krugman, by contrast, sees political gridlock as far as the eye can see, and says that it doesn’t matter how innovative or philanthropic or demographically attractive the U.S. is — if you don’t fix the magneto, the car won’t start, and America’s magneto ain’t gonna get fixed any time soon.

Economically speaking, the Nobel laureate largely had the better of the technocrat. We’re already four years from the beginning of the U.S. recession, and we’ve certainly been going nowhere over that time — the question isn’t whether the economy is lost, so much as whether there’s something which can help it back onto its feet in the next few years. As Rosenberg said, if you look at employment, or the stock market, or median income, or house prices, all of them are back to where they were years ago. Things might improve in the future, but they sure aren’t healthy right now. And Japan is proof that economies can stagnate more or less indefinitely — it’s now, as Krugman pointed out, 19 years into its “lost decade”.

And Summers made a couple of surprising rhetorical missteps, for someone who cut his teeth on debate teams. At the very beginning he praised the debate’s sponsors, Peter and Melanie Munk, holding them up as an example of how North American philanthropists help to keep the continent vibrant. But the gesture rang a little hollow, coming as it did from a man who was being paid extremely handsomely to turn up and do the bidding of the Munks’ charitable foundation. Summers is many things, but he’s hardly top of the list of people in need of large philanthropic donations.

Summers also tried to defend inequality, at least in part, by saying that “suppose the United States had 30 more people like Steve Jobs” — that, he said, would be a good thing even as it increased inequality. “So we do need to recognize that a component of this inequality is the other side of successful entrepreneurship; that is surely something we want to encourage.” This might have been received better had Summers not earlier praised America, while pointing to Bremmer, as “the only country in the world where you can raise your first $100 million before you buy your first suit and tie”.

Bremmer is undoubtedly a rich and successful entrepreneur — and one who never wears a tie, to boot — but he’s making money entirely from the 0.1%, and at heart Eurasia Group’s business model is one which does better as the ultra-rich get richer. In the context of a debate about how to rescue the economy for the other 99% of us, it doesn’t much help to point to One Percenters like Jobs and Bremmer who have managed to do well for themselves in an otherwise stagnant economy.

For his part, Bremmer had one theme, and he was sticking to it: the U.S. might be in a mess, but it has stronger fundamentals than other regions, especially Europe and Japan. But Bremmer never explained how being not-as-bad-as-Europe was going to help drag the U.S. out of its current slump, especially when, as Krugman pointed out, every single country to successfully recover from a financial crisis has done so by means of exports.

But here’s the thing: Summers really is a formidable debater. He met Krugman’s gridlock argument head-on, saying that Barack Obama’s legislative achievements in 2009-10 were greater than those in any two year period since 1965-66, or possibly even 1933-34. And in his concluding remarks, he declared that “things are never as bad as you think they are when things are bad”, adding optimistically — and accurately — that in politics, “the transition from inconceivable to inevitable can be very rapid”. Summers’s optimistic sentiment went down well with the well-heeled Toronto crowd: people who are wealthy and healthy and happy, like the Munk Debate audience, tend to be attracted to arguments saying that there’s no need to feel guilty or fearful.

And so, in the end, host Rudyard Griffiths declared a “technical victory” for Summers and Bremmer. They didn’t win a majority of the votes — in fact, they were beaten by Krugman and Rosenberg, 45% to 55%. But Krugman and Rosenberg started the debate with 55% support, while Summers and Bremmer started with just 25%: basically, the undecideds all plumped for Summers over Krugman.

As for me, I entered the debate torn, and I exited it that way as well. There’s something very un-American about doom-mongering, and it’s fair to say that any given economist, at any given point in time, is more likely to be wrong than right. In order for Krugman to be right, he has to be right — right in his analysis, and right in forecasting what the macroeconomic implications of that analysis might be. But the Krugman-Rosenberg teams couldn’t even agree on the analysis: while Krugman was convinced that a bunch of borrowing and spending would fix what ails the economy, Rosenberg was convinced that we’re at the beginning of a massive deleveraging and that you can’t fix an over-indebted economy by piling even more debt onto it.

Krugman is certainly outside the economic consensus, and while that doesn’t mean he’s wrong, it’s certainly prima facie reason to be skeptical about his analysis. Besides, Krugman’s been so pessimistic for so long, now, that it’s almost impossible to imagine what kind of evidence could get him to change his mind and declare that we’re not headed for a lost decade after all. Summers, by contrast, doesn’t think in forecasts so much as in probability distributions — a much less constricting way of thinking.

So, do I think that North America faces a Japan-style era of high unemployment and slow growth? I’ll agree with Summers and Krugman on this one: yes, it does. Will it manage to do what’s necessary to avoid that fate? That’s something no one can know with any certainty. But life’s certainly a lot easier if you believe that it will.

(Photo: Sandler via Central Image Agency)

Comments
46 comments so far | RSS Comments RSS

“People who are wealthy and healthy and happy, like the Munk Debate audience, tend to be attracted to arguments saying that there’s no need to feel guilty or fearful.”

I think this can be extended to most people who have not been touched or otherwise haven’t seen any adverse effect to their lives, not just the well-heeled. I’m just waiting for the blowback.

Posted by GRRR | Report as abusive
 

“Will it manage to do what’s necessary to avoid that fate? That’s something no one can know with any certainty. But life’s certainly a lot easier if you believe that it will.”

Believing that for the reason stated is about as responsible as believing in the 3rd Reich’s commitment to human decency because it makes you feel better.

But if you don’t swallow such pablum, you realize that we, and the West and the world are in serious trouble.

So believe what you want. Free will grants people the ability to be short-sighted and stupid.

Posted by tconnor | Report as abusive
 

Summers has all the credibility of a doctor promising recovery in a cancer ward. He is largely responsible for underestimating the severity of this mess by imposing his neo-classical models on the reality we faced in 2007. If Krugman should be discounted because he keeps reminding us that the sun isn’t going to come up tomorrow and that we need to do something, then why bother asking the question? The numbers are in and the economy is not moving. Wishful thinking is not going to get it moving, we are in Japan, 2.0. Krugman predicted the liquidity trap, he also provided the cure but it isn’t fashionable for the current political economics that are driving our decision making.

The numbers are the numbers and tweaking is not going to fix this problem. We need to redirect spending from operations (defense) to investment (infrastructure) and not $60 billion at a time, but $600 billion at a time just like China.

One thing for sure, if we follow Krugman’s plan, we will have a recovery, maybe a bit more debt, but we would have a recovery. Isn’t that the same argument for climate change? Why do we agree that we should follow the insurance argument for climate change but ignore it for the economy which is immediately pressing?

Posted by Mcamelyne | Report as abusive
 

“They both quoted Keynes as diagnosing “magneto trouble…”
Well, if your going to use a car as analogy, I would say the car is out of gas. Real increases in the price of oil will have a profound effect on our standard of lving.
http://www.zerohedge.com/news/guest-post -energy-independence-big-lie

The US government went into tremendous debt bascially saving the hides of bakers and investors who didn’t know how to bank or invest. The 99% still have no money to buy anything, still have debt they owe, and still are represented by a government that believes the most important thing for the economy is that the price of rich people’s assets never decrease.

Posted by fresnodan | Report as abusive
 

Felix said: “Krugman’s been so pessimistic for so long, now, that it’s almost impossible to imagine what kind of evidence could get him to change his mind and declare that we’re not headed for a lost decade after all.”

Geez, Felix.

It’s not hard at all to imagine what would change his mind. Krugman said it himself, many times: a change in the political climate that allows sensible action.

He was FAR from pessimistic, saying there is an ready solution, if we only find the political will. It was a call to action. And Larry Summers agreed with him entirely.

Too bad you misunderstood so badly.

Posted by EconomistDuSud | Report as abusive
 

Yes, the real debate was between Krugman and Summers. Neither looked very happy with his side-kick: Summers, glowering, Krugman, bemused. But I guess you go to war with the allies you have.

The thing is, Bremmer and Summers were actually making compatible arguments. Bremmer’s case was that you have to put your money somewhere and America was the least bad alternative. I notice that you skipped over Summer’s main point in the service of your own agenda, but it was this: while North America indeed faces a long era of high unemployment and slow growth, it won’t be “Japan-style” because Japan’s bubble was bigger, its demographics worse, its immigration policy more restrictive. He also claimed that Japan was “less creative” than America; that seems to me a debatable point, but in the event, nobody chose to debate it.

You can see why: Bremmer & Summers were making the sort of case that would lose the war even if it won the battle.

Posted by Greycap | Report as abusive
 

“Krugman is certainly outside the economic consensus”

This bizarre remark deserves special mention because it gets so much wrong with such elegant brevity. There is no economic consensus, but to the degree that one exists (a plurality), Krugman does represent it. Summers and Krugman agreed exactly on every economic point raised in the debate. It is in the *political* sense that Krugman is an outlier.

Posted by Greycap | Report as abusive
 

Why does anyone even bother listen to Summers at this point? He has been wrong about absolutely everything from Day One of this crisis. Nothing has happened in the way he predicted, and in fact, his policies in favor of bank bailouts are a major reason why we are still stuck in a Japan-like zombie economy. It is distressing to me that there are still people who think Summers is a “smart guy” (other than Summers himself). He is a proven bag of wind.

Posted by maynardGkeynes | Report as abusive
 

“Besides, Krugman’s been so pessimistic for so long, now, that it’s almost impossible to imagine what kind of evidence could get him to change his mind and declare that we’re not headed for a lost decade after all.”

Umm, how about ‘any evidence of improvement whatsoever’? Would that do? On the other hand, how about 4 years and counting out of 10, with no serious attempt to escape the liquidity trap on the horizon?

You make it sound as if Krugman is ideologically set on doom-and-gloom: have you been paying attention? Is the political climate any more open to monetary or fiscal stimulus? Do the policiy making elites seem to have developed a clue recently? Did the liquidity trap spontaneously pack up and head home? Are economists now required to ignore their data and models in order to provide comfort to the comfortable?

Summers’ points, as presented here, are fairly ridiculous: a productive legislative session that does not produce any effective policy for the current crisis is not an argument for hope and change. It just means that congress can waste time in more than one way.

Summers’ bromide about how politics can change really quickly is also not actually an argument in favor of recovery. ‘Things change! So, you know, they might! And maybe in a good way!’

Felix, do you really want to believe that things are better/getting better/nothing to worry about this badly? Because you’re not convincing me. Do you really prefer the certainty of idle belief over the uncertainty of having to argue for a solution? Krugman, at least, has taken a position that might be wrong. And his track record versus ‘happy go lucky’ is strong.

Posted by A.Majzels | Report as abusive
 

Lastly, Summers’ concluding statements pleaded with the audience not to vote in favour of the resolution (Japan-style growth) because it could be a self-fulfilling prophecy. Summers was laughed at by the audience. Felix, your cherry-picking is surprising.

Posted by lwolle | Report as abusive
 

It would be interesting to know which guy thinks he’s been right over the past three years. In my eyes, and in his own, Krugman has been right–but Summers probably wouldn’t agree. Summers looks at an economy with 9% unemployment and an over 50% chance of another recession in 2012 and thinks, Hey, we’re doing OK! The man is spinning as hard as he can to try to run away from his own share of responsibility for the still-unfolding disaster.

Posted by colburn | Report as abusive
 

“Besides, Krugman’s been so pessimistic for so long, now, that it’s almost impossible to imagine what kind of evidence could get him to change his mind and declare that we’re not headed for a lost decade after all.”

I’m sure a significant increase in the employment-population ratio would change his mind. It’s been dragging along the bottom, with no recovery whatsoever, for 2 years now. Where have you been?

Posted by jack512 | Report as abusive
 

The Southern Economist and A.Majzels said it, so I’ll just pile on.

“It’s almost impossible to imagine what kind of evidence could get him to change his mind and declare that we’re not headed for a lost decade after all.”

NO. It’s NOT. Evidence of employment growth (not when UR drops because people fell off the dole without prospects) would do a lot. Evidence that the US GDP was actually growing outside of the Financial Sector would help. Evidence that Barack Obama or Tim Geithner was sane would probably be asking too much, but Ben Bernanke acting like Ben Bernanke would be progress.

Republicans voting for Republican ideas would be nice, too. But that’s as improbable as getting journalists to stop lying about how TARP “made a profit.”

Summers will keep telling people that all is well, even as his RoboEconomist persona continues to support destroying jobs, opportunities, and the chance of getting those 30 Steve Jobses an opportunity to develop.

For the past fifty, Canadian entrepreneurs have moved to America. During the Depression, the flow went the other way. For the foreseeable future, it will go the other way. And nothing Larry “Never Admit a Mistake” Summers says will change that.

Posted by klhoughton | Report as abusive
 

This “North America faces a Japan-style era of high unemployment and slow growth?” question is problematic, though, as Japan did NOT have such high unemployment. That’s one of the key points in discussing Japan’s post-bubble-crash malaise, and the Japanese government’s high debt ratio is in many ways a monument of its attempt to keep the unemployment as low as possible.

I’d be surprised if Krugman didn’t have an objection to the question itself, because it should be one of the key points in his arguments if I understand them correctly. If you think Japan struggled with BOTH slow growth and high unemployment, you are probably not qualified to talk meaningfully about the comparison at hand.

Posted by alexisdelarge | Report as abusive
 

“Summers also tried to defend inequality, at least in part, by saying that ‘suppose the United States had 30 more people like Steve Jobs’ — that, he said, would be a good thing even as it increased inequality. ‘So we do need to recognize that a component of this inequality is the other side of successful entrepreneurship; that is surely something we want to encourage.’”

This is particularly chafing to me. In the current era of widening inequality, we’ve produced exactly 1 Steve Jobs. Some may argue that there have been a few other iconic innovators such as Bill Gates, the Google and Facebook guys, etc.

In the same time period we’ve also had John Thain, Charles Prince, Bernie Madoff, Dick Fuld, Raj Rajaratnam, Kweku Adoboli, Joseph Cassano, etc. Those are just names I could come up with in 20 seconds. It’s not like widening inequality somehow spurs innovators to be any more creative, successful, and/or ethical. I’m pretty sure Steve Jobs would have been Steve Jobs whether he acquired the wealth of 20x the average person or 1000x the average person.

Posted by spectre855 | Report as abusive
 

I’d like to hear more about Summers’ case for Obama’s legislative accomplishments in 2009-10. Better than 1993-34? Quite a claim.

Felix, didn’t you kind of funk it a bit at the end? Conclusion is, “isn’t it pretty to think so”?

Posted by adsprung | Report as abusive
 

Very informative article. Given the current political landscape however, I tend sadly to side with Krugman.

Posted by drogon | Report as abusive
 

Mcamelyne
“Summers has all the credibility of a doctor promising recovery in a cancer ward.” Brava, Bravo!!

Posted by StephenkMackSD | Report as abusive
 

“Will it manage to do what’s necessary to avoid that fate? That’s something no one can know with any certainty. But life’s certainly a lot easier if you believe that it will.”

Nothing invites disaster more than expecting it. Psychology is so important to Economics that the expectation of a downturn will ensure a downturn. The steps people take to insulate themselves kill the economy.

Posted by Zathras | Report as abusive
 

Count me along with A.Majzels, EconomistDuSud, klhoughton, and so on. The idea that Krugman is somehow blinkered in his prognostications is ridiculous. He will diagnose the economy as recovering, if and when it starts to recover. We already had one lost decade, at least if you look at median incomes and the financial security of the middle class. (Even for those in, say, the 60th to 95th percentiles, whose incomes rose somewhat over the ’00s, the risk of suddenly falling suddenly and entirely out of the middle class due to some stroke of bad fortune — job loss, serious health issue, etc — increased substantially.)

As for why we should generally give credence to Krugman: how about because he has been consistently right, for a decade? About the Bushies Iraq lies, about the path of interest rates, about the insufficiency of the stimulus, etc. Over and over, he has made predictions that were declared crazy by the Very Serious People, and been proven right. And yet he’s still “outside the consensus”? Please.

If you really think what you said there, then you’re not actually listening to what Krugman says.

Posted by Auros | Report as abusive
 

I’m with maynardGkeynes. I think the only talent Summers has besides being always touted as the smartest guy in the room is his spectacular ability to fail upward. That is a talent that we’d all like to have.

Posted by heraklitos | Report as abusive
 

Of course we are in a Japan style unending stagnation. We tried to do the same cure as them… bailouts and stimulus. Its no surprise that things arenot working now.

Posted by DocMerlin | Report as abusive
 

The difference seems to be that Summers for some unknown reason is optimistic about our political structure while Krugman isn’t. I’ve found that following Delongs advice has worked pretty well for the last dozen years:

1. Remember that Paul Krugman is right.
2. If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.

http://delong.typepad.com/sdj/2009/03/i- think-paul-krugman-is-wrong.html

Posted by BottyGuy | Report as abusive
 

BottyGuy, I know. I mean who could possibly be positive about a political system that has produced the number one military, economic, technological, cultural and scientific power in the world? The US should get Kim Jeong Il to come in and give some advice on Juche.

Posted by Danny_Black | Report as abusive
 

Danny_Black, the bailout of the banks had nothing to do with TARP. It was/is the unprecedented low rates that the Fed pushed. TARP may have made the banks books look better. It may have given the private sector greater confidence that the banks would not be allowed to fail. But (as you say) it did nothing to pad the banks earnings.

DocMerlin, the stimulus efforts probably helped to soften the impact. Despite people’s impatience, a slow decline is typically better than a rapid collapse. The latter has a way of dumping the baby with the bathwater.

Still think we are in for another decade of deleveraging before people will be willing to spend again. And it is really hard to hurry that up without bringing down the system.

Posted by TFF | Report as abusive
 

You say: “Besides, Krugman’s been so pessimistic for so long, now, that it’s almost impossible to imagine what kind of evidence could get him to change his mind and declare that we’re not headed for a lost decade after all.”

But you just spent half the article acknowledging that things have been so bad going on 4 YEARS now. I don’t understand: maybe Krugman can stop being pessimistic when his pessimism stops proving correct?

Posted by brianmcc | Report as abusive
 

@Danny_Black (12:59pm): klhoughton mentioned TARP, not your “bit of TARP that was invested in banks”.

The Oct 2011 Treasury OFS report on TARP shows the current outstanding balance still owed to the Treasury as $124 billion, with an estimated net cost of $37 billion.

Source: http://www.treasury.gov/initiatives/fina ncial-stability/briefing-room/news/Pages  /TARPAnniv.aspx

Posted by SteveHamlin | Report as abusive
 

SteveHamlin, somehow I suspect mr houghton was not bitching about the massive handout to homeowners and if he was then I defy him to point out a journalist claiming those bits of the programme made money. Especially give this disclaimer “Treasury committed up to $45.6 billion to help homeowners avoid foreclosure under TARP. These housing investments were never intended to be recovered and we do not expect them to result in any repayments.”. Also the estimated cost is predicated on all 45.60bn being wasted on homeowners, whereas to date that figure is 2.23bn.

TFF, if low interest rates make it so easy for banks to make money why are MS and GS struggling?

Posted by Danny_Black | Report as abusive
 

“Summers, by contrast, doesn’t think in forecasts so much as in probability distributions — a much less constricting way of thinking.”

And a much less falsifiable one to boot. So if America improves for any reason in the next 10 years, Summers wins? Krugman has made many falsifiable predictions over the last 10 years that have proven correct. What has Summers done, empirically, to provide any validation for his “probability distributions”?

Posted by ptx | Report as abusive
 

So far as I can tell, Summers is able only to recycle textbook dogmas invented by earlier economists.

Krugman is far more adaptive and inventive. But not inventive enough, perhaps because he has grown weary of the constant stream of vilification and slander aimed his way.

David Rosenberg won this debate.

Posted by JanSmith | Report as abusive
 

“This debate, because it took place within a basically Keynesian, leftist worldview…”

Keynsians aren’t leftists. To say they are is an insult to both Keynsians and leftists.

You’re not off to a good start.

Posted by Juan1 | Report as abusive
 

So… when is the U.S. going to follow all the tax evaders? Eliminate all the loopholes and exemptions from paying taxes like the rest of us? THAT is my dominant concern.

Posted by w.burton | Report as abusive
 

“TFF, if low interest rates make it so easy for banks to make money why are MS and GS struggling?”

@Danny_Black, I didn’t say that, did I?

Banks borrow short and lend long. The low interest rates allow the banks a greater spread on their pre-collapse book, helping them absorb losses as they come in. The banks are not particularly profitable right now because the default rate remains very high, but they are more profitable than they would be if rates were higher. Among other things, the low interest rates allow them to reap fees on refinancing activity.

As for GS and MS, they aren’t what I typically think of as “banks”. I guess they are considered “investment banks”, but their business is very different from that of the retail banks.

Moreover, they are doing very well. GS earnings:
2009 $22.13/share
2010 $13.18/share
2012 est. $14/share

Their earnings didn’t hit double digits until 2005, so it is fair to suggest that they are profiting brilliantly from this recession. Far more so than the retail banks, even if 2011 earnings are down briefly.

Do you believe GS would be earning this much if the Fed hadn’t flooded the market with cheap money? Or would they perhaps have faced some lean years instead?

Posted by TFF | Report as abusive
 

I’m with Krugman. Politics, corruption and a disengaged public will make it difficult to get out of this hole, and it’s going to get a lot worse before it gets better — a different and more literal take on Blood on the Streets. Some might then call it an “American Spring.”

Posted by vh070 | Report as abusive
 

It is beyond me why having 30 more people like Steve Jobs would increase inequality. Steve Jobs sparked a lot of economic activity that enables people to increase their income. I can see how economic opportunities imply growth but this growth does not need to imply increase of inequality.

Posted by Marc12345 | Report as abusive
 

“They both quoted Keynes as diagnosing ‘magneto trouble’ — the engine of the economy is broken, and it needs to be fixed.”

One can see that Felix never took auto shop. The magneto isn’t the engine – it’s an AC generator that provides electric power to the spark plugs.

In Keynes’s day, you used a hand crank to turn the magneto, which got the engine going, which then turned the magneto turning to keep the juice flowing.

The point being that Keynes didn’t think there was anything wrong with the “engine” — i.e. the capitalist market economy — but that in periods of deep slump it might need a jump start, in the form of government deficit spending.

Posted by PeterPrinciple | Report as abusive
 

Amen Greycap at Nov 15, 8:03 AM. Felix really did misspeak on this one.

Krugman was very clear that he was pessimistic about the gridlocked politics or, more precisely, the scorched earth politics of the Republicans which has been overwhelmingly obstructionist about anything that might pass for rational and/or even moderate.

Summers had no specific rejoinder to this. Replay the debate. He simply offered generalized bromides about possibilities for change with nary a reference to what has been happening politically on the ground — and is likely to continue happening.

Thus, Bremmer at one point stated what is probably going to be the case when he said the Republicans will take the Senate, retain the house, and possibly gain the presidency. Krugman said “maybe not,” but you could tell he was expressing more hope than conviction.

So the questions to Summers should be:

1. Assume that in 2012 the Republicans take the Senate, retain the House, and Mitt Romney is our next President. Do you really believe that this political outcome has any reasonable probability of making economic matters better for the body politic as a whole, as distinguished from Bremmer’s 1%? You don’t really think that Greg Mankiw will have his way over the Tea Party crowd in Congress, do you?

2. Or, assume that Obama is reelected, the Republicans take the Senate (even with less than 60)and retain the House. Tell us concretely why this materially increases the probability for economic improvement for the 99%, as opposed to most of us languishing through 4 more years of Japan-style stagnation.

And, Larry, please uncross your fingers and answer these questions with a straight face.

So much for Summers being more attuned to “probability distributions” as Felix stated. For unless Felix had in mind pure Monte Carlo simulations — which are suspect even in anything other than purely theoretical economics, let alone politics — pretty much the opposite was the case: i.e., Krugman and Summers were basically in agreement — perhaps too optimistically — that if they could have their similar Keynesean ways with the economics, there was a reasonably high probability that things would work out.

But as to politics, yes, Krugman was pessimistic, but arguably realistic, i.e., the probabilities are overwhelmingly on his side. Summers, somewhat disingenuously, to put the matter charitably, completely ducked this aspect of the debate, and it is somewhere between puzzling and laughable that Felix seems, in however a garbled fashion, to have suggested otherwise.

Posted by billyblog | Report as abusive
 

does felix read the comments? in any case, i don’t think i’ve ever read one of these threads that have ever gone so consistently against him. (and i agree)

Posted by heyitsthatguy | Report as abusive
 

I never thought we would reach this point, but Krugman now looks fatter than Larry.

Posted by maynardGkeynes | Report as abusive
 

This article does read like an insiders guide to conventional opinions about economic discourse. I can’t say I’ve ever thought of Felix (who I’m sure isn’t reading these comments) Salmon as a particularily insightful analyst (see his almost useless “EU Situation” Youtube Video with the toys as an example, but as per many of the comments above, it seems to boil down to:

1) Krugman is right, but shrill, (and outside consensus!) so loses the debate
2) Summers is wrong, but convincing, so wins the debate
3) Keynesianism is “leftist”
4) Pessimism is bad, and anything that leads to pessimism can therefore be ignored.

It’s this sort of shallow facile discussion that makes me wonder why Salmon bothers to write an article at all. Maybe it was late, and he was just tired. Sad Salmon.

Posted by Goldcap | Report as abusive
 

Too much emphasis is on quantitative measures here. Monetary policy, fiscal policy.

Quality of developement matters. Through a mispricing of credit and risk the U.S. economy for more than a decade has taken on an unsustainable shape though massive malinvestment. This needs to be torn down and rebuilt company by company and job by job.
The result is the great recession and it mirrors the fake boom in size. Looking at potential GDP on a trajectory and measuring the output gap is futile, because it measures an economy that no longer exists and shouldn’t exist!

Schumpeter is on the bridge of this icebreaker and not Keynes and Canada has the better economy to boot to pass this ice age.

Posted by Finster | Report as abusive
 

Fundamentally Krugman disagreed with Summers on political process, not economics. It seems that Summers has recently moved very close to Krugman’s position on the economics. Summers has more political experience, but his optimism about the political process lacked any specifics about what would happen to trigger political action. The unemployed need higher inflation and more spending but it’s the bankers that own Washington. The bankers are doing just fine at the moment and there’s nothing to suggest that they won’t continue to be just fine in the face of massive unemployment for many more years to come.

Posted by Laughingchimp | Report as abusive
 

To call Krugman pessimistic is to fail to recognize his entire economic argument., which is, barring heavy injection of guvmint funds into the economy, we are doomed to static high-unemployment and a climate unsuited to both private and commercial recovery. He argues against the status quo of oligarchs criminally gaming the system with impunity.

Are these concepts so hard to grasp? This is as pessimistic as much as saying I am going to die.

Posted by ostrom808 | Report as abusive
 

Suppose we had 30 Country Wides, or AIGs, or GS?

Apple and Steve Jobs made their money by creating products sold at retail. Like Henry Ford and many others.

Not the billion dollar pieces of so-called “AAA” rated paper peddled by the former group!

Posted by XRayD | Report as abusive
 

@SteveHamlin: The Oct 2011 Treasury OFS report on TARP shows the current outstanding balance still owed to the Treasury as $124 billion, with an estimated net cost of $37 billion.
Source: http://www.treasury.gov/initiatives/fina ncial-stability/briefing-room/news/Pages   /TARPAnniv.aspx

Incidentally, the TARP money invested in the banks made a handy profit

Posted by Lulekuqe | Report as abusive
 

@spectre855, you hit the nail on the head. Corporate corruption and person-hood are ridiculous. And while Krugman’s prescription for our economy might work, it is locked in a debate that seems to go nowhere. The political theater isn’t ready for a change because it’s funded by the o.5%. Change may be coming though, with our own Arab Spring– the Occupy movement.

Posted by LEEDAP | Report as abusive
 

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