Arnold Kling  

Pile on James Kwak Day

Health Care: Price Controls ve... Tyrone on the Bailouts...

Many of these links come from the indispensable Mark Thoma.

First, we have Gender and banking: Are women better loan officers? by Thorsten Beck and others. And yes, it does strengthen my priors.

The Fed's profits are turning higher. Perhaps I need to revise my priors.

Felix Salmon writes,

I'd also take issue with the idea that anything which expands the pool of money available for lending is, ipso facto, a good thing. To the contrary, things which expand the pool of money available for lending can serve only to inflate credit bubbles. In general, lending shouldn't be easy to come by; and it should in principle always be just as easy to issue equity as it is to issue debt. We're nowhere near that point right now, and securitization only serves to drag us further away from it.

Read the whole thing. I'm not even sure I picked the best excerpt, although I really agree with the point that adding to the pool of money going into, say, housing indebtedness, is far from the obvious social good that Congress presumes it to be.

Salmon is criticizing Simon Johnson and James Kwak. I want to pile on James Kwak, because he has a couple of recent posts that set me off. First, He writes,

[Menzie] Chinn is not given to ideological ranting

Kwak goes on to endorse Chinn's ideological rant that the Bush tax cuts caused the financial crisis. Yes, I know that Chinn is speaking in the tone of economic analysis rather than a rant, but only a left-wing ideologue would take the thesis seriously. I bet Kwak cannot find a blog post of Chinn's where he made a policy point against Democrats/liberals or for Republicans/conservatives.

In another post, Kwak writes,

This reminds me of something Felix Salmon wrote about a while back: If profits and compensation in the financial sector go up and keep going up, that's a priori evidence of inefficiency, not efficiency. Those higher profits mean that customers are paying more for their financial services over time, not less, which means that financial services are imposing a larger and larger tax on the economy. Now, it is possible that they are also increasing in value fast enough to cover the tax, but that is something to be proven.

In other words, we should always second-guess markets. When profits and compensation are high, we need to look carefully to see whether they are adding enough value to cover the profits and compensation.

The implication is that government should be setting incentives, not markets. I have many problems with that, the main one being that government did create the incentives for creating the financial structure that produced the crisis. I have written a great deal on that, some of it published and some that has not yet appeared.

Finally, we have Paul Krugman going into typical contortions.

right now it's good to run a deficit. Consider what would have happened if the U.S. government and its counterparts around the world had tried to balance their budgets as they did in the early 1930s. It's a scary thought. If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression.

In contrast, Thomas Cooley writes,

The evidence suggests that continental Europe--which generally adopted smaller stimulus programs--is recovering faster that the U.S. or the U.K. They might have been wise to resist the assertions of Paul Krugman and the Obama administration that they should be doing more.

Krugman continues,

Over the really long term, however, the U.S. government will have big problems unless it makes some major changes. In particular, it has to rein in the growth of Medicare and Medicaid spending.

That shouldn't be hard in the context of overall health care reform. After all, America spends far more on health care than other advanced countries, without better results, so we should be able to make our system more cost-efficient.

But that won't happen, of course, if even the most modest attempts to improve the system are successfully demagogued -- by conservatives! -- as efforts to "pull the plug on grandma."

The problem is Medicare and Medicaid, but the solution is overall health care reform. Krugman makes it sound as though health reform would have made the debt problem smaller, rather than larger. There are reforms that could make the debt problem smaller--raise the age of eligibility for Medicare, means-test Medicare, or convert Medicaid and Medicare to vouchers rather than open-ended reimbursements. I am not saying that such reforms would be painless. But if Krugman were being fair, he would be saying that nobody is putting forth solutions to the debt problem, rather than implying that the problem would go away if we all supported Obamacare.

COMMENTS (7 to date)
BL writes:

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Joe writes:

Dean Cooley makes an interesting point, but it does not take into account the nature of a MUCH larger social safety net in Europe that the US needed to construct Ad Hoc with the "stimulus" program. So it seems to be an apples to pears comparison. (Not quite apples to oranges).
Also, if the EU is recovering quicker, is that a suggestion that we should move to more organized labor market? Did organized labor in the EU, especially Germany, prevent mass layoffs, which in turn prevent wage deflation, and in turn supports demand for goods and services? Or does Dean Cooley suggest we only cherry pick EU policies that agree with him?

Thingumbob writes:

In the rarified precincts of ivory tower of Nobel Prizedom, the erosion and collapse of the manufacturing base means less than nothing to such high falluting intellects, of course. The fact that the government has encumbered itself with the greatest speculative bubble known as derivative securities to the tune of untold hundreds of trillions, why that is irrelevant saith these Laputan folk. Besides Hamilton's report on manufactures where he establishes the there exists a physically productive economy and attacks Smith's Wealth of Nations by name is so 18th century. "Why we live on our floating island of Laputa on information alone now" they declaim commiserating with my ignorance. But why should I cast these topics before such celebrated professors in the first place? A fools errand I'm sure.

Jim Glass writes:

Kwak is the genius who couldn't understand how US car companies could have bigger profit margins on big cars and SUVs than on minis, when...

"Textbook micro tells you that price equals marginal cost, so the gross margin on every product is zero" ... and had to bleg for help in comprehending it.

And then he still didn't get the right answer -- which he could have gotten in one minute from any book, periodical, or decent web site on the, you know, auto business.

This is what gets me about these guys like Johnson, Kwak, Krugman, Stiglitz: their knowledge of actual operations of real-world businesses and finance are demonstrably squat. Zip. They make one howler after another (I could give lists for all.)

But because they know academic "economics", indeed think they are brilliant-to-genius in the field, they feel free to prescribe radical restructurings of entire businesses, industries, whole sectors of the economy -- about which they don't grasp even the most basic clue of factual knowledge.

"Beware: The devil is in the details."

"What details?? I am a genius economist!"

Sherparick writes:

Reference your challenge about Chinn, does being a free trader count as more Republican than Democrat or does that mean he is just a Rubin/Summers Democrat? I have read several blog posts by him criticizing the Democrats in Congress on their lack of support for free trade.

Also, I guess the moral problem of throwing people who are not very well off who get sick between the ages of 30-65 (or, as you suggest, perhaps 70 if we solve the medicare funding problme by just raising the age of eligibility) under the bus is not one that troubles libertarians like yourself. To paraphrase that great libertarian Ebenezer Scrooge, before he underwent that unfortunate change, If they are to die, they had better do it, and decrease the surplus population." Far better that then raising the marginal tax rate on the Andrew Hall's of the world to 45%.

RN writes:

Why does Krugman have any obligation to be "fair" (according to your definition) when your side is making up complete lies and is out there selling them without the slightest hesitation?

Your side can make up complete horses**t, and yet somehow for Krugman to point out some pretty obvious trends in the political debate, he's being "unfair."

You people have no shame.

Anonymous writes:

I see from the comments that the big government crowd is in attack mode. Krugman may have been a very good economist, but he has surpassed his econ-self as a propogandist. Thanks for calling out Chinn. Econobrowser is a great blog because of James Hamilton and in spite of MC. For the big gov't types who want to rant on about this blog, let me propose J. Hamilton as the benchmark of cautious, dispassionate, careful, and rigorous analysis. Then, I'll ask who comes closer to that benchmark -- Krugman, DeLong or Econlog. The propaganda to information ratio is so much higher on Krugman and even DeLong to Econlog as to be comical.

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