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Remarkably Stable GDP Growth – Part 3

Part 1

Part 2

First off, I want to thank Mark Sadowski for contributing, in a gadfly sort of way, to my thinking on this issue with his comments in Parts 1 and 2.  So, this is not the part 3 post I had intended to write.

Mark suggested using a different transformation of the FRED NGDP series I’ve been looking at.  Instead of taking YoY % change, he suggests using what FRED calls Compounded Annual Rate of Change [henceforth CARC.]  Check the linked graphs and you’ll see there’s both more fine grain movement and swings to greater extremes in the CARC graph, and, as expected, the Standard Deviation values are higher.  This is a different way of looking at the data.  But is it a better way?  I have no idea.  If you have a convincing argument either way, let’s see it in comments.

Graph 1 shows the 13 Qtr Std Dev of CARC.  It’s gross features are generally similar to the those of the graph of Std Dev of YoY Change.  There’s the steep fall bottoming in 1964, the rise into a broad double peak in 1981-3, followed by a steep drop to a bottom in 1987. Then we see the humps caused by the ’91 and ’01 recessions, and finally the sharp rise and fall due to the Great Recession. [In the YoY graph some of these extremes are displaced by about a year.]

 

Graph 1 – 13 Qtr Std Dev of CARC

 

The major difference between the two graphs occurs after the 1987 bottom.  While the YoY  Std Dev graph continues to slope down, the CARC Std Dev graph moves in a generally horizontal direction between the two red lines drawn from the Q4 ’90 high of 2.95 and the Q3 ’12 low of 1.17.  Note however, that if the ’91 recession had been worse or the ’01 recession milder, we would still perceive a downward tendency to the peaks.

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Remarkably Stable NGDP Growth – Part 2

Part 1.

The low standard deviation of GDP growth is simply an artifact of low GDP growth numbers.

OK – that’s a bit over stated.   The low standard deviation of GDP growth is primarily an artifact of low GDP growth numbers

Suppose you have a data set with values hovering around 13, with a range of +/- 20%.  The entire packet width is 5.2.  Now suppose you have another data set with values hovering around 3, with a range of +/- 20%.  The entire packet width is 1.2.  Does this suggest that the second data set is more steady than the first?

The graph shows the 13 quarter standard deviation of GDP growth since 1947.  Data is from this FRED page, Gross Domestic Product, 1 Decimal (GDP), Quarterly, Seasonally Adjusted Annual Rate, 1947-01-01 to 2013-01-01.  GDP growth graph can be seen here.

I like 13 because it’s a Fibonacci number, but it’s also the duration in quarters of the current remarkably stable GDP growth, so let’s see how it works over time.

Yes the standard deviation is dropping like a rock for the last 5 quarters.  It dropped like a rock from 1952 to 57 [with three separate stages that were each comparable to what we are seeing now,] from 1961 to 1965 in two stages, and from 1984 to 88 in two stages.  It always drops after a recession – sometimes like a rock and sometimes in a more leisurely fashion.  The reason that the bottom values were higher in those earlier periods than what we’re seeing now is that the GDP numbers were bigger.

 

 13 Qtr Standard Deviation of GDP Growth

A red line connects most of the local minima.  A parallel green line is rather arbitrarily projected from the 1991 maximum.  An orange horizontal line is projected forward from the 1999 minimum of 0.46.  The standard deviation stayed in the range of 0.47 to 0.48 for the next three quarters.  Along with the last two quarters of 2006, at 0.47 and 0.45, respectively, these are the 6 quarters since 1947 with lower standard deviation values than the current 0.53.  The current value is, in fact, only at the mid range of the trend channel.

A purple horizontal line is projected forward from the 1988 low of 0.90.  The reading immediately prior to the current one, at 1.11, was above that level.  So we find the current reading is the 7th from the lowest on record.  Only now with the last reading, has the standard deviation fallen low enough to enter a range of values at or below 0.90 that includes 33 of the preceding 100 quarters.

I think the really remarkable thing about recent events is the steepness and height of the climb from mid ’08 to mid ’09, caused by the great recession.  The precipitous fall from Q1, 2012 is just one more reversion from an extreme.

Not everyone shares my fascination with trend lines, and you can certainly quibble with the width of the channel I’ve drawn.  But I think there are two indisputable facts.

1) The standard deviation of GDP growth has been trending down since the end of WW II.  The rate of decrease has been far lower in the great moderation than it was prior to 1965.

2) The current value of the standard deviation is not in any way remarkable over the last 25 years, or even the last 50 if you accept my trend line view.

It’s certainly possible that the standard deviation will continue to drop for the next few quarters.  But it can’t fall below the lower trend line, since it has already crossed the theoretical minimum of 0.00.

It’s also possible that we’ll slip into another recession and the standard deviation will balloon again.

The main thing to understand is that recessions cause the standard deviation peaks, and that the second most effective way to have a low standard deviation is to avoid recessions.

The first most effective way is to have remarkably low GDP growth.

In my view, this is not remarkable stability.  It is the American economy enduring a slow and agonizing death.

There’s another more nuanced way of looking at the data that we’ll get to it in part 3.

 

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Remarkably Stable NGDP Growth – Part 1

In comments here, Mark Sadowski says a lot of thoughtful things, including this:

Beckworth is claiming that AD growth has been steady despite fiscal contraction which it has. In fact the standard deviation of the quarterly growth rate in nominal GDP (NGDP) since 2010Q1 is by far the lowest for any 13 quarter period on data going back to 1947. Many Fed watchers have been stunned by the amazing steadiness of the NGDP numbers despite all the various fiscal policy shifts (or cliffs) and this raises serious doubts as to the existence of a liquidity trap.

I’ll admit, it’s not at all clear to me how the serious doubts follow from the amazing steadiness when GDP growth is stuck in the mud, but it’s that steadiness that I want to focus on – eventually.

Meanwhile, Graph 1 shows the YoY percentage growth in GDP over my life time, seasonally adjusted quarterly data.

 

As you can see, GDP growth has certainly been steady over the last three years, albeit at a remarkably low level.  Market monetarists argue that since monetary policy has been inept and fiscal policy has not been expansionary, this steady growth casts serious doubts on the efficacy of fiscal policy.

Why can’t one simply turn this around and say that since fiscal policy has been inept and monetary policy has not been expansionary, this steady growth casts serious doubts on the efficacy of monetary policy?  Either way it makes very little sense.  And you’ll note that supporters of fiscal policy never make this kind of claim.

But let’s get back to GDP growth.  Remember the simplicity of Graph 1, because in Graph 2, I’m going to make it very busy.

Graph 2 – YoY GDP Growth since 1947, Decorated

The purple line is a 13 quarter moving average and the yellow line is a 13 year moving average.  Both have been in decline since the early to middle 80′s.  The red line is the growth level at the bottom of the 1982 trough – effectively a lower limit to GDP growth until the 2009 collapse.   The green line is the growth level of the 1993 recovery – effectively an upper limit to GDP growth that we may never again experience.  The blue line connects peaks since 1989.  The downward trajectory is both unmistakable and disturbing.  This is the legacy of Reaganomics, deregulation, globalization, a bloated rent-collecting finance sector, and growing inequality.

Average GDP growth for the entire data set since 1947 is 6.67%, nearly identical to the peak green line value of 6.58%.

Why is this relevant?  For a decade starting in 1971 GDP growth was never below 6.58 percent.  Since 1993, it’s only been above it for a brief blip in 2000.  For much of the 70′s GDP growth was above 10%.  For the last 20 years GDP growth has been below the 6.67% average since 1947, and for the last 6 years, it’s been below 5%.

The low standard deviation of GDP growth is simply an artifact of low GDP growth numbers.

That will be the subject of part 2.

 

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JzB Smackdown with Some Thoughts on Trends and Context

João Marcus Marinho Nunes is personally offended by my previous Angry Bear post.  


Personally I was ‘offended’ by being ‘accused’ of “using short-time series data”, ignoring “what is a valid context” and “cherry picking”.

Which was odd, since I didn’t accuse him of anything.  In fact, he wasn’t even on my radar screen.  He then goes on to show a bunch of nice and interesting graphs that have nothing at all to do with my point, and concludes:

 PS Maybe JazzBumpa thinks he´s a modern day Robespierre fighting against (in this case imaginary) absolutism!

Actually, I’m pretty close to agnostic on the subject of Market Monetarism, – as he identifies the subject of my (imaginary) absolutism in his comment at my post.   I thought I had made it pretty clear that what I was criticizing was the kind of confirmation bias that induces one to construct questionable data analyses that support pre-concieved conclusions.  The fact that the people doing this were market monetarists might be illustrative, but is not really central to my criticism.

I welcome disagreement, but it’s more helpful and constructive if the points of disagreement have some relevance to the point I was trying to make.  I elaborated a bit in a comment at Nunez’s blog, which you can read there, if you’re interested.  What interested me was some piling on by Mark Sadowski, in comments both in my post and at Nunes’.  While I think Sadowski missed [or perhaps ignored] my point, he makes a couple of his own – one of which is actually Krugman’s, whom he quotes.

“…To see what’s going on, you need to do two things. First, you should include state and local; second, you shouldn’t divide by GDP, because a depressed GDP can cause the spending/GDP ratio to rise even if spending falls. So it’s useful to look at the ratio of overall government expenditure to potential GDP — what the economy would be producing if it were at full employment; CBO provides standard estimates of this number. And here’s what we see:

Spending is down to what it was before the recession, and also significantly lower than it was under Reagan.

Krugman’s Graph

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More on Ineffective Fiscal Policy

This is a companion piece to Steve’s AB post from earlier today, where he points out the specious reasoning of  “the likes of Scott Sumner, David Beckworth, Lars Christensen, et al., claiming that fiscal austerity has obviously had no effect on GDP growth.”

I wrote Sumner off a few years ago due to a highly unfavorable chaff/wheat ratio.  I’ve tried really hard to like Beckworth, but these guys simply wallow in confirmation bias.  I’ve repeatedly criticized Beckworth at his blog for cherry picking short-term time series data to make his points.

Comparing 2013 to ’12 is an example of time series cherry picking used to justify absolutist dogma.

Back on Feb 10, Beckworth said: “despite this austerity happening at a time of high unemployment and a large output gap, a slowdown in aggregate demand growth has failed to materialize.”

And also:  “we should at least see aggregate demand faltering over the past few years while this unfolded. But in fact, we see relatively stable aggregate demand growth, as measured by NGDP”

He does admit in the end that, “the Fed has failed to restore NGDP to its pre-crisis trend.” but uses this to get in a dig at the Fed for not following his preferred agenda.

Despite the admission, this is absolutist thinking.  Austerity and demand growth in this view each have an on-off switch.  There is a refusal or unwillingness to recognize matters of degree.  GDP growth is slower than before the crisis, and the slowest of any alleged recovery period ever.  Blaming the Fed willfully ignores the part played by fiscal austerity

My comment, which he also ignored, is as follows. [Graphs added, in place of links.]

__________________________________

Yes, your graphs all show relative austerity. Except for total government expenditure/GDP – yes falling rapidly, but still higher than any pre-2007 number. And relative is relative. I still think you are considering austerity in absolutist terms.  [Afterthought - total government expenditure as a direct measure is basically flat, not falling over the past three years.  Another example of using a denominator to skew the view.]

We now have the slowest growth in real personal consumption expenditures, % change YoY, of any non-recessionary period in the WW II era. In fact, by that measure, this is the most anemic recovery on record.  [Graph 1]

Graph 1 – Real Personal Consumption Expenditures, YoY % Change

If you prefer GDP growth, this “remarkably stable” measure [% change YoY] has plateaued at or below the level of troughs in the last 8 recessions, going back to 1960. [Graph 2]  So, by that measure, this is the most anemic recovery on record.

 

Graph 2 – GDP, YoY % Change

Unemployment has fallen, but remains at a level above that of most recessions.[Graph 3]

 

Graph 3 – Civilian Unemployment Rate

The worst recovery in my life time is pretty dismal success. Plus, wealth and income disparity continue to increase. With sequester looming, I think we’re in for a very rough ride.

_______________________________________

There are legions of economists who simply refuse to recognize that fiscal policy can make a difference, and are willing to torture data in an attempt to validate this point of view.

If you want to make a point using time series data, you really need to consider what is a valid context.  Is it this year vs last year, or vs long range historical trends?

If you need to cherry pick or engage that ol’ devil denominator to make your point, then your point has questionable validity.

 

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More Right Wing Lies – Now As In The Roaring 20′s

Amity Shlaes, the disinformation bunny, is still going.  In the latest issue of Imprimus, a publication of Hillsdale College, is a transcript adapted from a recent talk she gave there during a conference on the Income Tax, sponsored by Hillsdale’s own Center for Constructive Alternatives and the Ludwig von Mises Lecture Series.  Right away, you know this is going to be good.  The Title of her contribution is Calvin Coolidge and the Moral Case for Economy.  Of course, by economy, she means austerity.

There is so much wrong here it’s both impressive and depressing.  Rather than give her the full FJM treatment, which would take more time and energy than she deserves, I’ll just hit on a couple of the lowlights.  Here is her opening paragraph.

With the Federal debt spiraling out of control, many Americans sense an urgent need to find a political leader who is able to say “no” to spending.

Here we go. Her first sentence is an exercise in made-up right-wing talking point mythology.  I’ve already exploded the ‘Obama is a profligate spender” myth, here, here, and here. Further, we have just lived through three years when federal spending was close to flat line, as Graph 1 shows.  

 Graph 1 – Flat Federal Spending Under Obama 

There is only one comparable period in post WW II history, 1953-56, during Eisenhower’s first term, as shown in Graph 2.   Still, over Ike’s full term, spending grew by about 30%.

 Graph 2  Not So Flat Spending Growth Under Eisenhower (’53-’60)

To suggest that federal dept is now  “spiraling out of control” due to excessive spending is not merely disingenuous.  It is a sign that either Shlaes has no earthly idea what she’s talking about, which in an alleged journalist, is unforgivable, or it’s a bare-faced lie, which is unforgivable for anybody.  And if many Americans are feeling the urgent need to curtail government spending, it’s because they have been lied to so repeatedly and often that they have no idea what the truth is.  As Krugman recently put it: “And I have to say, it’s extremely telling that conservative Republicans don’t seem able to make their case without resorting, right from the beginning, to obviously dumb fallacies.”  The truth is that if we have a debt problem, it is due to a shortfall in revenues.

Yet they fear that finding such a leader is impossible.

Its not clear who made Shlaes the spokesperson for this sorry, disenfranchised segment of the population, nor that this is indeed what they fear.  Perhaps we should introduce Shlaes and the rest of these Real Americans to the real President B. Hoover Obama.

Conservatives long for another Ronald Reagan.

This is probably correct, though as Shlaes goes on to demonstrate, conservatives in this way – and, alas, right-wingers almost always – are rather badly disconnected from reality.

He was of course a tax cutter, reducing the top marginal rate from 70 to 28 percent.  But his tax cuts – which vindicated supply side economics by vastly increasing federal revenue – were bought partly through a bargain with Democrats who were eager to spend that revenue.

Wrong again.  The reality is that Revenue growth under Reagan was the worst of any 20th century President, post Eisenhower, except for the unfortunate Bush, Sr. under who’s recession plagued regime Reagan’s buzzards came home to roost. And was it really the Democrats who spent that anemic revenue stream, or did it go to Reagan’s Star Wars fantasy?

Reagan was no budget cutter.  In fact, the federal budget grew over a third during his administration.

Here, she finally gets something right, if by “federal budget” she means Total Outlays, and by “over a third” she means over 80%  [as measured from 1980 to 1988.]

Things get really egregious further on in the section titled “The Purpose of Tax Cuts.”  She informs us that President Coolidge and Treasury Secretary Andrew Mellon campaigned to lower top rates from the 50′s to the 20′s.

Mellon and Coolidge did not win all they sought.  The top rate of the final law was in the forties.  But even this reduction yielded results – more money flowing into the treasury – suggesting that “scientific taxation” worked.  By 1926, Coolidge was able to sign legislation that brought the top marginal rate down to 25%, and do so retroactively.

I was surprised to learn that Coolidge and Mellon had anticipated the Laffer curve by 6 decades.  Let’s have a look at how more money flowed into the treasury. In 1922 and ’23, with a top marginal rate of 56%, tax revenues were $2.23 and 1.69 billion respectively. [Per FRED, 1923 was a recession year]  In 1924, with a top rate of 46%, total revenues were $1.79 billion.  This is what Shleas calls “more money flowing into the treasury.”  Here’s a bigger picture look.  In 1920, when the top marginal rate was 73%, receipts were slightly over $4 billion.  In 1925, when the top marginal rate was 25%, receipts were $1.7 billion, less than half of the 1920 value, and by 1929 had only increased to 2.23 billion.  Graph 3 shows revenues per year [Coolidge's term highlighted in red,] and belies Shlaes’ assertion.

 Graph 3 Income Tax Revenues, 1915-1930

Graph 4 shows a scatter plot of this same data, with revenues as a function of top marginal rate, Coolidge years are again highlighted in red.

Graph 4 Top Marginal Rate and Tax Revenues, 1915-1930

A best fit straight line is included.  There’s lots of scatter, for a variety of reasons, but the upward trend – the exact opposite of Shleas’ assertion, is obvious.

So here’s the reality.  A decade of tax cutting and deregulation led us into the Great Depression, the worst economic collapse of the 20th century. [You might note that the following decades of high tax rates and robust regulation were free of these horrible events.]  And what happened most recently?  A decade of tax cuts and deregulation – the end game of three decades of this supply-side approach – led to the greatest economic collapse since the Great Depression.  Significantly, the major deregulations of big finance, including the repeal of Glass-Steagall came at the end of Clinton’s term, less than a decade prior to the financial melt down.  Last Friday on his radio show, Thom Hartmann pointed out that prior to the regulations put in place in the 30′s, the U.S. had never gone for more than 15 years without a major financial collapse.  So this result should have been expected.

The extraordinary thing isn’t that right wingers lie.  The simple reality is that they can’t make their case without lying, because it has no merit.  The extraordinary thing is that their lies are so easily rooted out and refuted, in the era of free and easily accessible information, but so few people will take the required few minutes to go ahead and do it. Sadly, whenever the truth comes up against a cascade of lies, the liars have a significant tactical advantage

Shlaes’ presentation is just one more manifestation of the right wing ploy of denying reality.   Sadly, it works, because you really can fool a lot of the people a lot of the time.

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You Can Fool Most of the People Most of the Time

At least on certain issues.

I’m not inherently a great pessimist, but with few exceptions each passing month for over a decade now has seen my optimism whither, at least a little.  So I can’t help but see the manure-colored lining in this otherwise rosy, fluffy cloud.

Steve Benen reports that according to the new NBC/WSJ poll, Americans trust Democrats more than Republicans on domestic issues, sometimes by large margins.  Here is a graph.  (As always, click to embiggen.)

Graph 1   Who Do You Trust?

But the causes of my pessimism are four-fold.  First, as Benen goes on to note, the same polling reveals that in the popular mind “Republicans have an advantage on the (sic) reducing the deficit, ‘controlling’ government spending, and national defense.”  Well, there’s three reasons for pessimism right there.  A) Reducing the deficit is an issue of exactly zero urgency, and attacking it now will certainly cause economic hardship, especially for those at the bottom. Further, Republicans have been huge debt increasers for decades, while Dems have not.  B) We absolutely do not have a spending problem.  We absolutely do have a revenue problem, as graph 2 plainly indicates.  I think the Republicans have become convinced of their own lies.

Graph 2   Federal Gov Current Recpts by GDP

C) From FDR through LBJ to BHO, Dems have been every bit as war-mongerish as their Rep counterparts; BHO has continued his predecessors war initiatives almost seamlessly;  and 9/11 happened on W’s watch.  This just makes me want to cry.

But I have a bigger list.  Second, a look a graph 1 reveals some disturbing details.  A)  Joe BeerCan must not connect “Looking out for the middle class,” Medicare,” “Health Care,” “Medicare,’ or “Social Security” with “Economy” or the results for those categories would line up better.  B) Considering Paul Ryan and the never-ending series of Republican contrived cliffs, scoring Dems only marginally better than Repubs on the economy is, all by itself, cause for despair.  C) As is the close call on taxes.

Third, and I’ve already alluded to this, there is almost no daylight between the two parties on foreign policy issues.  Still I have to give a slight nod to the Dems, based on practicality, because: John Bolton.

And last, though I firmly believe to the bottom of my heart that the Dems are superior on absolutely every issue, problem and question that might rise, they still aren’t that damned good.  Case in point: the new head of the Michigan Democratic party is a venture capitalist.  As Bill Maher sagely put it, while the Democrats have moved to the right, the Republicans have moved to the insane asylum.  They demonstrate this anew, almost every single day

The lessons of history and even a casual observation of the current failures of European austerity show that progressive policies are the clear and present necessity.  But even if we had strong Dem majorities, we still have Reaganite B. Hoover Obama in the White House, and a genuine progressive movement in congress the exact size and shape of Bernie Sanders. 

As one of my college professors put it long ago:  Booze is the only answer.

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Thus Spake the Rube

For the hundredth time the foreign-born Muslim commie Nazi extends an olive branch across the aisle, and for the hundredth time it’s dashed to the floor, stomped on and set ablaze – along with the latest spokes-liars trousers.   It became a conflagration that the infamous water-stop could not staunch.

Early in Marco Rubio’s alleged rebuttal to B. Hoover Obama’s latest exercise in political theater it became painfully obvious that his pants were on fire.  This was even before it became obvious that his diatribe was utterly incoherent.  Steve Benen explains.

By any sensible measure, Rubio’s entire pitch was incoherent gibberish. He thinks President Obama is hostile to free enterprise and wants to increase the deficit, neither of which makes any sense. Rubio thinks the housing crisis was caused by big government, which is simply idiotic. Rubio celebrates his family’s history of dependence on government social programs like student loans and Medicare, while articulating a policy agenda that guts government social programs like student loans and Medicare.
Forget ideology, subjectivity, and areas of opinion — the fact is Marco Rubio’s speech was filled with a series of claims with no meaningful connection to reality. The senator even thinks combating the climate crisis means asking government to “control the weather,” which is just genuinely dumb.

Part way through I started taking notes, and discovered an unappetizing platter of rewarmed left-overs [or more accurately: right-overs] of Romney’s failed presidential campaign, where lying and incoherence were the norm.  It was deja vu all over again. Viz:

Obama’s obsession with raising taxes
Solyndra [God help us - I am not making this up]
We should open Federal lands to energy exploration
Grow Energy industry [but not renewables]
Lower Corp tax rate [Highest in the world, don't cha know]
Incentivise school districts
Schools of choice
Solve the debt problem [As if BHO ignored it - or, more importantly - as if it were a real problem]
Obama created the debt with excessive spending  [my personal favorite]
Need a balanced budget amendment  [the ignorance - it burns, too]
Obama’s in favor of leaving Medicare just the way it is [though he clearly stated otherwise]
He also wants to unconstitutionally undermine 2nd amendment rights
The President’s devastating cuts to our military [Seriously -- WTH?!?]
Moral breakdown in society – need more faith
Economic liberty

That’s what I was able to capture as Rubio’s litany of [mostly] decades old Republican clap-trap spewed forth almost faster than I could record it.

One of the MSNBC commentators pointed out that this nonsense wasn’t directed to the American public, who I hope are beginning to see through the smoke screen, but to the hard-core right-wing base.  As such, it’s Rubio’s first gambit in his run for the 2016 presidential nomination.

I don’t know if I should laugh, cry, or drink myself into a stupor.

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How To Debate Paul Krugman

On Saturday Mish wrote a really awful article with those words in it’s title.

The article borrows these words and includes a quote from an even more awful article by Austrian school economist and author Detlev Schlichter.  Part of that quote is presented here.

What makes him [PK] so annoying is his unquestioning, reflexive and almost childlike enthusiasm for state intervention, even in the face of its obvious failure, and his apparent unwillingness to probe any deeper into the real causes of our present economic problems or to show any willingness to investigate the effectiveness or ineffectiveness of his particular medicine.

I want to make something perfectly clear before we go any further.  It is fine to disagree with Krugman, or me, or the Pope, or anyone else, as long as you bring facts, data, and some basic skill in rational discourse.  What is not fine is misrepresenting someone’s position and then holding the misrepresentation up to ridicule.  That is both vile and stupid.

Back to the quote: does that sound anything like the Paul Krugman who puts his ideas out there for the world to see on a daily basis?  What I see in Krugman is thoughtful analysis, and deep probing into both the causes of our problems and the consequences of economic policy decisions.  You don’t have to agree with his assesments, but you cannot validly deny that he is making them.

When the opportunities smack me in the face like this, I put on my Krugman Truth Squad hat. Schlichter offers us a standard issue stale Austrian anti-Krugman diatribe. You have to wonder if he has ever bothered to read anything that Krugman has written.  His wordy, repetitive, rambling, semi-coherent, desperate-sounding article – which I cannot recommend highly enough – is an impressive exercise in partial-truths, distortions, make believe, and straw man stuffing.  He then hints that we should go back to the gold standard and totally unfettered free markets.

Schlichter lists Krugman’s alleged assumptions, condensed here:

1)   Recessions, depressions and crises are the result of the unhampered market. 
2)   The Great Depression was caused by uncontrolled markets.
3)   Recessions, depressions and crises are practically the result of one problem: a lack of aggregate demand.  .  .  .   It is the role of government to get people spending again. This is done by printing money and causing inflation so that people spend.
 4)   The Great Depression was solved by the government spending lots of money and the central bank printing lots of money.

Let’s pause here for a moment and set aside the redundancy.  I’m not sure points 1 and 2 represent PK’s view with any degree of accuracy.  Certainly they are gross oversimplifications and neglect other factors.  But if they are true, then point 3 can’t be.  Let’s set that aside, as well.  Points 3 and 4 are reasonably close to the truth, though if you read the original, point 3 runs off the rails as it continues. 

From there it only gets worse.

5)   This explains ALL economic problems.

So, according to Schlechter, Keynes taught, Krugman believes – and would have us believe – that loose money policies and causing inflation are the right policy measures not only for recessions, but for boom times, and periods of inflation, hyper-inflation, stag-flation, or any other problem you can think of.  Even I know enough about Keynes to call that out as false.

The redundency continues to pile up.  I’ll extract one more point. [#'s 6,7, and 8 are repetitions of #4 with various degrees of elaboration and snark.]

7)   If after many rounds of money printing and deficit spending, there is still a recession, then only one conclusion is permissible: There was obviously not enough money printing and deficit spending. We need more of it.

I don’t claim to know everything, but I’m not aware of any situation in recent history that has played out like this, so it looks like a Schlichterian fantasy.  In the post WW II era, the combination of loose money and fiscal expansion has generally kept recessions rather short, leading to V-shaped recoveries, and putting the brakes on too quickly has occasionally led to a double dip.  England has recently experienced an austerity-induced double dip recession.  In the current U. S. doldrums, Krugman tells us fiscal frugality has led to a slow and limping recovery.  This is credible since spending is flat and GDP growth is anemic. [Graph 1]

Graph 1, Current Expenditures and GDP (log scale)

Has any modern major economy had a recession persist after “many rounds of money printing and deficit spending”?  Even in the Great Depression things turned around pretty quickly once New Deal policies were implemented.  But, as PK also tells us, recessions brought on by a financial crisis are different from the typical post WW II recession.

Schlichter doesn’t let up. Though this statement [emphasis added], “Krugman is the one who should be made to explain his policy recommendations and who has to answer the criticism that policies like the ones he is recommending got us into this mess in the first place and that his policy ideas have been implemented for years to no effect, at least no positive effect.” is hard to beat for sheer negation of reality [and for channeling Ron Paul],  the real capper is this: “Krugman is practicing Keynesianism as a religion.”

It is because of statements like this that I lose patience with people who use words like “disingenuous.” You can supply your own alternative vocabulary   Check Krugman’s Op-Eds and blog posts, where he repeatedly demonstrates reality with graphs and tables, shows how austerity is failing right now with real-world examples, and admits it when he gets something wrong.  When is the last time you saw a Krugman-hater do that?

Mish, to his eternal discredit, says of this nonsense: ” Moreover, it appears to be 100% accurate.”

But, Mish continues, the real way to debate Krugman is demonstrated by Economist Hans Hermann-Hoppe in this one minute video.

This is genuinely awesome.   That an economist can be so thoroughly wrong – wrong in general and wrong in every particular – about what Keynesianism is and does, leaves me speechless, and that’s saying something.

OK – almost speechless.  Any child can see that the earth is flat and the sun revolves around it.  So let’s forget the trivially unimportant technical details and ask simple-minded, allegedly probing questions that in this case are totally unrelated not only to the policies Keynes and Krugman propose, but to anything else in the real world, and then point and stare when these questions cannot be answered – by anyone, while your minions nod approvingly.

But would it work?  Mish concludes this way:

Krugman would respond with incomprehensible gibberish “for wonks only” as well as typical Keynesian nonsense about how paying people to dig holes and other people to fill them up would start a chain reaction of growth.

A child would see the answer was preposterous, but not a trained economist, politician, or brainwashed academic. Paul Krugman, keynesian economists in general, politicians wanting a free lunch, and most academics are all incurable.

Nonetheless, Hans Hermann-Hoppe’s answer is indeed the correct one. By asking questions a child will understand, some non-brainwashed people will see Keynesian and Monetary stimulus for what they really are: economic stupidity.

In a follow up article [with a 5 point list that includes 2 naked assertion and 3 irrelevancies {seriously - Zimbabwe?!?}] Mish makes it clear that in his view monetary and fiscal stimulus are BOTH stupid.   So, at this point it looks as if he – with his straw man army and blatant intellectual nihilism -  and I have devolved into a schoolyard game of calling each other stupid.

But I’m quite sure Mish is not stupid, and I’m fairly certain I’m not either.  The real questions are these: who is paying attention to reality, whose policies make things better or worse in a given situation [absolutism, anyone?] and whose concepts have had some predictive power over the last several years.  [Here's a hint: it's not the Austerians.]

So, maybe a better way to phrase it is, “Who is practicing their economics as a religion?”

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