I Love Larry Kotlikoff(Partly Because He Can't Stand Krugman)

[haha]

America’s Insolvency Is No Myth - - Krugman's Latest Pretense

By: Laurence Kotlikoff
I wish I were as sure of anything as Paul Krugman is of everything. But it’s his unfounded moral superiority that really goads.
In his July 2nd NY Times column, Myths of Austerity, Krugman writes “When I was young and naïve, I believed that important people took positions based on careful considerations of the options. Now I know better. Much of what Serious People believe rests on prejudice, not analysis.”
I agree with this last sentence, but I’d substitute “Paul Krugman” for “Serious People.”
What I and other economists expected, when Krugman was chosen to write for the Times, was impartial, fact-based analysis, showcasing economics’ ability to shed real light on critical issues of the day. We also expected him to act like a professional economist and represent fairly alternative policy positions before drawing his conclusion.
From my point of view . . . | ESPlanner Inc.

Ha

 

[Gotadimple]

Ahhh. . . the first amendment -- ain't it grand!

 

[explanade]

I'll go with the Nobel Laureate.

 

[haha]

I'll go with the Nobel Laureate.

Good idea to always go with social consensus if you are not prepared to make your own autonomous judgments.

Excellent way to invest also.

 

[explanade]

Citing one economic authority over another and preferring one (because one doesn't like the other) is an example of "autonomous judgements?"

Okey-dokey.

 

[Nick59]

Unfortunately, Krugman's talk is much more about politics than about economics.

 

[haha]

Citing one economic authority over another and preferring one (because one doesn't like the other) is an example of "autonomous judgements?"

Okey-dokey.

Perhaps you missed the word "partly"?

I have read 4 books by Kotlikoff, and 2 years of his blog. One can't help but read all about Krugman every day, as well as see him on the computer and TV. What Kotlikoff says makes sense, and he heavily qualifies all of it by reference to all the unknowns, which as he seems them are chiefly but not entirely political.

OTOH, Krugman gives his opinions from the Mount.

Like Nick says, he is a politician, no longer an economist.

Anyway, deeply sorry you are offended by a strong opinion.

Ha

 

[Gone4Good]

What I don't see in Kotlikoff's comments is anything of substance refuting Krugman's op ed. Maybe it would be helpful to read it . . .

http://www.nytimes.com/2010/07/02/opinion/02krugman.html

His argument is basically that we need not fear the bond market in the midst of a liquidity trap. And thus far interest rates have continued to trend downward, supporting his analysis.

What evidence does Kotlikoff offer for his opposing view? (Keep in mind Krugman calls for reducing deficits over the longer term too, just not in the middle of mass unemployment).

Edit:
Basically we've had two competing world views about our current economic situation. One is a quantity theory of money approach that predicted easy monetary policy and large fiscal deficits would lead to explosive inflation and interest rate increases, and an opposing view that we're stuck in a liquidity trap where government borrowing will not crowd out private investment and monetary reserves will sit unutilized until the economy improves, and thus interest rates and inflation will stay low.

If Krugman's analysis were wrong, we'd see increasing interest rates and inflation. Which view is more accurate based on the evidence from the past 3 years?

 

[ziggy29]

Edit:
Basically we've had two competing world views about our current economic situation. One is a quantity theory of money approach that predicted easy monetary policy and large fiscal deficits would lead to explosive inflation and interest rate increases, and an opposing view that we're stuck in a liquidity trap where government borrowing will not crowd out private investment and monetary reserves will sit unutilized until the economy improves, and thus interest rates and inflation will stay low.

And actually, the "feeling" among many is that there is an emerging third world view -- "biflation".

Both the deflationists and inflationists could be partly right, IMO. It depends on whether we are talking about asset values or the price of essential goods. Stuff I own is going down in price, and stuff I consume is going up.

 

[Gone4Good]

Both the deflationists and inflationists could be partly right, IMO.

The Op Ed(s) in question were about interest rates, about which Krugman continues to be correct.

But I don't see any evidence of 'bi-flation' in the actual data either. The concept sounds like one dreamed up by people who desperately want to claim inflation is a problem.

Here's the year-over-year change in prices:

All items 1.1%
Food 1.0%
Housing (0.4)%
- Rent 0.0%
Apparel (0.4)%
Transportation 4.9%
Medical Care 3.2%

So if I understand correctly, people want to focus on transportation, and ignore food, clothing and housing, in order to claim we have some kind inflation, or bi-flation, problem. But that isn't what the theory says. The theory says that food and clothing are supposed to inflate because people still need to buy them . . . I guess it's back to the drawing board.

Edit:
Here's the same breakdown from Aug 2008-Aug 2010 (CAGR)

All Items (0.4%)
Food 0.8%
Housing (0.5%)
Rent 1.0%
Apparel 0.1%
Transportation (3.3%)
Medical Care 3.2%

 

[haha]

What I don't see in Kotlikoff's comments is anything of substance refuting Krugman's op ed. Maybe it would be helpful to read it . . .

You are sooo smooth. And what enabled you to assume that we hadn't read it? Let me guess- the Angel Gabriel appeared to you?

Strangely, to read it is not automatically to agree with it.

Ha

 

[Gone4Good]

You are sooo smooth. And what enabled you to assume that we hadn't read it? Let me guess- the Angel Gabriel appeared to you?

Strangely, to read it is not automatically to agree with it.

Ha

Just thought the actual article is helpful in evaluating its merit (seeing as how it wasn't linked elsewhere).

Nobody says you have to agree with it, but it's pretty clear the bond market does. And that seems like a pretty decisive verdict in this case. (10 yr yields down 46bp since he wrote it, and 130bp since Mr. Kotikoff compared the US to Greece. Maybe, just maybe, the Princeton guy actually knows something the Boston U. guy doesn't.)

 

[traineeinvestor]

Krugman is not exactly the most unbiased economist ever to set finger to keyboard.

In this case, IMHO he guilty of many of the things that he accuses others of.

As an example:

"For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed."

Where is this consensus that he talks about. The Fed is clearly not part of it and a random sampling of news sources and blogs shows, at best, widespread concern over the size of the deficits being incurred and their perceived unsustainability but my random sample showed little support for immediate austerity and certainly nothing to support Krugman's claim.

As to the evidence given by the bond markets themselves, there is something in this (particularly the flight to safety argument) but the facts that the Fed is itself a buyer of these instruments and that the USD continues to exhibit weakness does make me wonder to what extent the current pricing of bonds actually reflects market forces. (I have no idea.)

As an aside, when I read The Great Unravelling, I was left with the impression that Krugman was writing to support his political and social views rather than as an economist.

 

[obgyn65]

Same here.

I'll go with the Nobel Laureate.

 

[Gone4Good]

As to the evidence given by the bond markets themselves, there is something in this (particularly the flight to safety argument) but the facts that the Fed is itself a buyer of these instruments and that the USD continues to exhibit weakness does make me wonder to what extent the current pricing of bonds actually reflects market forces. (I have no idea.)

Except in this case, one side is arguing that government policy will cause interest rates to rise and the other is saying it won't. It's pretty clear who the winner of this argument is.

 

[dex]

I'll go with the Nobel Laureate.

The Norwegian Idol Award - voting by judges, money, fancy medallion, title and royalty - it has it all; except sexy outfits.

We Americans love awards; especially when they are from European organizations.

There is no doubt the USA would have titles of nobility if allowed by the constitution.

 

[Gone4Good]

If anyone is interest in why interest rates are low and declining in the face of unprecedented fiscal and monetary expansion, Krugman actually explained the economic theory behind it nearly a year and a half ago. So this debate isn't new, it's been going on at least that long. But by now we should be able to judge who's model has been right, and who's model has been wrong based on what interest rates have actually done. It looks to me like Krugman and the New Keynesians are the winners, but I anxiously await the evidence supporting the competing views.

Liquidity preferences and loanable funds

 

[misanman]

Maybe Krugman will replace Larry Summers. Seems like he would fit right in.

 

[MichaelB]

Of course, we don’t have to limit our choices to Krugman and Kotlikoff, or even assume that one is always “right” while the other always “wrong”. They both have their moments.

Perhaps economics and economists, both academically and professionally, have let us down. Either that or we depend too much on what they cannot give us.

 

[Gone4Good]

Of course, we don’t have to limit our choices to Krugman and Kotlikoff, or even assume that one is always “right” while the other always “wrong”. They both have their moments.

I share this view. One size does not fit all in economics, or in other things. The starting conditions determine which model is the most accurate at any given time, but too many folks ignore that in favor of some pre-set theory governed, it seems, mostly by politics. But that isn't to say we can't look at the evidence and determine who's model best reflects today's conditions. And therefore, to whom we should listen given the current situation.

Additionally, anyone still clinging to an economic model that predicted rising interest rates and inflation needs to explain why their model has failed thus far, and what specifically has changed to make their model relevant going forward.

 

[Independent]

I read Mankiw and Krugman regularly, but not Kotlikoff. The piece in the OP seems to be Kotlikoff doing exactly what he complains Krugman does - attacking the messenger rather than the message. I'll agree that Krugman is sometimes too strident. Given that he's been on the losing side of lots of policy arguments over the years, even though he feels the facts are with him, I can see how that would happen.

On the particular issue of current interest rates, it seems that Krugman is right. If Kotlikoff was predicting a big 12 month increase a year ago, he got it wrong.

Because of this thread, I read some of Kotlikoff's blog entries. I have to admit that I'm intirgued by the idea of limited purpose banking, which shows up in a number. His piece that says the interest differential between Greek and US bond rates (10% vs. 3.75%) is pretty much backward should provide a great arbitrage opportunity for someone who agrees with him.

I agree with much of what G4G has posted here. I'll add that some of the disagreement is long term vs. short term. The big Keynes insight was that time frames matter, policies that would make sense if all markets instantaneously adjusted to new information don't make sense in the real world. I'd like to see the debate framed in those term.

 

[youbet]

Of course, we don’t have to limit our choices to Krugman and Kotlikoff, or even assume that one is always “right” while the other always “wrong”. They both have their moments.

That kind of insightful, even-handed analysis is out of place in this discussion. Please knock it off!

 

[MichaelB]

That kind of insightful, even-handed analysis is out of place in this discussion. Please knock it off!

All right. Then they're both wrong. How's that?

 

[Gumby]

It appears your affection is not reciprocated, Ha.

Poor Kid on Block Gets Fleeced by Elderly: Laurence Kotlikoff - Bloomberg

 

[haha]

It appears your affection is not reciprocated, Ha.

Poor Kid on Block Gets Fleeced by Elderly: Laurence Kotlikoff - Bloomberg

Yes, I knew about this regretful lapse in his judgment.

Ha