Cafe Hayek - Latest Comments in Will vs. Krugman (and DeLong and Econospeak)

Re: Will vs. Krugman (and DeLong and Econospeak)

SaulOhio — Thu, 20 Nov 2008 01:19:44 -0000

Charlie: Did you miss the part where I posted the link to Rothbard's book claiming that it was Hoover that instituted all the policies of the New Deal, and Smoot-Hawley, as well? FDR just expanded those policies, and did nothing about Smoot-Hawley. At best you could argue that FDR's policies weren't as bad as Hoover's.

Re: Will vs. Krugman (and DeLong and Econospeak)

Jayson Virissimo — Thu, 20 Nov 2008 00:02:06 -0000

"I wonder which group has more publications in macro." -Charlie

You say that like its a good thing ;)

Re: Will vs. Krugman (and DeLong and Econospeak)

Charlie — Wed, 19 Nov 2008 20:14:50 -0000

-Russ

You should probably look up when FDR was elected President. It should dramatically change the way you view the graph and who won the economic debate between the journalist and the nobel prize winner. Unless FDR is responsible for policies "discouraging investment" before he was president.

So now we have a macro debate:

Krugman/Delong vs. Will/Roberts

I wonder which group has more publications in macro.

Re: Will vs. Krugman (and DeLong and Econospeak)

Mr. econotarian — Wed, 19 Nov 2008 16:31:46 -0000

"While investment is negative from 1929 to 1936 it changed direction in 1932 and in 1937. What does that correlate with? "

The devaluation of the dollar and banning of "payable in gold" clauses in contracts in 1933. This stopped monetary contraction and allowed the economy to (basically) leave the gold standard.

If FDR had stopped at that (rather than NRA etc.), the US would have been turned around much faster.

I think Hoover didn't think he could legally ban "gold clauses" in contracts, thus he felt he could not leave the gold standard because so many debtors faced gold clauses (but would be paid in devalued dollars).

Re: Will vs. Krugman (and DeLong and Econospeak)

Anonymous — Wed, 19 Nov 2008 11:24:25 -0000

Hey Noname,

That is easy. It is called "Sleight of hand of the statistician"

Re: Will vs. Krugman (and DeLong and Econospeak)

Anonymous — Wed, 19 Nov 2008 10:54:47 -0000

"Instead, how about we compare the merits of FDR's New Deal against... oh, I don't know... some alternate policy strategies."

Posted by: Mario Sanchez

I already did that. The evidence shows 170 months of recession the 33 years prior to 1933 and only 60 the 33 years after 19933. Why's that?

Re: Will vs. Krugman (and DeLong and Econospeak)

Current — Wed, 19 Nov 2008 08:58:46 -0000

I'm suspicious about all of this. The Austrian economists show that the interest rate affects the price attributed to capital.

Cut the interest rate artificially and the paper value of all capital increases. This is what happened in the 1920s when Benjamin Strong at the Fed cut interest rates to low levels during a boom.

So, the investment rate in 1929s cannot be assumed to be related to the amount of investment good produced. In an interest-rate fueled boom fewer investment goods could be created than before, but due to the distorting effects of the boom they could well be valued more highly.

As the Austrians explain it is impossible to accurately "deflate" capital goods and talk about what capital is actually there.

Russ; go down the corridor to talk to Peter Botteke he'll set you right on this.

Re: Will vs. Krugman (and DeLong and Econospeak)

Nick — Wed, 19 Nov 2008 08:37:25 -0000

Spencer- you're missing the point. No one disputes that the economy was better in 1935 than 1932 (and worse in 1938 than in 1937). The point is that the economy was still performing very badly in 1940, many years after the onset of interventionist policies. In other words, the defenders of interventionism have to explain why, unlike in previous downturns, the economy did not have a normal recovery and instead was mired in sub-par growth for more than a decade.

Re: Will vs. Krugman (and DeLong and Econospeak)

spencer — Wed, 19 Nov 2008 08:19:58 -0000

This is the data series you need to use.

It is from BEA.

Real Net Stock: Private Fixed Nonresidential Assets (Bil.Chn.2000$)

1929....1616.9

1930....1652.3

1931....1648.3

1932....1616.1

1933....1581.3

1934....1558.8

1935....1548.8

1936....1558.8

1937....1583.3

1938....1582.0

1939....1587.5

1940....1609.2

Yes, the real net capital stock was lower in 1940 than in 1929 as George Will said.

But he must have learned how to do economic analysis at George Mason.

Look at the data and you see it fell sharply in the early 1930s and rebounded in the late 1930s. The bottom was in 1935.

But what he has done is compared 1940 to 1929 and very conveniently avoided looking at the data between. Looking at the data this way he can blame FDR and the New Deal for the drop in the real capital stock even though the bulk of the drop actually occurred before FDR took office.

He is doing typical George Mason analysis and crediting Keynesian policy with the ability to impact the economy retroactively several years before the legislation was enacted.

And you guys keep being surprised when no one takes you seriously.

Re: Will vs. Krugman (and DeLong and Econospeak)

dg lesvic — Wed, 19 Nov 2008 07:55:58 -0000

Mises, as usual, best summed up the problem.

"Every historical experience is open to various interpretations and is in fact interpreted in different ways...History can neither prove nor disprove any general statement."

We still need history. Mises, again:

"Economics...adopts for the organized prentation of its results a form in which aprioristic theory and the interpretation of historical phenomena are intertwined."

But while we support our theory with history, we must ultimately rely on the theory. For while there are anecdotes on both sides of every argument, there is logic on only one. And while history must be taken on faith, logic is before our very eyes.

Re: Will vs. Krugman (and DeLong and Econospeak)

Mario Sanchez — Wed, 19 Nov 2008 06:52:48 -0000

I find the trend-charts in investment almost meaningless. The underlying assumption seems to be a false dichotomy between New Deal and downward trend in investments in perpetuity, with never a slowdown or a recovery.

Am I supposed to believe that without the New Deal investment would continue into negative territory forever, without ever slowing down or turning around? That it would go past -75%, then past -150%, then past -1,000%, then past -1,000,000%, etc etc?

That it would continue well past (picture Dr Evil with pinky to corner of mouth) negative billion-zillion-gajillion dollars (insert evil laugh here), and past the point where Nelson Rockerfeller is bartering chickens for firewood & digging his own latrines? No. That's idiotic.

Instead, how about we compare the merits of FDR's New Deal against... oh, I don't know... some alternate policy strategies.

Re: Will vs. Krugman (and DeLong and Econospeak)

Oil Shock — Wed, 19 Nov 2008 05:53:00 -0000

David Rosenberg of Merrill Lynch, whom the left constantly quoted during Bush years, has something great to say about Rothbard's work.

"With this in mind, we were fortunate to have a client mail us a book titled America's Great Depression by Murray N. Rothbard. We think it is an absolute must-read, on the scale of Amity Shlaes' The Forgotten Man. In this book, you will learn that the New Deal machinery was established by Herbert Hoover, not FDR, and that the scale of the government incursion into the economy was so farreaching that the multi-year program actually ended up doing more harm than good. What is amazing is the chapter on the Reconstruction Finance Corporation (RFC), which was like the TARP in its efforts to bolster government equity stakes in banks, and therefore, to perpetuate the excess capacity in the system.

link here

Re: Will vs. Krugman (and DeLong and Econospeak)

Josh Taylor — Wed, 19 Nov 2008 05:27:12 -0000

... The first thing Krugman did was shoot down this argument, not by saying that the premise was false, but that the conclusion was. Will said that because investment was negative, that proves that the government was doing a bad job. Krugman explained that of course investment will be negative in a time of economic downturn, especially in light of the massive unemployment rates. This post is true in its premises, but it doesn't mean that Krugman is wrong, only that Will's facts are right.

Re: Will vs. Krugman (and DeLong and Econospeak)

SaulOhio — Wed, 19 Nov 2008 05:01:08 -0000

Dr. Steele's grandfather said:"Bush is a do-nothing president just like Hoover was and that Republican gang will get us in big trouble just like the depression."

There is one truth to what he says. Bush was about as do-nothing as Hoover was, which is to say, not at all. Bush imposed steel tariffs, presided over a vast increase in government spending, provided prescription drug coverage to Medicare patients, and rarely ever vetoed a bill sent to him from Congress, passing all sorts of regulatory legislation.

As for Hoover, Rothbard explodes the myth that Hoover was laissez-faire, do-nothing in his "America's Great Depression" at http://mises.org/rothbard/a.... Hoover instituted almost every policy of the New Deal. FDR simply expanded on Hoover's interventionism. Any has anyone ever heard of Smoot-Hawley? Anyone? Anyone?

This is what worries me the most, this parallel between today's situation and that of the Great Depression. Both times, nonexistent laissez-faire policies were blamed for economic problems caused by government intervention. Now, as then, those same problems are being used as an excuse for more government intervention.

Re: Will vs. Krugman (and DeLong and Econospeak)

Gil — Wed, 19 Nov 2008 01:19:03 -0000

Maybe M. Brock has a point - elsewhere the Great Depression is referred to as the period between 1929 and 1932. Which is to say, the Great Depression was over in 1933 and the trough in 1938 in this picture is unrelated:

http://en.wikipedia.org/wik...

After all, the complaints of the time talk of "poverty amidst plenty" which would mean a mismatch between supply and demand as opposed to standard poverty which is "poverty amidst scarcity". After all, where did the goods and money come from to supply the bread lines during the Great Depression? Why did many of the wealthy carry on living in opulence in spite of the surrounding poverty? If the same thing happened in 1829 would there be no bread lines, period? Therefore times may have been tough but it was still better than what would have been in earlier times?

Mind you why didn't the 1987 stock market not trigger a 'great depression' even though the crash was worse?

Re: Will vs. Krugman (and DeLong and Econospeak)

Dr Steal — Wed, 19 Nov 2008 00:48:14 -0000

Too bad for investors (all 5 of them?) during the 30's. For the remainder of the population, including my Grandfather who in 1928, at age 13, was mining coal for 2 cents a ton, Roosevelt saved the country and probably saved his life; so good luck rewriting the legacy of FDR for the working class who were beaten to death by the Coal&Iron Police for striking during the teens and twenties, until FDR granted them human rights. No wonder there was little investment during the 30's as the investors panicked over the impending loss of their slave labor pool.

We're disputing the testimonials of still-living people who experienced those times, and elected him twice, twice!, based on a single metric - investment activity? Investment in what?

Sometimes investment has to take a breather while the ship gets righted.

If anything, I think we can flip the entire argument on its head, and say we've just been offered a proof that investment activity is apparently not always the best metric to gauge the success of a presidency.

I have a Ph.D. in Physics and Mathematics, so you can spare yourself any comments concerning 'data'. Yawn.

And finally, in 2003 my Grandfather told me, and I quote: "Bush is a do-nothing president just like Hoover was and that Republican gang will get us in big trouble just like the depression." He knew the signs.

I then explained to him how that couldn't happen these days since the amount of margin debt was nowhere near to what it was in 1929. Oops.

Re: Will vs. Krugman (and DeLong and Econospeak)

LowcountryJoe — Wed, 19 Nov 2008 00:30:06 -0000

Maybe you should read what the people living in those times thought of the economy.

Populist Party Platform, 1892 (July 4, 1892)

The conditions which surround us best justify our co-operation; we meet in the midst of a nation brought to the verge of moral, political and material ruin.

The sky was falling back then, too? Going forward, it will be really interesting to see worse numbers yet less dire reports on the economy.

Re: Will vs. Krugman (and DeLong and Econospeak)

dg lesvic — Tue, 18 Nov 2008 22:53:19 -0000

It appears that the indefatigable Muirgeo has been defeated by my little theory, and, perhaps, the rest of you as well. Your counterparts at that other blog, who threw me out, because of it, certainly were. So why not test it in real life, against the Left itself?

Re: Will vs. Krugman (and DeLong and Econospeak)

Audubon — Tue, 18 Nov 2008 22:44:32 -0000

Come on muirgeo: you quoted from the Populist party's political platform. That's not an objective view of what it was like to live back then.

There's a reason why William Jennings Bryan lost the election soundly.

Re: Will vs. Krugman (and DeLong and Econospeak)

muirgeo — Tue, 18 Nov 2008 21:46:12 -0000

So you don't like data and now you're claiming to know better the issues of the times then the very people who lived and wrote of them? Very well.

Re: Will vs. Krugman (and DeLong and Econospeak)

Oil Shock — Tue, 18 Nov 2008 20:24:45 -0000

Politicians lie...

"Votes are collared in a democracy, not by talking sense but by talking nonsense" - H.L. Mencken

Political platform never ever truly reflects the socio-economic conditions of a period.

More over an agrarian economy of the old, is more likely to fluctuate with the vagaries of weather. A dry spell or a hurricane could have had a devastating effect on the entire economy back then, versus today with ability to tap underground water tables, move water across huge distances, huge international trade and advantage of weather forecasts.

Re: Will vs. Krugman (and DeLong and Econospeak)

dg lesvic — Tue, 18 Nov 2008 20:01:28 -0000

Muirgeo,

Thank you for your interest in my little theory of redistribution.

You asked if it was based on theory or history.

Look at it again, and you tell me.

Re: Will vs. Krugman (and DeLong and Econospeak)

muirgeo — Tue, 18 Nov 2008 19:59:15 -0000

So you don't like data, I understand that, but by what method do you come to your conclusions of the success of the early 20th century economies?

Maybe you should read what the people living in those times thought of the economy.

Populist Party Platform, 1892 (July 4, 1892)

The conditions which surround us best justify our co-operation; we meet in the midst of a nation brought to the verge of moral, political and material ruin. Corruption dominates the ballot-box.... The people are demoralized;... public opinion silenced.... homes covered with mortgages, labor impoverished, and the land concentrating in the hands of capitalists. The urban workman are denied the right to organize for self-protection, imported pauperized labor beats down their wages... and [we] are rapidly degenerating into European conditions. The fruits of the toils of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind.... From the same prolific womb of governmental injustice we breed the two great classes tramps and millionaires.

Re: Will vs. Krugman (and DeLong and Econospeak)

Oil Shock — Tue, 18 Nov 2008 19:38:56 -0000

Looks like the monetarist improvement since the early 80s have helped shorten the recessions. LOL.

Jokes apart, any recession data prior to the 1930s are just good guesses. For instance, it is very likely that a recession like the double dipping we had in 1980 and 1982 will be counted as one single recession in earlier days. How about that 13 month recession in 1926-27, right smack in the middle of roaring 20s. I wonder if people felt as miserable as they did here in silicon valley in the statistically mild recession of 2001?

And regarding statitsics, Former British prime minister Benjamin Disraeli had something nice to say about it : "There are lies, damn lies and statistics".

If data says it all, then how did Krugman manage predict 5 of the last 1 recessions?

Here is an interesting article on the "The Problem of Accuracy of Economic Data"

Re: Will vs. Krugman (and DeLong and Econospeak)

muirgeo — Tue, 18 Nov 2008 19:15:11 -0000

period (years) months in recession

1902-1914 (12) 73

1900-1933 (33) 178

1933-1966 (33) 60

1933-2001 (78) 125

http://www.cnbc.com/id/2051...