On the EuroMess, Stephanie:

those North European powerhouses have been running up huge trade surpluses, while the Southern Europeans have run bigger and bigger trade deficits. Whenever Germany tells you how much the Greeks are costing them, remember this: German exports to Greece have risen by 133% since the single currency started. Greek exports to Germany have risen by 13%. The resulting trade gap between the two countries is one reason why German banks are now sitting on so much Greek debt

Which is why even Jeremy Warner doesn’t like the sound of the bailout:

By requiring that others become like Germany, the eurozone has condemned itself to fiscal consolidation so extreme that it threatens not just to kill the recovery but to induce a depression

The FT shows Osborne learning off the Irish.

As part of the battle for hearts and minds, Ireland’s centre right government also felt it was necessary to set the outer limits of what might be needed – rather like a doctor might caution a patient before a tricky operation. “We were really road-testing the cuts, so the public could understand the kind of options available,” says Colm McCarthy, the academic economist asked to conduct the study. “Our report came up with a multiple of what was actually needed for the 2010 budget, but that was deliberate.”

Colm will be featuring in soon-to-be-published essay for CentreForum.

Mark Thoma loses his temper on behalf of Krugman, and says some things that Policy Exchange would wince at (see bold):

So let’s get something absolutely clear. The fiscal policy intervention that Krugman, DeLong, and others have been advocating can be analyzed and supported using the New Keynesian model. See Woodford and Eggertsson’s work in particular, or see this work by my colleague George Evans along with his coauthors. For the most part, these models support the types of policies the administration has put into place. (Generally, demand side policies are the solution when the economy is stuck at the zero bound. Supply side polices such as a capital gains tax cut actually make things worse. The reason is that an increase in supply when demand as already insufficient causes prices to fall, and the fall in the price level raises the real interest rate. At the zero bound, the rise in the real interest rate cannot be offset by the Fed. Away from the zero bound, the Fed can stabilize the real rate and the policy has positive effects, but it depends critically on the Fed’s ability to offset increases in the real rate and the nature of the reaction).

Krugman had elsewhere accused his critics of throwing history down the Memory Hole:

Basically, US postwar economic history falls into two parts: an era of high taxes on the rich and extensive regulation, during which living standards experienced extraordinary growth; and an era of low taxes on the rich and deregulation, during which living standards for most Americans rose fitfully at best.

But Sumner has a Why Krugman is Wrong post:

But I will show that the performance of every single country on the list is consistent with my view that the neoliberal reforms after 1980 helped growth, and inconsistent with Krugman’s view that they did not. Krugman makes the basic mistake of just looking at time series evidence, and only two data points:  US growth before and after 1980.

And now I’ll sign off.


4 thoughts on “Quotes of a vital, nay historic importance

  1. Whether you think Krugman is right or wrong, you have to admit that his argument (as quoted) is fallacious. The question that immediately springs to mind is: what else apart from taxation and regulation policies were different?

    A few starters:
    1) In the high tax/regulation era the Bretton Woods system meant that foreign exchange rates were fixed and (broadly) stable; now they float and can be rather volatile.
    2) In the low tax/regulation era the USA usually ran massive budget deficits (partly because of misguided supply-side policy); in the high tax/regulation era they were usually close to balance (Indeed, Truman insisted on funding the Korean War out of taxation IIRC).

    1. Well if you only read the quoted bit, you might get the impression that he’s made a fallacious argument. But Krugman wasn’t arguing a causal link. He was refuting this claim of a causal link in the opposite direction:

      Indeed, the modern era of rapid economic growth commenced after both Democratic and Republican presidents undertook to lift costly and stultifying New Deal regulations.


      1. I don’t see a particular reason why having a floating exchange rate should lead to lower growth. Sure, in the short term things can be volatile, but having a floating currency is useful for getting out of bad situations.

      2. Your point about “massive budget deficits” forgets the Clinton era.

  2. What?! Rubbish news for the blogosphere and all concerned. Of course great news for you, but what are me and Paul and Paul to do?

    Congratulations, but my internet will be a worse place without this blog. I suppose I’ll have to start following centreforum.

    Can you tell us what the new role will be? You got keys to the axe cabinet?

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