Krugman: Worst Economist in the World 10/27

[BootinUp]

In my first WEITW post, I went after the claim that quantitative easing, by weakening the dollar, could actually hurt recovery — because, you see, a weaker dollar leads to higher commodity prices. As I tried to explain, a weaker dollar is also a stronger euro (and other currencies), so what raises prices in terms of one currency lowers them in terms of others, and the whole thing makes no sense.

What I didn’t do at the time was take on a related argument — which wasn’t made in that article, but I knew was out there...

SNIP

QE2 could inflate prices in nominal terms and bring about inflation and could derail the recovery

SNIP

What this official is saying is a version of the classic freshman mistake: an increase in demand leads to higher prices, and higher prices make people buy less, so an increase in demand leads to lower sales.

Amazing stuff, and further evidence of the Dark Age of economics now descending.

http://krugman.blogs.nytimes.com/2010/10/27/the-worst-economist-in-the-world-102710/

edit sorry wrong blog post linked, fixed now.

[Warpy]

1. Economists are often like the blind men and the elephant

each touching upon one aspect and assuming it's the whole.

All of what the bad (blind) economists are saying is true, given a perfectly stable economy in which those are the only variables. Unfortunately, as any sighted person (even a one eyed broken down ex nurse in an obscure part of flyover country) knows, our economy is far from stable and these variables are not the only ones.

Right now, there is severe deflationary pressure from high unemployment and underemployment and the evaporation of wealth represented by assets of all types. Any inflationary pressures would seem to be welcome.

Krugman is right, of course. Unfortunately, in the land of the blind the one eyed man is a threat. He will never be made king.

[BootinUp]

2. It seems they only see what they want to

they see what supports past work they have done or their associates from the same school of thought and ignore the rest.

[Greyhound]

5. One misconception is that wealth can, in fact, evaporate. We both know it doesn't work that way,

if it did, there would be nothing to create the bubble-string (looting the S&L&FCU's -> stock market -> housing -> collapse and approaching commodities). Each step in this cycle was/is fueled by the "evaporated" wealth of the preceding bust.

The wealth doesn't disappear, it simply leaves the crashing sector and creates the inflation of the next.

We are indeed heading toward an economic dark age, not because wealth evaporated, but because it concentrates further and further into the hands that control the given sector.

The deflation that so terrifies the system wonks is necessary to preserve the system. What is being done is what has "worked" before, basically fooling people into jumping back into the scam that already ripped them off (See 41's 'recovery' in late 1987, they simply kept pushing the myth that all was well and it was simply 'a hiccup'). The problem this time is that there really is not enough $$ in enough hands to pull it off this time.

[BootinUp]

3. kicking for more unrecs.

[Warpy]

4. FWIW, post this in the Economy forum next time

Things don't sink like stones there.

[madmax]

6. k&r