Prof. Krugman received the New York Association for Business Economists’ Annual William R. Butler Award at a luncheon on October 4. There were about 100 in attendance.
Prof. Krugman spoke from notes and did not have a formal title for his speech. But as the orientation of the association is forecasting, that was the general direction that his remarks took. He is pessimistic about the outlook, not only for the U.S. economy, but more generally for developed countries’ economies. In the process, he made a central point about the inadequacy of the policy responses. According to him, both U.S. monetary and fiscal policy responses have been less robust than Japan’s response after its real estate bubble burst. So a long period of very little growth is the outlook Prof. Krugman expects. The in-joke is apparently renaming the Chairman of the Federal Reserve Benanke-san.
A key phrase he used in his evaluation of the policy response to the economic crisis was “failure to rise to the occasion.” My question, the first in the Q&A, was in keeping with the theme of his remarks.
In December 2008, you were at a book salon on firedoglake. In the thread, three of us pressed you strenuously on why you thought that President Obama’s economic team: Summers, Geithner and Bernanke, architects of the economic disaster, would be the right people to salvage the U.S. economy. You’ve clearly changed your opinion. Can you go back over what you missed back then and what has now led you to evaluate them as failures to rise to the occasion?
He gave much the same answer that he gave in 2008, namely that he knew those men and he thought they were smart, understood the problem, and flexible enough to advance the right policy measures. Scanning the record, he did not use the word flexible in 2008. The implication of using it in his evaluation of what he missed, is that he has, upon reflection, decided that the economics team is NOT flexible. That was exactly our point in 2008. All three had a long record before Obama chose them, and nothing in it suggested they would do anything but continue to support corporations at the expense of citizens, voters, consumers. . . .
Krugman added detail to his answer, with the caveat that he had no inside information. With respect to Bernanke, he just sighed and wondered why he wasn’t the same person in 2010 he had been in 2000. On Summers, Krugman has surmised that Summers’s advice to Obama was that the Republicans would obstruct and that the Obama Administration couldn’t get more than $800 billion, which became $700 billion on compromise. Krugman’s rejoinder was that if Summers thought it would take $1 trillion (or whatever the larger amount was), then they should just have asked Congress for $1.1 trillion and compromised on $1 trillion. On Geithner, he mentioned that U.S. Treasury Secretary is always obsessed with what the [financial] markets will think, which Krugman characterized as a “mug’s game.”
Then Krugman paused, and said, “It’s fundamentally about the president.” Geithner and Obama are “soul mates, both cautious guys.”
Of course, that was our point back in 2008. Namely, that you could forecast the quantity and quality of Obama’s economics policies by the people he appointed to fill the jobs.
What to make of Krugman’s failure to see that the ‘guys’ he knew as smart and up-to-the-job, turned out “failures to rise to the occasion?” The most charitable interpretation, and the only one for which I currently have any evidence, is that Krugman is a poor judge of character, especially of the character of people he had previously worked with from time to time without conflict. Unlike reporters, Krugman has no access, and is thus not worried about losing it. Like every human, and perhaps with greater consequences for more prominent people, there is a reluctance to make public criticism of important people unless there is a lot of evidence. Thus, there was no downside for Hugh, selise, and me to utter harsh opinions of Obama and his economics team in December 2008. Not so for Krugman, who had much more downside risk on being wrong on an unfavorable opinion than being wrong on a positive one.
The problem is that Krugman is a public intellectual, one of the few on the progressive side of economics matters in the U.S. these days. That he helped hide Obama’s agenda by incorrectly evaluating the economics team, gives Krugman some small share in the responsibility for real suffering caused by the grave U.S. economics problems. His error also reduced his credibility, as he will be remembered first as an Obama supporter.
There were many other interesting points in Krugman’s remarks and his responses to other questions. But rather than making this post longer, I’ll check the comments frequently, and pass along any information Krugman gave that bear on your issues.
Two other issues to mention, to whet your appetites.
Krugman does think that a banking crisis in Greece could well cause/force it to leave the euro.
Krugman is very disappointed with the economics profession more generally. His words: there were things that I thought were settled matters 50 or more years ago, that came up again with some economists seeming to go back to Hooverite rhetoric. He gave three examples: influence of adequate Keynesian stimulation, liquidity trap, paradox of thrift. That economists didn’t come out in great numbers and defend those simple points at precisely the time that they are critical is amazing. This has been a source of wonder to me too.
[Photo: Paul Krugman, by Prolineserver via Wikimedia Commons]