Thursday, December 15, 2011

Krugman's World Turns Upside Down

Anything can happen with any one set of data points. That said, if this month's trend continues Paul Krugman and his merry band of Keynesian econometric forecasters are going to be proved so wrong they may be moved to writing horse racing tout columns for the New York Post. And, if anything Krugman and his type looove to forecast out trends from data.

In the data released today, unemployment is lower than Keynesians expected and producer price inflation is higher than Keynesians expected. Just the opposite of the trend Krugman is expecting in the economy. He thinks the economy is in terrible state.

This is what Krugman wrote just last week:
under depression conditions — which is what we have now
Here's his year ago forecast on inflation:
There’s really nothing here to shake my view that deflation, not inflation, is the threat.
So what do the numbers released today show?

New U.S. claims for unemployment benefits dropped to a 3 1/2 year low last week.

Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 366,000, the Labor Department said. That was the lowest level since May 2008. Krugman-type Keynesian forecasters expected the number to come in at 383,000 to 400,000. Pfft.

Producer price inflation picked up in November, coming in at 0.3% for the month, according to the BLS. Year-over-year, producer prices are now climbing at 5.7%. Krugman-type Keynesian economists had expected a 0.2% rise in November.

Bottom line: Krugman-types are completely off on what is going on in the economy. They are underestimating the improvement in the unemployment situation and are underestimating the developing price inflation.The pain is only going to get worse for Krugman in the months to come.


  1. Honestly, you think the difference between 0.2% and 0.3% in a single month's stats qualifies as "completely off"?

    And is it actually your contention, as implied, that the economy is _not_ in a terrible state when official unemployment is 8.9%, the most recent job openings numbers (October) was slightly down from the month before, the labor force participation rate is down 0.5% from a year ago, the number of people out of the labor force who want a job is up by 350,000 from a year ago, there are more still than 4 job seekers for every job opening, and some 28% of all mortgages are underwater?

    There's a difference between stocks and flows. The current "stock" of the economy is, I would think, indisputable miserable. Whether the flow is sufficiently strong in the right direction to declare victory and go home is another question, certainly more debatable.

  2. Well, you predicted double-digit inflation for 2011 in your own post from January. I just searched your blog. Clearly that was wrong. The CPI numbers are nowhere near that level. And hyperinflation (over 30% according to your own definition in the same post) for later. Nobody in financial markets expects this either. If you were/are so sure, why aren't you trading on it? PIMCO at least backed their forecast with action and now has egg on its face, meager returns and clients leaving. But it must all just be a big conspiracy, right? As a last note: Why is it always Dr. Paul but never Dr. Krugman? The latter actually has a PhD in the relevant subject matter. I'm not sure how a medical degree is relevant for discussion of macroeconomics.

  3. Keynesians predicted deflation. Wholesale prices are up 5.7%. Where is that deflation?

    Keynesians predicted a double-dip this summer and fall. Wrong again.

  4. Time to get past the 9th grade guys. You and your libertarian, austrian ilk spew a delusional, crackpot economic theory from the 19th century. So yeah legalize pot, gambling, prostitution. End the wars. Scale back the military. Defend civil liberties. No brainers all. It takes a little more critical thought to work out the economics of the modern world and obviously you, Dr. Paul, et al don't possess that.

  5. Is this post a parody? I'm not sure if you are serious. They predicted 383-400K and there were 366K. The prediction is not off by a substantial amount.

    They predicted PPI of .2 and it came in at .3. In Feb it was 1.5 so again this is not a huge error.

    If you want to talk errors, look at the predictions Ron Paul made. He said the country was headed towards hyperinflation. Year-over-year, producer prices are now climbing at 5.7%. In July, Year-over-year, producer prices were climbing at 7.1%. He was clearly wrong.

  6. oh my.. you are just embarrassing yourself.
    please read this very slowly, so you understand:

    rule#1: Dr. Paul Krugman is always right.
    rule#2: if your analysis leads you to the conclusion that Dr. Paul Krugman is not right, refer to rule #1.

    it's really easy!

  7. ive read comments from both blogs and have come to a conclusion;

    One side is educated, intelligent, and serious.

    The other is just plain childish.

    You know who you are.

  8. The claims dropped because people no longer qualify for unemployment benefits. That has nothing to do with the numbers of people who are actually underemployed, unemployed, etc. I consult for a government agency that calculates the REAL unemployment numbers. They are going UP!

  9. Chalk another wrong prediction up to the Krugman Keynesians. Still waiting for that deflation Krugman promised...

  10. Instead of, "SHOW ME THE MONEY!" We should all be asking Krugman to "SHOW ME THE DEFLATION!"

  11. It might work better to focus on the positives of Ron Paul. Debating issues like these is just throwing good money after bad! Instead, take the battle to the enemy!

  12. There is an incredible difference between predicting a level of inflation versus predicting that not only will there be little to no inflation, but that we'll, in fact, have the exact opposite of inflation.

    And what is so absurd about about Krugman's deflation prediction is that everyone, well obviously besides Krugman, can see the money printing that has occurred along with it being flexed into the economy. So we are physically experiencing an inflation of the money stock in the economy, with the subsequent pricing increases, and what does Krugman conclude, deflation. Just freaking brilliant.

  13. "Why is it always Dr. Paul but never Dr. Krugman? The latter actually has a PhD in the relevant subject matter. I'm not sure how a medical degree is relevant for discussion of macroeconomics."

    You're assuming that just because Herr Krugman holds said PhD he's worthy of being called "Doctor." Also, you're assuming that just because he holds said PhD in the "relevant subject matter" HE is competent in the relevant subject matter. Finally, you seem to be thoroughly unfamiliar with the concept of autodidactism or you cannot understand how one person can be competent in more than one unrelated technical subject at once. At one time, many, many academics were qualified to speak, research, and practice on numerous fields. Ludwig von Mises brother, Richard, conducted work in various fields of mechanics despite holding credentials in mathematics. This is the case with Hardy Cross, who developed a system for analyzing statically indeterminate stuctures as well as water distribution networks.

    Numerous individuals are professional active in more than one totally unrelated fields. For example, Brian May of Queen is a world-class musician AND a credentialed astrophysicist.

  14. @ Anon 10:04

    First, I have no idea where you're getting this wholesale 5.7%. According to the CPI headline inflation over the past year has been 3.9% which is fairly mild, and closer to low inflation than hyperinflation. Core inflation is below 2% but I doubt you care much about that. Last month prices fell .3% so there's a little bit of deflation for you.

    As for the double dip... I can't recall any Keynesian claiming there would be for sure a double dip, just that it was a possibility which it still very much is considering the troubles in Europe.

    All in all, deflation is obviously a bigger threat than inflation (though the zero lower bound on inflation seems to be stronger today thanks to the Fed), and a double dip recession is a real threat. Much bigger than hyperinflation.

  15. @Anonymous 11:49 AM,

    The Austrians have taken the battle to the opposing side (and won, I might add). Hence, the reason for the conditions that have obtained.

  16. Once again, when is the hyperinflation coming, the over 30% increases in the CPI you predicted were to happen after 2011 at some unspecified future point? The break-even rates in the bond market suggest nothing of the sort over the next decade. Are they all wrong? Why don't they read your blog, listen to "Dr." Paul and make money hand over fist by shorting TIPS right now? Oh yeah, didn't work that well for PIMCO.

    The Austrian economists have some very important and valid points and approaches which can successfully challenge much of the mainstream. For example in the whole discussion of financial fragility many of the Austrian economists deserved to be heard (but also heterodox economists such as Hyman Minsky on the other side), but weren't. Why does this insight always get totally "debased" by being absolutely and ridiculously wrong on monetary policy and exchange rates? Face it: Prediction of hyperinflation due to "fiat money" have been made for over 40 years and have been flat wrong.

    The goal for monetary policy with respect to prices has been low and stable inflation. The record on this has been "impeccable" to borrow the European phrasing. The Federal Reserve delivered what they said they would. They never announced a target of a stable price level, the goal was always positive but low inflation. It's the financial system stability and employment mandate which have been missed. You are barking up the wrong tree and lose credibility for all the other insights which may be relevant.

    "Autodidactism" [sic] can be good. But I don't know if Dr. Paul would take me seriously as a medical care provider if I advocated the bleeding of cancer patients for example. He is advocating the equivalent for the economy.

  17. The quantity theory of money states PQ=MV. P is the price level, Q is the supply of goods, M is the money supply and V is velocity. Holding V and Q constant, if there is an increase in M, there is a subsequent increase in P (inflation). If V is not constant, and instead falls, then an increase in M is partially offset by a decrease in V. Or if M is held constant (say by a gold standard), and V falls, then P must fall as well (deflation). Humans resist reductions in nominal wages though. Instead of falling prices and wages, deflation manifests itself as high unemployment and unused resources (the current problem with our economcy). The resistance to falling prices and the subsequent high unemployment has been a recurring theme of recessions even before the advent things like unemployment insurance. The economy is sick, but it is not because of the increased supply of money. Something you may want to look into as well is Irving Fisher's Debt Deflation Theory of Great Depressions.

  18. @'Time to get past the 9th grade guys. You and your libertarian, austrian ilk spew a delusional, crackpot economic theory from the 19th century. So yeah legalize pot, gambling, prostitution. End the wars. Scale back the military. Defend civil liberties. No brainers all. It takes a little more critical thought to work out the economics of the modern world and obviously you, Dr. Paul, et al don't possess that.'

    As a challenge compare The Bernanck's predictions vs. Ron Paul, Bob Murphy, etc. and see who was right/wrong.

    Lamesteam economics is about keeping the wealth transfer from the masses to the oligarchs. They provide the justification and tell the common man that it is the oligarchs right to live richly and their expense.

  19. This is the internet. Trolls all around.

    A bit mystifying finding one blogging for EPJ, but hey - that's life

  20. "Will we have a recession? The truth is I don't know. No one does." Economic expert Krugman in 2007 (!)

  21. Regarding the use of "Doctor" as a prefix for Paul or Krugman, I've always been of the opinion that such a title is more befitting a healer than someone who merely spent enough time at a university philosophizing that they earned a piece of paper memorializing the "accomplishment".

  22. @ Anonymous 2:57pm

    Based on your response I'm assuming you have no idea how PhD's or MD's are actually earned do you? The title of "Doctor" is given to anyone who completed a doctoral degree, it indicates the level of education, not the speciality. A PhD is as much a doctor as an MD, that big D at the end of both titles, that's where the Doctor part comes from. If you want to differentiate a healer as you say, then the better term to use would be physician. However, if you still want to argue who deserves the doctor title more, to get a PhD you have to propose new knowledge, you don't just philosophize. You have to dominate and understand the available knowledge, and then using that as a basis take it a step forward. In this regard (increasing the knowledge in a particular field) the PhD is actually a bigger accomplishment than an MD. To get an MD degree you don't need to provide anything novel or advance the field in any way, just demonstrate that you dominate the knowledge currently available.

  23. @Anon 4:38

    I actually have a Juris Doctor degree to my name, and three other PhDs in my family, so I'm pretty well aware of how they are earned. You clearly missed my point, and you are an idiot if you think a PhD contributes to society more than an MD. MDs make it possible for PhDs to sit around and read and think, and write the kind of crap Krugman comes up with.

  24. @Anon 6:50

    I actually have a PhD who works as a medical researcher at a university, which is why I said if you think that PhD's only sit around and philosphize you are clearly mistaken (amazing that someone with a JD feels the need to call people idiot). You can't just sit and think whatever you want, you actually have to do research, conduct tests, prove your theories, etc, before you get the degree, in other words, unless you get your degree from Glenn Beck university you actually have to earn it and contribute something to your field of research. I never said a PhD contributes more to society than an MD in general terms. I said with regards to teaching (you do know that's what doctor means right?), and generating new knowledge, PhDs DO contribute more than an MD. An MD is by definition a professional doctorate, not a teaching or research one. An MD fresh out of school did not have to develop anything to earn the degree, just learn and apply what is available. Unless that MD decides to do research (and many do), they'll never have to develop say a new cure, or a new treatment, they just have to update themselves and apply what they learn. Most research from most fields comes out of PhDs, they are the ones who for the most part push the knowledge forward. So that if today I developed a new medical device, tomorrow the MD can use it in his practice. Both degrees play equally important roles, both earned their title and should be referred as such, but again if you want to say that a healer is more deserving of the title than a PhD whose job is to actually develop something as opposed to just applying it, then we'll have to disagree.

  25. After many, many months of many reputable sites stating that the claims for unemployment benefits are volatile (and they have been, for those who have been watching this metric) - when did one week suddenly become "definitive proof"?

    It is certainly good news if these numbers are down, but you need a lot more data than one week's numbers to make that conclusion (or worse yet, claim another person's economic models are broken because of one single number).

  26. Krugman's PhD did a lot of good for society when he said "I don't know if a recession will happen, no one does" in 2007. Meanwhile, those who listened to the austrians made a LOT of money off of gold skyrocketing and/or selling their house before the crash, or waiting to buy one after the crash.

    Those who listened to bernake or krugman certainly did not benefit. But those who listened to a medical doctor certainly did.

  27. Let's not forget, philosophers and historians and social scientists were called "doctor" when surgeries were still performed by barbers.