海角大神

Today Paul Krugman to his, as he put it, 鈥渉aters鈥�:

鈥渙thers are using that out-of-context remark about the Fed 鈥渘eeding鈥� to create a housing bubble.(鈥�)

So did I call for a bubble? The quote comes from this 2002 piece, in which I was pessimistic about the Fed鈥檚 ability to generate a sustained economy. If you read it in context, you鈥檒l see that I wasn鈥檛 calling for a bubble 鈥� I was talking about the limits to the Fed鈥檚 powers, saying that the only way Greenspan could achieve recovery would be if he were able to create a new bubble, which is NOT the same thing as saying that this was a good idea.鈥�

Since Mr. Krugman insists on using his New York Times soapbox to distort the public record, we must, once again, look at his (in two full paragraphs of context):

A few months ago the vast majority of business economists mocked concerns about a 鈥漝ouble dip,鈥� a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I鈥檝e repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.

The basic point is that the recession of 2001 wasn鈥檛 a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. (Emphasis added.)

As I last July, context is not Krugman鈥檚 friend in this matter鈥�

鈥溾��the first paragraph introduces the 鈥渄ouble-dipper iconoclasts鈥�, and then clearly states that he, Krugman, agrees with them. The second paragraph then outlines the 鈥渂asic point鈥� of the double-dippers, which again, he agrees with. And the basic point in question is that to 鈥渇ight this recession the Fed鈥�needs soaring household spending.鈥� Krugman then continues to say how the Fed would need to accomplish this goal, which again, he supports; he says that the recession needs to be fought with soaring household spending, which Alan Greenspan needs to induce by creating a housing bubble to replace the Nasdaq bubble. By writing, 鈥�as Paul McCulley of Pimco put it鈥�, Krugman is not 鈥渕erely鈥� quoting another person; he is using someone else鈥檚 phraseology to express his own opinion.

Another protestation is that Krugman was saying the housing bubble 飞辞苍鈥檛 work, since later in the editorial he wrote:

鈥淛udging by Mr. Greenspan鈥檚 remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman鈥檚 crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

But this protestation completely ignores the fact that when Krugman wrote in the editorial鈥�

鈥楧espite the bad news, most commentators, like Mr. Greenspan, remain optimistic.

补苍诲鈥�

But wishful thinking aside, I just don鈥檛 understand the grounds for optimism. Who, exactly, is about to start spending a lot more? (Emphasis added.)鈥�

鈥�he was clearly characterizing a housing bubble as an object of optimism, whether or not he thought it was possible. In other words, at best, Krugman could be interpreted as saying that it would be great if Greenspan could pull off a housing bubble, but that he, Krugman, doubts whether he鈥檒l be able to accomplish such a worthy feat.

So it should be clear that the Fed causing a housing bubble in order to bring about 鈥渟oaring household spending鈥� was Krugman鈥檚 optimal situation, whether or not he thought it was do-able at the time. Given the consequences of the housing bubble that did ultimately happen, that alone should be enough cause for the public to .

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