A blog on economics, both theory and current events, and world political affairs.
Dean Hansen,I am working through your posts and finding them interesting. I wonder if you have thought any more about those cases where events seemed to have proved you wrong. If you now think you were in error, what happened? Were you using different data? For example, in August of 2007, you wrote a posting called “Gloom and Doom” in which you really went after Paul Krugman. Now it seems almost everything he said was right on the mark. Have you changed your thinking about Professor Krugman as a result? Here is your 2007 post: Doom and GloomIt’s really entertaining to read the New York Times, especially Paul Krugman’s gloom and doom editorials. I have a colleague who writes an investment advisory letter that exhibits a similar “longing for disaster” tone. Another example is all the climate change advocates who I detect thirsting for some Atlantic hurricanes this year (hurry up, Dean!).The politics and world views behind so many pundits’ analysis is just so obvious, and so weakly denied. Krugman’s columns ooze not just gloom and doom, but I get a strong sense that he wants to see things melt down, just to prove that the Bush administration has been a total failure. My colleague’s letters to his clients are very similar. It’s not just that he thinks a real estate crash might come, but one gets a very strong sense that he will be happy and fulfilled if it does happen. Here is an example. In today’s NYT, Krugman writes, “According to data released yesterday, both housing starts and applications for building permits have fallen to their lowest levels in a decade, showing that home construction is still in a free fall…The housing slump will probably be with us for years, not months…Meanwhile, it’s becoming clear that the mortgage problem is anything but contained.”Free fall, years not months, anything but contained, lowest levels in decade…well, that last phrase is the one factual statement out of all of them. But given what housing has done in the last decade, to say that activity is lower than it has been for ten years really does not sound too bad. And even with housing prices haven fallen of late, has anyone checked the rate of return on owner-occupied housing over recent periods? Some slowing down or even declines is not exactly a crash.How much you want to bet that Krugman criticizes the Fed for throwing cold water on his dreams? Don’t you share my hunch that many of these Democratic analysts are hoping that the housing crunch does indeed snowball into a recession, so that the Presidency will go to….Hillary? Obama? Edwards?
I certainly admit to mistakes, and my optimism in the fall of 2007 was one of them. I was not alone, at least, and I don't think my analysis was as bad as my lack of knowledge of the interconnectedness of the financial institutions. That was a black hole that many did not foresee. But I stand on my assessment of Krugman. He is a good economist, to be sure, but come on -- he is one politically oriented fellow!
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