Taking an Economics Columnist to Task
By Gene Epstein
It may seem the worst sort of professional rivalry to devote a whole
economics column to the failings of another economics columnist. But Paul
Krugman is a special case. His twice-a-week column appears on the op-ed
page of the New York Times, which guarantees it a wide circulation; the
column is written with enormous skill; and it undoubtedly gets read with that
sense of awe due an author who happens to be a former professor at Yale,
Stanford and MIT, and the current holder of a joint appointment at Princeton.
So if Krugman's column happens to be an embarrassment, not worth the time
of the average reader, that point deserves some documentation. The Times
began running the column in January of last year, and after following it on a
regular basis for several months, I began to lose interest, keeping up with it
only because I frequently got asked about its latest nuggets. I myself have
recommended Krugman's 1999 book, The Accidental Theorist, a collection
of monthly pieces he did for the on-line magazine, Slate. But a twice-weekly
column seems to have magnified his former weaknesses, while introducing
many new ones.
So far as I know, Krugman is the only regular Times columnist who managed
to cut a deal whereby he kept his day job, while moonlighting his pieces on
the side. Unfortunately, it shows; his dashing this stuff off between faculty
meetings, or between bouts of writing his textbook, might explain why it's
often shot through with nonsense, or lacking relevant facts.
To choose one example among many, start with a case of the patently
ridiculous. In a recent piece ("Argentina A Cross of Dollars," November 7),
he insists that the country must not default on its debt, lest "its credit- rating be
sacrificed on the altar of a discredited monetary theology." Fine, but then, with
seeming inadvertence, he proposes that its credit-rating should be sacrificed
anyway!
He achieves this unintended irony by first proposing that the peso, linked
one-on-one with the dollar as of 1991 (although partially devalued since
Krugman published), be allowed to float, which he knows full well means it
will sink like a stone. But as he also acknowledges, "a peso devaluation might
create financial problems, much private debt in Argentina is indexed to the
dollar." That is, indexing requires that if a million pesos was owed a creditor at
the old peso/dollar exchange rate, and if the peso then loses half its value
against the dollar, two millions pesos will be due the creditor, since he clearly
wants his due in dollars.
How to get around this inconvenient fact? "Simply issue a decree," writes our
columnist, "canceling the indexation." In other words, to cite the above
example, the debtor may now pay only the million pesos, even though that
would amount to half as many dollars. Now, whatever else you can say about
this proposal, it's tantamount to default. Krugman incidentally says nothing
about the debt that is already denominated in dollars. But I wonder whether
lay readers blinked in disbelief at his cancel-the-indexing proposal. The credit
markets will surely take notice of that kind of wholesale welshing, and punish
the country's credit rating accordingly.
And consider his recent column called "Ban the Bonds" (October 24).
Hectoring whatever party happens to be in power is every columnist's right
and obligation, but Krugman will use any stick to beat the Bush
Administration, and this one was frail indeed. Here he had a problem with
"war bonds" (since called "Patriot Bonds"). The Treasury sells only
$500-$750 million of savings bonds per month; the Patriots are just savings
bonds with a new label, and whatever the agency manages to sell, it will issue
that many fewer of the standard kind. And similarly, whatever buyers spend
on these Patriots will simply be diverted from other kinds of stock or bond
purchases.
That much should be obvious. But Krugman outlandishly alleges that the sale
of these bonds may hurt consumer spending, writing that "because the
economy is depressed, we want consumers to spend more, not less. So if war
bonds are made available, they will be a substitute for…what?" In a
saner moment, he would know he's posing a silly question, and that anyway,
the numbers involved are trivial.
In an earlier life, Krugman once referred a bit contemptuously (and wittily) to
the "up-and-down economists" -- those who covered business cycles. But
now that he wears that suit himself, it doesn't quite fit. Part of his problem, I
would guess, is that from his lofty perch at Princeton, he has difficulty getting
down into the weeds with the up-and-down economists, and maybe learning
something from them.
His propensity for Bush-bashing is surely why, in the same column just
referred to, he tosses off the line that "the extra unemployment benefits" the
administration is proposing "are far less generous than those offered in the last
recession, when the elder Bush was President." The unemployment rate was
7.0% and still climbing when the elder Bush pushed extended benefits, while
last month it stood at 5.4%. And as recently as the mid-1990s, 5.4% was
viewed as too low. With some other party in power, I can imagine Krugman
leaning toward a different view altogether, assuming he took the time to do the
research.
But for some of the worst sort of up-and-down rumination, consider his
unintentionally funny piece called "Delusions of Prosperity," run this past
summer (August 14). Just in passing, he criticized Treasury Secretary Paul
O'Neill for supposedly talking up the dollar by saying that if he ever changed
his mind about a strong greenback, he would hire Yankee Stadium to
announce it. But if Krugman had been following the situation, or had managed
to speak to anyone who was, he would know that if anything, the remark in
question had just the opposite effect. O'Neill's statement was actually an
attempt to backtrack on some dollar-hostile mumblings that he as a former
manufacturer had been making up until then.
The funny part, though, lay in the article's basic theme: Krugman's concern
that "optimism, paradoxically, helps keep the bad times rolling." But
paradoxically or not, was our columnist really proposing a descent into
pessimism instead? Just a month-and-a-half later, after the terrorist attack, this
same observer published a much longer piece in the Times magazine titled
"Fear Itself," in which he himself expressed the fear that "nervous consumers
and investors will stop spending."
As noted, anyone who runs the country is fair game. But when Krugman
starts beating up on Vice President Dick Cheney's views on conservation by
segueing into a discussion of traffic congestion in Atlanta, which has little to do
with conservation ("Nation in a Jam," May 13), you do suspect that (a) our
columnist threw logic to the wind to fill space and (b) has the usual bug up his
nose.
On a similar topic, barely a week ago Krugman scored some new non
sequiturs ("The Oil-Hog Cycle," November 18). Here he mainly bemoans the
ups and downs of oil prices, while expressing strong concern that cheap oil
threatens the solvency of those two exporters, Russia and Saudi Arabia. But
then he concludes with a ringing call for conservation, apparently forgetting
that he ever cared about Russia and Saudi Arabia in the first place.
He also forgets that conservation is a long-term solution, and will do little to
dampen volatility over the course of the cycle. He correctly compares it to the
"corn-hog cycle," but doesn't know to extend the analogy by citing the main
force that does dampen price cycles, buying low and selling high.
And when it comes to buying low, he predictably ignores the recent decision
of the Bush Administration to fill the Strategic Petroleum Reserve, while
condemning the White House's "fixation on drilling in the Arctic," since it
would produce "too little oil, too late." But as noted, conservation is also a
long-term approach, with uncertain returns. And since Krugman is so
concerned with the "dangers of dependence on Middle East oil supplies," why
should he oppose any attempt to boost domestic supply?
He doesn't say, and I'm long past caring. I could go on (and on), but one
detour into Krugmania is enough. As noted, he has a huge following, so let's
hope he improves.
E-mail comments to editors@barrons.com |
