Krugman Vs. Estonia or Krugaman vs. Reality...

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Denying reality is a difficult thing, but an artist adept with the tools of statistics can not only fashion a believable and rational fantasy, but make a living and earn a Nobel Prize in the process.  Kudos to Krugman's masterful dance with statistics.







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On That Debt...

polifrog




At least some of Krugman's fans have questions or one...

So that brings us to our big question for Prof. Krugman:

Why isn't today fundamentally different from post-World War 2 in key ways that make the comforting post-WW2 analogy flawed?

Namely:

• Today there are massive consumer debts that didn't exist after World War 2
• Today there are massive European debts that didn't exist after World War 2
• Today there is massive global manufacturing over-capacity, whereas after WW2 much of the world's capacity had been destroyed (and needed to be rebuilt)
• Today, there are (fewer) massive lending programs like the Marshall Plan with which we loaned customers money with which to buy our products (Admittedly, the Fed and ECB are trying their damndest, but as you point out, they're pushing on a string).

If Prof. Krugman can explain why none of these differences matter, we'll be more persuaded that the U.S. won't be completely screwed by its huge debt load.
In the meantime, although we support the idea of a huge infrastructure spending program, we're worried.

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Paul Krugman's (Alan Krueger's) Sleight of Hand In Denying Intergenerational Income Mobility...

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So, how does one argue with a drab statistic that we can all wrap our minds around like 80% of millionaires being first generation as a measure of America's high degree of intergenerational income mobility? Or, for that matter, its inverse - the 1 in 18 chance an individual from a non millionaire family has of becoming a millionaire?

How does one deny this sort of data?

Paul Krugman:

Below is what he dubs the Great Gatsby Curve. On the horizontal axis is the Gini coefficient, a measure of inequality. On the vertical axis is the intergenerational elasticity of income — how much a 1 percent rise in your father’s income affects your expected income; the higher this number, the lower is social mobility.

Misdirection -- Don't count the number of 1st generation millionaires and compare that to the total. Look, instead, at how a parent's higher income affects, not their children's income, but their children's expected income and then compare that to the "Gini Coefficient", a measure of inequality, and call the result a measure of intergenerational income mobility or immobility.

So what does a measure of "how much a 1 percent rise in your father’s income affects your expected income" really show?

It shows how much children benefit (relative to their peers) from wealthy parentage. It ignores that those children may be less wealthy than their parents, and that their children may be less wealthy than them -- the real question of intergenerational income mobility.

Knowing that Krueger measures, not intergenerational changes in wealth, but the degree to which children benefit relative to their peers from wealthy parentage, if we turn to the linked chart that compares nations we see that children benefit less from parentage in generally more statist countries (listed low/left on the chart) and benefit more from parentage in generally less statist nations (listed high/right on the graph).

Krugman says more about statist governments breaking the bonds of family than it does about intergenerational income of which it says nothing.

H/T Andrew Brod




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Picasso Krugman and Economic Art Driving Public Policy...

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Charles Hugh Smith:

Only with the advent of a true understanding of the nature of infection, the immune system and disease did the "folk" pseudo-science of bleeding pass from accepted medical practice.

We are mired in a similar era of pseudo-science being accepted as actual science, i.e. as reflecting the underlying causal mechanisms of life and the universe, and that pseudo-science is called economics.

As I have noted here many times, we are experiencing not just a standard-issue financial crisis but the failure of the entire pseudo-science edifice of modern conventional economics.

Yes.

Economics is not so much a science as an art donned in the patina of science which makes Krugman something of an artist. Much of economic argument today is based on a neural net of interconnected statistical data from which any "reality" may be inferred and from which may be drawn any desired result. Are Krugman's arguments shaped by "the data" or is "the data" shaped by his imagination and desire?

How are we to know? -- when, unfortunately, much of economic debate has devolved into statistical pissing contests with economists demanding to see one another's "data" as though anything concrete can spring fourth from a neural net of statistical inference?

Just as sculptors use clay to mold a representation of their reality so too do economists mold the reality they perceive from statistics. Watching any two sculptors argue that their creations are proof of anything beyond their imagination is as meaningless as economists doing the same via statistics.

Krugamn's gift of artistically constructing from a grab bag of stats a desired reality is no more useful than Picasso's use of paint to do the same. The only difference between the two is that one attempts to drive public policy.

Yes, I compare Krugman to Picasso; he is both that good and that distorted.

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