Krugman's attempt on that occasion, in his column, and elsewhere to draw comparisons between the magnitude of the Great Depression and the recent recession and were absurd for myriad reasons then as they are now, as I noted at the time here, also more recently here and here.
Now the speculation is over and the extent of Krugman's misread is evident. As The Economist reports this week, global trade and global manufacturing are surging back:
At first, the recession did hit trade hard. Global GDP fell by 0.6% in 2009 while the volume of world exports dropped by 12.2%. But whereas the Depression saw trade decline for at least four years, this time the rebound has been quick, and sharp. By May this year, emerging-economy members of the G20 were importing and exporting around 10% more than their pre-crisis peaks (see chart). Rich-world trade has recovered from the trough too, though it has not yet made up all the ground lost since the credit crunch began.As it turns out, there is nothing Depressing about current prospects in the global economy...unless, of course, you happen to be Paul Krugman.
At least he's still got his Nobel Prize to keep him company while the rest of us enjoy the good (if not unexpected) news.
ADDENDUM: An response to all the
First, Hooray for Paul Krugman. He is an elegant theoretician of international trade. Hooray again for Paul Krugman.
Now that were done with the hero worship, two additional points:
- Yes, the quote in the first line above came from remarks Krugman delivered a year ago. My question is this: How many times does Krugman have to compare the current recession to The Great Depression before he becomes accountable for having made that claim? It is clear why Krugman wants to advance this argument ("What Paul? The stimulus package might not have been big enough? You don't say..."). But at some point, if the sky doesn't fall, it is fair to say--sky's not falling, Paul.
- Along the same lines, but from an analytic vantage point: My 5-year old daughter can look at a chart and say "that line is pointing downwards." My 12-year old daughter can look a chart with two lines and say "Line A is more steeply sloped than Line B." Neither of them has a Nobel Prize (yet). So to say, as David more or less does (below), "He made that statement a year ago. How was he to know that the trend would reverse itself...completely. Invalidating his comparison...entirely." Indeed, how was he to know? Well that is exactly why he is paid the big bucks. That is why he has the big reputation. Because we expect that he can do more than just compare the slopes of two lines.
(And by the way: I am not fundamentally opposed to analytically-based extrapolation based on trends. You just have be straight about what you really know with confidence, and be prepared to accept responsibility for your claims when any speculations made turn out to be wrong.)
I am not sure about you, but I think most people think of the great depression in terms of the Grapes of Wrath. Until real unemployment stops dropping and wages begin to return people are still going to think of this era as the modern great depression. I wonder how much the US economy can grow without the effects... forgive me... trickling down to the masses.
ReplyDeleteI wonder, though, who's going to buy the excess consumer goods. Ford and GM, for example, are profiting by selling less product, not more. If the rebound in trade is being fueled primarily by raw resources and mineral products -- especially oil and steel -- how long until some enterprising enemy of the U.S. begins a rearmament campaign with bargain-basement weapons prices?
ReplyDeleteI agree - if you have a well-paying job and live in a good community the idea of a great recession-depression is ludicrous. (You just have to put out of your mind the fact that there is ~20% underemployment, a second housing market crash to come, a $1-3T pension battle forming, a liquidity trap, resource wars cued up, etc.)
ReplyDeleteLet me see. You're criticizing Krugman for something he said a year ago by using today's data. You don't say whether Krugman was right a year ago -- whether the drop in world trade was worse than at the beginning of the Great Depression -- but you imply that today's numbers refute his argument. I think you'd better check yourself for logical consistency.
ReplyDeleteAnd by the way, what everyone, including Krugman, has consistently said is that the present situation is the worst we've had since the Great Depression. You can't seriously argue that's not the case.
You present a misleading version of Krugman's statements. He didn't say this recession would be as bad as the great depression. He said that if the policy response were as bad, then it would be as bad.
ReplyDeleteThe policy response was completely different.
My honest perception is that things are working out exactly as predicted by Krugman (I was more optimistic).
I think that you are noting Krugman noting facts (and they were facts). Then deleting his conditional predictions. I don't recall a more extreme case of deliberate distortion by removal of context (the edited video of Sherrod wasn't notably more or less valid than this post).
Great comments. I disagree with all of them. General responses in addendum above. Specifics follow below.
ReplyDeleteWheell: In the 1930s 1/3 of Americans didn't have a toilet, unemployment peaked at 25% (not 10%, where we are today), and the average life expectancy was about the same as it is in Ghana today. The current recession is not comparable to The Great Depression. Period.
ReplyDeleteBlog Master: Hey Man!: Not buying the ~20% unemployment number. Pension battle a big problem, but of different origin and with different trajectory than trends described in above post (...more to do with unraveling of Galbraith's Iron Triangle, ref. http://bit.ly/13ugYu). Resource war prediction sounds a bit like Peak Oil kookiness, to which there appears to be no antidote, but I offer this: http://bit.ly/1aB3RB.
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ReplyDeleteRobert: I confess I don't have a transcript of the remarks Krugman delivered at event reported on by WSJ that I cite above. If you do, I'd appreciate the link. In any event, my Q is this: What was the big surprise that changed things for Professor K? What has turned out differently in the policy response from what he might have anticipated in October 2009? Because, if things have in fact (as you suggest) turned out as he expected, why did Krugman not say at the time of the trade data on which he was reporting, "These data look bad now but don't worry, the trend is going to reverse itself." But that is not what he said. Shouldn't we hold globally recognized scholars to a higher, rather than lower, standard than we do garden-variety pundits? Your comment doesn't suggest to me that you think we should.
ReplyDeleteCould you post a graph of the global trade from peak, by months out (showing the data in percentage-of-peak terms) for the Great Depression and then for the beginning of this recession?
ReplyDeleteThat would seem to be the way to empirically invalidate his statement you quote. A qualitative line of attack seems less strong.
Per http://www.bls.gov/news.release/pdf/empsit.pdf , as of July, 16.5% is the most broad-based unemployment number (U-6), so while 20% may be an overstatement, 10% is also misleading, as that's only the topline measure of labor market utilization. U-6 captures marginally attached workers, discouraged workers (a growing number, given the trend of long-term unemployed; see: http://calculatedriskimages.blogspot.com/2010_08_01_archive.html), and part-time for economic reasons.
And your statement as regards toilets... I'm not quite sure how to address it. An apples-to-apples comparison is evaluating the drop in real standard of living; no one is saying we've moved back to the income levels of the Great Depression; your argument there would appear either a gross misunderstanding of the terms of the debate or a straw man. Even those of the Great Depression era were better off than a peasant in the Middle Ages by many terms of reference. The issue here is: how many people are suffering a diminishing of their quality of life, proportional to their baseline expectation prior to the downturn?
Observers here are therefore generally concerned with the employment situation, which is quite clearly in its poorest state SINCE the Great Depression: http://calculatedriskimages.blogspot.com/2010/08/employment-recessions-july-2010.html
My general point here, I suppose, is: collecting these data took me 10 minutes. So if you want to make an empirical argument... make an empirical argument.
dwg: Good links. As you correctly note, the relevant data are readily available (including in Economist article to which I link), which is exactly why I didn't see the need to create my own compendium in this simple post. After all, my top line point is not very complicated: global trade did not continue on a downward trajectory, but rather turned around rather sharply, at about the time Krugman was suggesting (conditionally or not) that the recession was comparable (in this context, on a global scale) to the Great Depression. But sure, graph to come in follow-up post...
ReplyDeletedwg: And as for toilets...look, if I was personally satisfied with the "terms of the debate" as you call them, I wouldn't have written this post, or the half-dozen in similar vein that preceded it. Neither, for that matter, would I be writing the book that is the organizing principle for this blog. And one of the elements of the "terms of the debate" that I find most tiresome is the reflexive emphasis on relative measures of well-being rather than absolutes. You evidence this by stating that "The issue here is how many people are suffering a diminishing of their quality of life, proportional to their baseline expectation prior to the downturn?" That may be your "real issue," but it's not mine.
ReplyDeleteNo, the toilet comment isn't a straw man, it's actually the core point. Is a hedge fund manager whose income drops from $2 mil/year to $200K really in the same position as the owner of a shuttered auto dealership who was making $200K/year and now is bringing home $20K. I'm sure you'd agree--No. Well, you know what fraction of *the world's* population makes over $20K/year? Of course you do, 'cause you like data. The answer is less than 2%. That's us. We are to the rest of the world what hedge-fund-guy is to us.
Now in the 20th century, absolutes didn't matter. In the 21th century, they do. There's more to this than Greenspan's "connundrum" and the like. It turns out, here is a big world out there that doesn't give a cr&p about who's a conservative and who's a liberal in the US of A, and whether the godd&m stimulus package was big enough or not. Krugman's fellow NYT columnist Tom Friedman lives in that world. So does Nick Kristof. But Paul Krugman? I don't see the evidence.
So the really big thing Krugman's missing isn't the trend in trade data after all. It's the toilets.
Phil
ReplyDeleteI have to agree with dwg that you are really just skimming the surface. For me you need to focus on trade BALANCE. Take a look at this:
http://mpettis.com/2010/07/the-capital-tsunami-is-a-bigger-threat-than-the-nuclear-option/ (especially part II)
and this
http://www.nytimes.com/2010/08/11/business/global/11yuan.html?_r=1&ref=business
The main failing of your OP is that you are focused on G20 trade volume when if you are concerned about the US you need to recognize that is trade balance that is the real issue.
The most current trade balance data indicate that after an all too breif zig in the right direction (for the US anyway) it is moving off the charts again.
I suggest you take a closer look at the G20 data and separate Germany, China and Japan out from everyone else. I trust at that point you are intelligent enought to see that the situation is A) Unsustainable (after all where must that surplus go?) and B) Bad for the US (it scarcely supports broad US employment)
Krugman may be wrong on agregate trade volumes for now but If you think this expansion of trade volume is going to lead to US proseperity you are sorely mistaken.
dgw: Oh, and I don't refer here to the U-6 number for unemployment because, as you know, we don't have U-6 numbers for the the 1930s. Strictly speaking, we don't have U-3 numbers either. But the U-3 number is closer the the 25% figure that I cite above for the unemployment peak during the great depression. If you want to argue that 16.5% is the correct figure for current unemployment, then you also have to come up with a "more accurate" number for the The Great Depression. (One readable ref. here http://bit.ly/7i5HxU). When you're done you're going to find that--surprise, surprise--the current recession can not be reasonably compared wit the great depression (ref. http://nyti.ms/9Xjrni).
ReplyDeleteElaboration of my 3AM rant above to follow in future post--including tighter estimate of fraction of the world's population making more than $20K/year. Notably: The data series from which I derived my back-of-the envelope number is over a decade old, so today's global fraction of $20K+/year earners may be higher than 2%. Also, I'm talking about the fraction of individuals, not workers or households, so that obviously is going to result a lower number than one would get otherwise. But the point is the same: We do well to place our assessment of our own well-being in a global frame of reference if we're going to come up with strategies as a nation that will work in the densely interconnected world in which we've situated.
very simplistic argument against Krugman. unemployment in the US is still close to 20% (real unemployment not the stuff reported by Washington) and the root cause of the crisis has not been addressed at all ... debt. as long as debt problem is not being addressed this house of cards we live in can fall down any day. and once we address the debt problem we will have to downward correct current standard of living as well as any future aspirations for it.
ReplyDelete