[quote=BK524]I often read Paul Krugman's blog, and much of what he says makes sense to me. I would appreciate any thinking anyone wishes to share on this Krugman post about the current emerging markets issue: http://krugman.blogs.nytimes.com/2013/08/29/asian-vulnerability-then-and-now/?_r=0 I don't think Chris is a fan of Krugman (and that could probably be said of many of the Peak Prosperity readers), so I bet some of you see some flaws here, and I'm interested to hear your rebuttal. Thanks!
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I'm always amazed at Dr. Krugman's ability to set up a straw man and then knock it down. He's done that here again by focusing the discussion simply to a given country's net external debt, which is just one of many components that might provoke a crisis. It's a factor; an important one, but not the only one.
Here I will simply observe that it is entirely possible for a country to experience very large inflows of hot capital without their external indebtedness ratios being budged in the slightest.
In the charts Mr. Krugman presents, there is absolutely no evidence of ANY of the roughly $4 trillion of hot money flows that have poured into emerging markets (EMs) over the past five years. In fact, according to his charts, the external indebtedness is historically low, and, in the case of Indonesia, still falling.
So where's the problem?
Sticking to his very narrow view of external indebtedness, one problem is that the hot money flows have been entering and are not showing up on his charts for some very obvious reasons, of which he really ought to be aware. The measure of external debt-to-GDP factors in both interest and principal payments.
What happens to those payments as hot money flows in and drives down interest costs? They are muted, and even entirely obscured in some cases.
What happens when the situation reverses and the interest costs begin to spike? The charts blow up.
But, again, there is soooo much more to the story of hot money flows than external indebtedness, and it is the complete story of what happens when capital floods in and then out that is relevant here…
So, yes, I admit, I find Mr. Krugman's simplifications and then straw man defenses of complex situations puzzling for someone from academia – a place where you usually get eviscerated for even minor oversights by your peers.
My puzzlement reduces to a sad nod of the head when I observe that each of his oversights manages to paint Fed monetary interventions in the best possible light, even at the exclusion of painfully obvious evidence to the contrary.
In this case, the oversight is missing the deleterious consequences of hot money flows into and out of EMs, using a tiny corner of a broad and mixed field of evidence to support a particular belief, and it's not the first time he's done that.
nice response dr m
Krugman has his internal filters set to where he likes them. In addition to being a voice TPTB want people to hear, he is also a voice that they want to hear. Krugman helps fulfill the need to keep those in power calm. I think he understands the arguments and points of views of his naysayers, but he has his role to fulfill. I also think he truly believes what he says because TPTB require it of him. I'm sure it's not ever explicitly discussed, always implied. I found the article interesting because he used more caveats than he usually does…probably not a good sign…may it indicate a hint of questioning?..
My experience has been that no matter how sensitively you try to express the message of sustainability/exponential growth, if they truly understand it, there is the initial fear of panic in the eyes of the receiver. Panic is the last thing TPTB want.
…as these words are completely sensible to me.It looks as though Mr. Obama took a mental trip to the edge of the abyss and seen the coming of the Lord (please insert whomever the Lord represents to you) and stepped back. I am thrilled and was very hopeful that when he truly took a look at this situation that he stepped back. I cannot express enough how gratifying this decision is if indeed he decides to do nothing with regards to Syria without the mandate of the World Community behind the decision to go in. I have hope today, am always hopeful, and are thrilled for what the market is telling us, and all of this waiting for me after I slept over 11 hours!!! I have not slept this long without waking up in 30 years or more. I love it. I hurt though as rigor mortis set in but I'll gladly take these aches and pains for the joy I feel right now!
Krugman lost me when he was surprised at how Robots surprised him and how they would affect the economy going forward. That my friend is 'scary out of touch' with the real world to me, all from a Nobel Prize winning economists.
Have a great Holiday Gillbilly, I will pray for your safety and that of your families. To everyone here I will do the same.
Yogi
I havent read his blog posts relating to the current emerging markets issue. But a year or so ago there was a fascinating and very public online stoush between he and Steve Keen (who has been interviewed by Chris). If you haven't seen it, google "Keen vs Krugman". Keen doesnt hold any punches and argues that Krugman long ignored the role of debt and banks in his modelling of the economy. More recently Krugman's shown cracks of enlightenment and tried to re-write the history of his own position. That's my take in a nutshell although it doesnt answer your specific question BK524 about that recent specific post. For me, it's just tainted my respect for Krugman in general and I can't be bothered reading his blog anymore.
That pretty much says it all. Worth a couple hundred history texts.
Sorry, that was in response to the amazing letter to the editor "A Short Guide to the Middle East" posted by the Arthur Robey. Thank you Arthur. As I say many of our college students would leave a Middle East history course with much less than that succint briefing.