Saturday, August 13, 2011

The Cyberdog Wrote These Posts

The Cyberdog devoured Paul Krugman's comments and won't allow comments on two of his posts.

So here they are.

How can we convince S&P to downgrade stock ?

Krugman is surprised that people say that S&P downgrade had a big effect, since the price of the downgraded securities has increased. It turns out that their evaluation of Treasury securities matters for stock prices and not the prices of Treasury securities. This is a parody of post hoc ergo propter hoc. It oculd be worse, at least the timing is right even if the signs are wrong.

I am reminded of assessments of the effects of QEII. The policy consisted of buying 7 year Treasury notes. Their price went down. To me that suggests that the policy didn't work. But some (e.g. Martin Feldstein) decided that one should look at the price of stock to determine the effect of purchases of 7 year notes. He isn't quite at the level of the people Krugman denounces, because he was casual about the timing. It was enough that two things happened in the same half year to convince him.

Krugman notes that the words "British economist John Maynard Keynes" are used without any reference to the writings (or speaches) of British economist John Maynard Keynes.

Mike Shedlock blames Keynes for over generous pensions, over large defence bailouts and, coddling bankers (we alll know how much Keynes liked bankers). This is quite funny. I propose a rule. How about requiring that assertions about the beliefs and proposals of John Maynard Keynes be based on quotes of Keynes.

Sad to say, I was pretty sure that Krugman wouldn't totally appreciate the comment by the time I read all the way down to "Comments are no longer being accepted." Krugman does not discuss Keynes. Instead he discusses "the Keynesian model" and goes on to explain

Keynesianism, in particular, is not about chanting “big government good”. It’s about viewing recessions through the lens of an economic model under which temporary increases in government spending can, under certain circumstances, help reduce unemployment. Indeed, not all recessions call for fiscal stimulus; it’s the special conditions of the liquidity trap that make it essential now

That's not Keynes. Keynes mentioned the liquidity trap twice in "The General Theory of Employment Interest and Money" but it was not at all central to his theory. I have no trouble identifying the leader of the school of thought whose doctrine is monetary policy except when in a liquidity trap then use fiscal policy" -- Paul Krugman. "It all depends on whether we are in a liquidity trap" is Krugmanian not Keynesian. I mean Keynes didn't even get to any mention of nominal quantities until after the chapter entitled "The General Theory Restated."

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