People Should Not Provoke the Krugman!

But people do. And he is annoyed.

He is annoyed at Reaganite commenters who have been misled by Republican "economists":

Reagan and revenu: Ah - commenter Tom says, in response to my post on taxes and revenues:

Taxes were cut at the beginning of the Reagan administration. Federal tax receipts increased by 50% by the end of the Reagan Administration. Although correlation does not prove causation the tax cut must have accounted for some portion of this increase in federal tax receipts.

I couldn’t have asked for a better example of why it’s important to correct for inflation and population growth, both of which tend to make revenues grow regardless of tax policy.

Actually, federal revenues rose 80 percent in dollar terms from 1980 to 1988. And numbers like that (sometimes they play with the dates) are thrown around by Reagan hagiographers all the time. But real revenues per capita grew only 19 percent over the same period — better than the likely Bush performance, but still nothing exciting. In fact, it’s less than revenue growth in the period 1972-1980 (24 percent) and much less than the amazing 41 percent gain from 1992 to 2000.

Is it really possible that all the triumphant declarations that the Reagan tax cuts led to a revenue boom — declarations that you see in highly respectable places — are based on nothing but a failure to make the most elementary corrections for inflation and population growth? Yes, it is. I know we’re supposed to pretend that we’re having a serious discussion in this country; but the truth is that we aren’t.

He is annoyed by Ben Bernanke's insistance that any recession will be effectively over before we are sure that it has begun:

Not so fast - Paul Krugman - Op-Ed Columnist - New York Times Blog: One assumption in Ben Bernanke’s testimony today was that if a recession happens, it will be over soon, so stimulus has to come fast or not at all. It’s by no means clear that this is right. To be fair, I think it’s right to caution Congress not to do anything now that won’t come in quickly. But both recent history and the nature of our current problem suggest that we may be in for more than a few bad months. It’s true that the 2001 recession was officially very short. But the economy felt weak for much longer than that. Here’s my favorite picture, the employment-population ratio, once again:

[The employment-population ratio] kept falling through the summer of 2003. And the Fed certainly thought the economy was weak, and needed more help; it kept cutting rates long after the recession was officially over, and didn’t start raising them until 2004.

So the last slump de facto lasted about 2 1/2 years. And I don’t see why the same couldn’t happen this time. After all, what’s supposed to take the place of weak housing and consumer spending. Exports, yes — but how much will come, how fast?

Anyway, the point is that the last recession was not, in reality, short — and this one might not be, either.

And he is annoyed by Anna J. Schwartz:

Great Depression blogging: Can’t resist. I see that Anna Schwartz is blaming the Fed for the subprime crisis; I have some sympathy for this view, but not for the reasons she gives. But anyway, the article mentions the whole “did the Fed cause the Great Depression” issue, and explains succinctly why the Friedman-Schwartz claim that it did matters:

“The book was a bombshell,” says British monetarist Tim Congdon. “Until then almost everybody thought the free-market system itself had failed in the 1930s. What Friedman-Schwartz say was that incompetent government bureaucrats at the Fed had caused the Depression.”

The trick here is the word “caused”. Everyone agrees that the Fed failed to do what it should have in an effort to prevent the Depression. But saying that it “caused” the Depression is like saying that FEMA, through its inadequate response, caused the devastation of Katrina. The market system did fail; government’s failure was in not doing enough to rescue the system.

On what basis do I say this?... The monetary base is bank reserves plus currency in circulation. It’s what the Fed controls directly: monetary base only gets created or destroyed through Fed actions. M2 is a broad definition of the money supply, including a wide variety of bank deposits, preferred by Friedman and Schwartz.... M2 plunged in the Depression--and the Fed should have tried to prevent that. But the reason M2 plunged was because of the banking crisis, which led people to prefer cash to bank deposits and led the surviving banks to hold lots of reserves. This reduced the “money multiplier”: the amount of money supported by a dollar of reserves. M2 did not plunge because the Fed sharply reduced monetary base, although there were occasions in later life when Friedman asserted that it did.

The point is that the Fed’s sin was passivity. What the economy really needed was more activism.

All three of these acts of annoyance seem to me to be highly justified.