Krugman and the stimulus

Compare the current crash with the 1981 crash. What is the difference? No dead cat bounce. The stimulus was all about paying off the states with transfers taken away by Bush. The only result was a smoother landing, down. No effect on jobs, and no effect on the long term unemployment rate in California.


Then we have Krugman explaining the error in the real business cycle.

Take real business cycle theory – I know it’s a horse I beat a lot, but it’s not dead, and it’s a prime example within economics of what I have in mind. I still want to spend at least some time explaining that theory to my undergrads, so I’ve been looking for a simple, intuitive explanation by an RBC theorist of what’s going on. And I haven’t been able to find one!

I mean, I could do it myself. Strip the story down to basics – make it a steady-state model, not a growth model, and drop the capital accumulation; what you’re left with is fluctuations in the marginal productivity of labor, which have a magnified impact on output because workers choose to work less when the technology is bad and more when the technology is good. As I’ve written before someplace, it’s the story of a farmer who stays inside when it’s raining and puts in extra hours when the sun is shining.

Well, workers quit when bad technology arrives. What technology would that be? Take a look Paul, when do workers quit? Mostly on the presidential election cycle, every eight years, which one can see by looking at the grey bars in the chart above.  So, Krugman tells us the bad technology is the government sector, driving us into bankruptcy. Thanks for the tip, we could never have figured it out by ourselves.

Arnold Kling's version of PSST tells us that we are always in disequlibrium, and so these period crashes are random. How random?  Simple computation tells us that this random sequence has about a 1/400 chance of happening. 

Soros says not that random.  Soros evidently looks at the grey bars, and he just placed an additional 1.3 billion dollar bet that Krugman's bad government technology will arrive within the year.

Don't listen to economists, listen to me, I think Soros does..