Tue, 01 Sep 2009

Krugman and Recalculating.

Paul "MIT wants its PhD back" Krugman is at it again. When government action causes an economy to go bust, people need to adjust their spending (recalculating). This includes employers and employees. So unemployment goes up. Krugman can't understand why this process doesn't apply equally to boom times.

His claim is comparable to saying that because the distance between two floors is equal (the amount of spending adjustment), that it should take an equal amount of effort (unemployment, as some jobs are destroyed and others created) to climb the stars as go down. By this metaphor he's obviously lost all shred of his former Nobel-inducing glory. All that's needed is to show that gravity exists in economies as well as houses.

Causes of gravity: information (in a boom, everybody knows where the jobs are; in a bust that information is hard to get), confidence (people take more risks with their jobs if they know a replacement is easy to get), egoism (everybody wants to get paid more; nobody wants to get paid less), time (booms happen slowly and busts quickly), and probably a few more that I can't think of, but really, these are sufficient on their own. Four reasons why recalculation results in unemployment on the bust side rather than the boom side.

It must suck to be Krugman.

Posted [00:00] [Filed in: ] [permalink] [Google for the title] krugman,economics,fail,MITWantsItsPhDback [digg this]