Do you know what you need on the first day of the new year?
Probably a couple of shots of bourbon to vanquish whatever’s left of your hangover from New Year’s Eve. But on top of that, you need a “healthy” dose of Paul Krugman, that’s what you need.
Everybody loves Krugman because he’s never wrong and nothing he says ever grates on anyone’s nerves. No one ever rolls their eyes when Paul is on TV and there is no sense in which it’s fair to say that people stopped taking him any semblance of serious years ago.
I’m just kidding. Krugman grates on pretty much everyone’s nerves although I’m not entirely sure why because he’s become so cartoonish that reading him is more entertainment than it is anything else.
And you know what? You can say what you want about Krugman, but he’s a celebrity economist and achieving something that approximates celebrity status when your chosen profession is “economist” is a Herculean feat. So in that sense, you’ve got to tip your hat to this bearded fucker because, well, because you try becoming a pseudo-celebrity as an economist. It’s virtually impossible.
Well on New Year’s day, Paul is out with a pretty dire piece that also contains a reiteration of his Trump mea culpa.
“On election night 2016, I gave in temporarily to a temptation I warn others about: I let my political feelings distort my economic judgment,” he writes, adding that “what I should have clung to, despite my dismay, was the well-known proposition that in normal times the president has very little influence on macroeconomic developments – far less influence than the chair of the Federal Reserve.”
Right. Krugman goes on to remind you that the recent good economic fortunes of advanced economies are almost entirely attributable to central banks. He then warns that policymakers are out of options (sitting at the lower bound with bloated balance sheets) in a world where China is walking a tightrope, the Mideast is in turmoil, tech stocks are in a bubble, and cryptocurrencies are starting to look like they may pose more of a systemic risk than anyone thought. To wit:
But given that rates are already so low when things are pretty good, it will be hard for central bankers to mount an effective response if and when something not so good happens. What if something goes wrong in China, or a second Iranian revolution disrupts oil supplies, or it turns out that tech stocks really are in a 1999ish bubble? Or what if Bitcoin actually starts to have some systemic importance before everyone realizes it’s nonsense?
Yes, “what if?” Well, if one of those risks comes calling or if something flies in out of left field, Krugman notes that because central banks are effectively out of ammunition, “we’ll need an effective, coherent response from officials beyond the world of central banking.”
He then poses the following two questions:
How confident would you feel in the team of Donald Trump and Steve Mnuchin? How much leadership could a weakened Angela Merkel exert in a fragmented Europe?
Ironically, I’d wager most of Krugman’s detractors are thinking pretty much the same thing at this juncture.