Krugman Uses ISLM to Proclaim Looming Fiscal Crisis, Denounces Those Who Don’t Use ISLM

Originally posted on Fixing the Economists:


Some people often ask why I complain about Krugman. “Hey Phil, Krugman is a good guy. He likes government spending. You like government spending. Therefore you must like Krugman,” says our budding young Socrates. Well, I’ll tell you why: because Krugman is a pretty awful economist who pushes completely outdated views and tricks people into thinking that they’re cutting edge. Anything that is of interest he poaches from elsewhere, typically engages in dubious accreditation and ultimately gets it wrong.

The reason for this? Because Krugman loves models and hates books. He loves little simplifications of the world and hates complexity. That is why he has been wrong on most substantive issues over most of his career. What are the roots of this hatred? From his public writings it appears to have something to do with the influence of JK Galbraith and American institutional economics (which, in Krugman’s mind, is…

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Australia Day Redux

I think Minnie Mace who I saw on SBS’s Living Black quite some time ago talking about various faiths of today’s Aboriginals said it best.

She said:

I think that all faiths, religions are like a string of pearls with a thread of truth running through all of them. And I believe that respect for one’s self, respect of others and respect for the environment, the sum total is the respect for God. I don’t believe in an invasion because I believe in a divine arrangement. The English language has broken down 600 language barriers – we couldn’t even talk to each other. And if I don’t want to get up in the morning, I don’t have to – I’ve got a fridge at home, I don’t have to hunt and gather every day to survive. And I’d rather be tracking down a kangaroo on the back of a fast-moving ute than running him down on foot. Our ancestors suffered so we could have all these benefits today and our kids don’t respect anything because they’re so full of hate and anger and that’s brought about by these academics perpetuating a noble savage on one hand, and we have a sense of grieving for paradise lost, and, on the other hand, it’s an invasion. We were advancing spiritually and they were advancing technologically and now we’ve all been brought together we have to understand each other’s culture, each other’s belief and then set a good standard for the future generations.

That’s such a beautiful and honest way of looking at it.

Jeremy Kewley from the former police drama stingers, once summed up Australia day in this way:

Australia Day is a day of celebration, commemoration and a day of profound reflection.

A day where we can pause to look back over thousands of years,
To what this country was and what it has become,
To what we have done – both good and bad, for and with, our country.

Australia Day is a time to understand and acknowledge our mistakes and learn from them and then to use that knowledge and understanding to move forward.

A day where we can celebrate what we have today ?

Our tolerance – our acceptance of others and their acceptance of us,
Our diversity – from culture to food, from language to religion.
Our landscape – vast and exhilarating, green and gold, deep red and ocean blue.
Our lifestyle – relaxed, casual, informal and welcoming.
Our sense of humour – never taking ourselves too seriously.
Our mateship – a common bond which all Australians seem to ‘understand’.

And our luck at living in Australia,
One of the most beautiful places on Earth.

Another beautiful and honest way.

Personally I think Australia Day is best summed up by the words of the famous song ? I am Australian

I came from the dreamtime from the dusty red soil plains
I am the ancient heart, the keeper of the flame
I stood upon the rocky shore
I watched the tall ships come
For forty thousand years I’d been the first Australian.

I came upon the prison ship bowed down by iron chains.
I cleared the land, endured the lash and waited for the rains.
I’m a settler.
I’m a farmer’s wife on a dry and barren run
A convict then a free man I became Australian.

I’m the daughter of a digger who sought the mother lode
The girl became a woman on the long and dusty road
I’m a child of the depression
I saw the good times come
I’m a bushy, I’m a battler
I am Australian

We are one, but we are many
And from all the lands on earth we come
We share a dream and sing with one voice:
I am, you are, we are Australian
I am, you are, we are Australian.

As Australians we come from a variety of backgrounds, a variety of cultures and today we celebrate, commemorate and reflect on our history. It is the new millennium; it is a time to move forward, it is a time for progress. It is time for Australia to succeed. Australia is proud of her history of hard yakka. It is in our blood, it is in our hearts, its in our hands. Today I am proud to be Australian.

What a Job Guarantee Is

What a Difference

What a difference 12 months and more makes.

In today’s Business Spectator column Stephen Koukoulas writes:

The budget surplus or deficit, level of debt, interest rates and value of the Australian dollar are the tools used to achieve those objectives and are not the target in themselves.

In April last year he was saying:

At the time I replied:

the result of a budget is an outcome not a policy tool

And the response I received was

What utter rubbish…

The full conversation can be seen here.

Good to see him change his mind and that we are more or less on the same page!

Sensible Macroeconomics


Good politics pre-election.  Good macro post-election.

One problem:  Commission of Audit has a reference that states:

2) “It is also essential that the Commonwealth government live within its means and begin to pay down debt.”

This appears to be in direct conflict with raising the debt limit.

The Federal Government is not like a household!  Households can’t make their own currency and require that people use that currency to pay taxes.  I have addressed this and many other myths previously.

Bad Debt? Good Debt? Complicated Mess!

via MacroBusiness via AFR

On Friday, The Australian Financial Review reported that Hockey was “mulling” the idea of separately classifying debt the federal government raises to invest in infrastructure projects from the debt required to finance the budget deficit.

Personally I did not understand a word of this when I read it for the first time.

The article goes on to argue that Hockey will draw a distinction between good debt and bad debt. The former being the self-liquidating kind that is repaid via improving productivity. And that Hockey will aim to split the debt into on and off balance sheet categories.

However, thanks to Richard Dennis of The Australia Institute, he makes it crystal clear:

After spending years deliberately conflating public sector debt and private sector debt in order to better scare the electorate, Hockey now wants us to distinguish between “good debt” which is used to fund infrastructure, and “bad debt” which is used for recurrent expenditure.

Infrastructure is one of those words that is easy to say and hard to define. Most people accept that roads are infrastructure, but is a highway to nowhere really a good investment? Implicit in Hockey’s language is the notion that it is OK for governments to borrow money to build big things made out of concrete but that we shouldn’t borrow for the delivery of government services. But what about education or preventative health?

The Conspiracy Against Steve Keen and Others

Paul Krugman recently posted on predictions of the crisis before it happened, in a piece entitled “Non-prophet Economics”. It had a set of propositions about how one should evaluate such claims with which I completely and utterly agree. I’ll quote it in its entirety, because it’s an eminently suitable starting point for evaluating whether a prediction was in fact made:

So as I see it, we should first of all be evaluating models, not individuals; obviously we need people to interpret those entrails models, but we’re looking for the right economic framework, not the dismal Nostradamus.

Second, we should be evaluating models and the individuals who claim to have these models based on broad performance, not single events; if your approach (say) predicted the housing crash but then also predicted runaway inflation from Fed expansion — I assume everyone knows who we’re talking about [for those that don’t, Krugman is referring to Peter Schiff] — it’s not a good approach.

Finally, I think we’re looking for conditional predictions — what happens given events that are themselves not part of the model — not absolute predictions. It was, for example, very hard in the fall of 2011 to know how the ECB would respond to the escalating financial crisis in Europe; failing to predict that Mario Draghi would find a way to funnel vast sums to debtor nations through discounting would have lost you a lot of money, but wasn’t really a failure of the economic model.

This is an excellent set of criteria—all I would add is one more in a similar spirit, that the model has to be evaluated on its own grounds, and not on grounds that suit a different approach to modelling. For example, a model that is purely a simulation can’t be rejected because it doesn’t make an empirical prediction based on current data, nor can models that acknowledge “the butterfly effect” (that a complex system can’t be predicted beyond a very limited horizon) be criticized for not getting the timing of an event right.

With that one addition, Krugman’s guidelines state precisely what I wish Neoclassical economists (and others) would do. Unfortunately it’s not what they d0 – Read more at Business Spectator  it is well worth reading.  Then come back for the bit from Paul Davidson, economist and journal founder, over the fold. Continue reading