What Caused the Great Recession? In a Very Few Words Krugman Says so Much

     No question Krugman is about as smart and talented an economist and blogger as you will find. One thing that shows his strength is how he's able to say so much with so few words-the talent of concision. He's not just a great economist but he has a great economy of words. Never has he said more than this little seemingly innocuous sentence. I'm going to quote the whole thing but see if you see the sentence I have in mind-very short sentence. 

     "One of the remarkable things about the ongoing economic crisis is the endless search for explanations of something that’s actually quite simple — the sluggish pace of recovery. You have a large overhang of private debt; you have a still-depressed housing sector; and you have contractionary fiscal policy. Add to this the well-established fact that recovery tends to be slow after recessions caused not by tight money but by private-sector overreach, and there’s just no mystery that needs explaining."

    "Yet we’ve seen an endless series of analyses declaring that there is indeed a deep mystery, and it must be Obama’s Fault. Probably the most influential of these analyses was the claim that Obama was creating “uncertainty”, and this was holding everything back."

     "Larry Mishel did a thorough debunking of this meme almost two years ago. And sure enough, the index of uncertainty that everyone was pointing to has plunged, with no visible boost to the economy."

     "Will anyone who bought into this story engage in some serious self-analysis? Why am I even asking?"

     
      http://krugman.blogs.nytimes.com/2013/08/06/another-bad-story-bites-the-dust/

     
      Actually it's the first half sentence:


     "Add to this the well-established fact that recovery tends to be slow after recessions caused not by tight money but by private-sector overreach."

      I don't know how many noticed that but I can guarantee you there's one guy who certainly did and his name is Scott Sumner. Believe, me there Krugman spoke volumes. It's funny I had been reflecting on Monetarism earlier this evening. 


      "Over the last 5 years, we continue to have conservatives who insist the market can't fail-the words market failure are simply an oxymoron. The market by definition cannot fail. I should say that Scott Sumner is probably the best of this breed-in that his argument is probably the most compelling. The Monetarist case for the impossibility of the market failing has always been the most subtle conservative attempt to explain the Great Depression-and now the Great Recession-as not a market failure, but a government failure."


      "It's kind of paradoxical as while Monetarism calls these government failures what it actually calls for is more rather than less government involvement at least in the monetary realm. Of course, usually these conservative arguments err when they're taking too far-as I've said, I find the Laffer Curve, certainly, at least, Jude Wanniski's version of it, quite compelling-this model, just like Sumner's NGDP targeting takes you in because it's so intuitive. Of course, intuitiveness is not Truth-because an idea or a concept is highly intuitive doesn't mean it isn't wrong."

     "In fact, in this vein, Cassidy points out that an idea that seemed very intuitive that was pushed by both Friedman and later Bob Lucas has turned out to be flat out wrong. While Friedman was right that the Phillips Curve-or at least the bastardized version that gained currency in the 60s and 70s-was wrong, his reasoning was actually also wrong."

   "As it turns, out, it's not true that only unanticipated changes in monetary policy can have any effect and that once the market figures out what the Fed is doing, the gig is up as it were. As it turns out this is exactly backwards: not only do anticipated monetary changes have an effect but their effect is actually greater than unanticipated changes."

     http://diaryofarepublicanhater.blogspot.com/2013/08/john-cassidy-market-failure-and-thek.html

     I'm going to check right now if Sumner has answered it yet-it's just a question of time. 

     UPDATE: He hasn't yet. It's a matter of time. Right now he's enjoying the afterglow of having a piece in Politico. However, I wouldn't be at all surprised if he's already noticed the offending half sentence. 

     Here's Sumner's piece about his Politico piece. 

     http://www.themoneyillusion.com/?p=22798

      P.S. What's really brilliant about Krugman's small post is that while his title-about another bad story biting the dust-seems to be about the conservatives pushing the Obama uncertainty meme-the usual 'it's all structural' shibboleth-he also at the same time takes a shot at a much bigger fish-as I suggest in my quote above, Sumner in my view at least is a head and shoulders above any other market apologist during the Great Recession. He truly is the heir to Milton Freidman.