Three From Krugman

Paul Krugman has three good posts debunking right-wing arguments.

The first tackles the fear that China will stop buying our bonds. Liquidity Preference, Loanable Funds, and Erskine Bowles. "So in the hypothetical case in which foreigners lose confidence and stop buying our assets, they’re pushing our capital account down; as a matter of accounting, then, our current account balance must rise. But what’s the mechanism? (Remember the fallacy of immaculate causation.) The answer is, it depends on the currency regime. If you’re Greece, the way it works is indeed that interest rates soar, depressing demand and compressing imports until the current account has risen enough; unfortunately, demand for domestic goods falls too, so you have a nasty slump. But if you’re America or Britain, the central bank sets interest rates, and under current conditions that means holding them at zero. So what happens instead is that your currency depreciates, making exporters and import-competing industries more competitive. The effect on the economy as a whole is therefore expansionary, not contractionary."

The second is on Lousy Medicaid Arguments. "Now, about those lousy Medicaid arguments: Last year’s Supreme Court decision upholding the Affordable Care Act did strike down one provision, the one that would have forced all states to accept an expansion of Medicaid, the already-existing program of health insurance for the poor. States are now free to reject that expansion. Yet how can states justify turning down a federal offer to insure thousands of their citizens, one that would cost them nothing in the first year and only trivial amounts later? Sheer spite — the desire to sabotage anything with President Obama’s name on it — is the real reason, but doesn’t sound too good. So they need intellectual cover.

Enter the same experts, more or less, who warned about rate shock, to declare that Medicaid actually hurts its recipients. Their evidence? Medicaid patients tend to be sicker than the uninsured, and slower to recover from surgery.

O.K., you know what to do: Google “spurious correlation health.” You are immediately led to the tale of certain Pacific Islanders who long believed that having lice made you healthy, because they observed that people with lice were, typically, healthier than those without. They were, of course, mixing up cause and effect: lice tend to infest the healthy, so they were a consequence, not a cause, of good health.

The application to Medicaid should be obvious. Sick people are likely to have low incomes; more generally, low-income Americans who qualify for Medicaid just tend in general to have poor health. So pointing to a correlation between Medicaid and poor health as evidence that Medicaid actually hurts its recipients is as foolish as claiming that lice make you healthy. It is, as I said, a lousy argument."

The third points to this scathing review of Alan Greenspan's new book. Krugman calls Greenspan The Worst Ex-Central Banker in the World and adds, "What Pearlstein doesn’t mention, but I think is important, is Greenspan’s amazing track record since leaving office — a record of being wrong about everything, and learning nothing therefrom. It is, in particular, more than three years since he warned that we were going to become Greece any day now, and declared the failure of inflation and soaring rates to have arrived already “regrettable.” The thing is, Greenspan isn’t just being a bad economist here, he’s being a bad person, refusing to accept responsibility for his errors in and out of office."