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October 13, 2003

Our impending Wile E. Coyote moment. Before becoming one of America’s most praised and reviled pundits, Paul Krugman was an expert observer of economies in trouble—of financial crises on the order of Argentina in 2001.

Krugman is worried:

A third world country with America’s recent numbers—its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world—would definitely be on the watch list.

I’m not the only one thinking that. Lehman Brothers has a mathematical model known as Damocles that it calls “an early warning system to identify the likelihood of countries entering into financial crises.” Developing nations are looking pretty safe these days. But applying the same model to some advanced countries “would set Damocles’ alarm bells ringing.” Lehman’s press release adds, “Most conspicuous of these threats is the United States.” […]

Krugman goes over the “reassuring counterarguments.” After all, like everyone else, economists are good at forseeing the previous crisis. Financial crises are exacerbated in places like Argentina or Indonesia because their debt tends to be denominated in currencies they don’t control. And, of course, financial markets generally give “advanced countries” (that would be us) more benefit of the doubt. After all:
Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can’t trust business accounting, and insiders often enrich themselves at stockholders’ expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse. Luckily, in America we don’t have any of these weaknesses. Oh, wait…
Oh. [11:34 PM]
Welcome to Electrolite's comments section.
Hard-Hitting Moderator: Teresa Nielsen Hayden.

Comments on Our impending Wile E. Coyote moment.:

Kaushik ::: (view all by) ::: October 14, 2003, 12:14 AM:

Krugman of course is one of the world's foremost experts on financial crisis. He is arguably the only economist who accurately predicted both the South East Asian currency crisis and the one in Argentina. He could have made money big time in both cases.

Here is the thing. When he comments on US national politics in NYT, it is likely that White House pays no attention. But when Krugman talks of international trade or financial crisis, everyone pays attention. I read a comment someone made in Brad Delong's a few weeks back on the same subject which accurately sums up what I feel: that the US treasury dept may not acknowledge it publicly, but everyone takes what he says on this particular subject very seriously.

Claude Muncey ::: (view all by) ::: October 14, 2003, 12:22 AM:

You know, I can see someone who disagrees with (what they percieve as) Krugman's political views dismissing some of his writings. But not this. This is what he gets paid to work on as an academic. I have been reading reports about that Damoclese score -- a score of 75 means that a developing economy has a good chance of fiscal crisis within 3 years. Our score is reportedly close to that.

But you know, the part that sticks in my mind is "Wile E. Coyote". You know that look in GWB's eyes that has been described as the "deer in the headlights" look? How about the look on the Coyote's face once he notices that all there is below is air, and he whips out that little sign?

Kaushik ::: (view all by) ::: October 14, 2003, 12:25 AM:

And just for fun, here is Krugman on the subject of 'new economy' doctrine in 1997, 3 years before the bubble burst ....

Jon H ::: (view all by) ::: October 14, 2003, 12:31 AM:

"When he comments on US national politics in NYT, it is likely that White House pays no attention."

Does the White House pay attention to anyone?

They don't even pay attention to the reports they commission themselves, compiled by administration-selected committees.

If they pay attention to anyone it's the AEI and Heritage people. The administration certainly goes there to genuflect often enough, giving command performance speeches.

Randolph Fritz ::: (view all by) ::: October 14, 2003, 02:27 AM:

Patrick, have you seen my near-future historical speculation charts? Brrr. Brrr.

It occurs to me that part of the reason Krugman is willing to look at the possibility of dramatic change is a youth mispent reading reading sf. One for our side.

Reimer Behrends ::: (view all by) ::: October 14, 2003, 06:38 AM:

If you think Krugman sounds pessimistic, try Kurt Richebe4cher for some really depressing views. :(

Mike Kozlowski ::: (view all by) ::: October 14, 2003, 09:22 AM:

All I can say is, it's a damn good thing we have the party of responsible, fiscal conservatives in office right now. Between Republicans' long-held insistence on a balanced budget, hard-nosed realization that there aren't any free lunches, and absolute commitment to free trade, the US should be able to solve its problems in a sound fashion.

Barry ::: (view all by) ::: October 14, 2003, 11:56 AM:

Mike, d*mn straight. We got rid of that draft-dodging crew of professional pork-barrel BS artists just in time. Can you bear to even imagine what shape we'd be in now, if we had a crew of people who were long-time Washington DC people? Who made their money through government connections, rather than honest work?

Who during Vietnam, shirked their duty to our country? Whose every statement needed to be parsed by experts, to spot even half of the evasions, BS, half-truths and flat-out lies? Who would lean on good career civil servants, to suppress the truth and produce propaganda to support policy?

I relax happily in the knowledge that 'truly the judgements of the Lord are just'.


Christopher ::: (view all by) ::: October 14, 2003, 12:36 PM:

> Patrick, have you seen my near-future historical speculation charts? Brrr. Brrr.

That is, like, the worst pick-up line I've ever heard.

Billmon ::: (view all by) ::: October 14, 2003, 03:09 PM:

If you think Krugman sounds pessimistic, try Kurt Richebe4cher for some really depressing views. :(

But Dr. Kurt has been sounding pessimistic for going on 25 years now. Like most "mainstream" economists, Krugman used to dismiss such doomsayers as cranks. Now he's starting to sound a bit like Dr. Kurt himself.

I happen to think Krugman is right to start taking the gloom-and-doom scenario more seriously. But I do have to wonder if his political views haven't helped swing him around.

Gareth Wilson ::: (view all by) ::: October 14, 2003, 03:26 PM:

"They have poor corporate governance: you can't trust business accounting, and insiders often enrich themselves at stockholders' expense."

And the very people yelling loudest about crooked companies turn out to have pocketed six-figure consultancy fees from them.
Oh, wait...

Patrick Nielsen Hayden ::: (view all by) ::: October 14, 2003, 03:52 PM:

Billmon, if you read the collection of columns that makes up most of The Great Unraveling, what's clear is that his politics moved in a more anti-Administration direction as the result of his growing economic alarm, not vice versa.

Gareth, interesting how $37,500 has turned into "six figures." Maybe we're counting the comma? Anyway, yes, that non-scandal was briefly one of Andrew Sullivan's more fevered boondoggles, but in fact if we started beating up every academic, reporter, or pundit who's taken money from this or that corporation in order to brief management or speak at a retreat, I suspect plenty of Krugman's enemies would start tiptoeing away as fast as they could. Say this for Krugman: Enron got nothing out of him, as his record of criticizing them amply shows.

However, it's a great way of throwing FUD into any conversation based on Krugman's observations, no matter how solid the observations.

Barry ::: (view all by) ::: October 14, 2003, 06:57 PM:

Patrick, Patrick, Patrick. Will you stop with your Shrill Evul Librul PC Liez? Krugman has probably not even hit 100K words words criticizing Enron, its cronies in power in this country, and the scams that they've pulled on us. And these few tens of thousands of words were very carefully hidden in obscure publications like the New York Times - who reads that? It's just plausible deniability.


Unlike Our Dear Leader George 'Big Bulge' Bush, the Top Gun who personally thrashed Saddam.

I'll never forget the look on Lay's face, during his televised punishment, when he looked back from the whipping post, and saw W's rippling muscles as he prepared to personally administer the Lash of Death to Corporate Criminals. It made me glad that I was no longer living in the long nightmare of peace and prosperity of the (Evul Librul!!!) Klinton years, where *not one* high-level corporate criminal was executed.

Randolph Fritz ::: (view all by) ::: October 14, 2003, 07:31 PM:

Well, I could make etchings...

Carlos ::: (view all by) ::: October 14, 2003, 09:40 PM:

PNH, TNH --

Don't let the .nz fool you with Gareth Wilson. Political troll from darkest Usenet, likes sniping and fleeing. Give him an inch and he'll dogpile like any other puling freeper.

C.

Carlos ::: (view all by) ::: October 14, 2003, 09:40 PM:

PNH, TNH --

Don't let the .nz fool you with Gareth Wilson. Political troll from darkest Usenet, likes sniping and fleeing. Give him an inch and he'll dogpile like any other puling freeper.

C.

Carlos ::: (view all by) ::: October 14, 2003, 09:51 PM:

Darn double post. This is what happens after I check Brad DeLong's weblog.

Gareth Wilson ::: (view all by) ::: October 15, 2003, 02:58 AM:

Don't let the .nz fool you with Gareth Wilson. Political troll from darkest Usenet, likes sniping and fleeing.

Thanks for the publicity, Carlos, but PNH and I have corresponded on darkest Usenet before. So he can judge my trollishness for himself.
As to my post, sorry for the error - I was working from memory and could have sworn he got six figures. As you say, he received $37,500 for four days work on "an advisory panel that had no function that I was aware of".

bryan ::: (view all by) ::: October 15, 2003, 06:04 AM:

>That is, like, the worst pick-up line I've ever
>heard.

Get Off of Him, you slut! He's mine.