Tags: Krugman | Markets | Doomsayers | Clue

Krugman: Markets Say Doomsayers Don’t Have a Clue

By    |   Sunday, 10 March 2013 12:00 PM

The market has spoken. And it says market doomsayers don’t have a clue, writes
Paul Krugman in his New York Times column.

Conservative economic pundits have consistently predicted that government
spending, covering the uninsured or reforming Wall Street would cause stocks to
tumble, Krugman writes. The markets would punish us if Social Security, Medicare
and Medicare are not immediately slashed. Bond vigilantes would strike, they said,
and Treasury yields would skyrocket.

So what happened?

Stocks exploded. The Dow Jones Industrial Average reached record highs last week,
and yields on government bonds remain at rock-bottom lows.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

Those pundits have had a remarkable track record of being wrong the last several
years, Krugman writes. But that’s not the most significant part.

“No, the important point about these particular bad predictions is that they came
from people who constantly invoke the potential wrath of the markets as a reason
we must follow their policy advice.”

In addition to conservatives, some calling themselves centrists called out the same
types of warnings, Krugman notes. “For example, two years ago, Erskine Bowles and
Alan Simpson warned us to expect an attack of the bond vigilantes within, um, two
years unless we adopted, you guessed it, Simpson-Bowles.”

Krugman calls predictors of market punishment “priests who demand human
sacrifices to appease their angry gods — but who actually have no insight
whatsoever into what those gods actually want, and are simply projecting their own
preferences onto the alleged mind of the market.”

The market’s message is not all happy, he says. “What the markets are clearly
saying, however, is that the fears and prejudices that have dominated Washington
discussion for years are entirely misguided. And they’re also telling us that the
people who have been feeding those fears and peddling those prejudices don’t have
a clue about how the economy actually works.”

As businesses and households try to pay off debt and save, they are postponing
spending, which is depressing the economy. In response, the government should
ignore its short-term deficit and increase spending to energize the economy,
Krugman argues.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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The market has spoken, and it says market doomsayers don't have a clue, writes Paul Krugman in his New York Times column.
Sunday, 10 March 2013 12:00 PM
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