In my inbox today was a "triumphant" message from a right wing commentator purporting to have the definitive proof that "Saint" Krugman (his words) is a fraud. The quote he sent is from Krugman's blog in 2002:
To fight this recession, the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that… Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
This apparently is the latest Krugman "smoking gun."
I wrote back:
"First, you leave out the ellipsis: 'as Paul McCulley of Pimco put it,' so Krugman was quoting someone else. (I don't blame you, That's probably the form in which it's making the right wing rounds.) Second, the rest of the quote makes it apparent that Krugman was using a bit of snark to make fun of Greenspan's too rosy testimony:"
Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.
On the surface, the sharp drop in the economy's growth, from 5 percent in the first quarter to 1 percent in the second, is disheartening. Under the surface, it's quite a lot worse. Even in the first quarter, investment and consumer spending were sluggish; most of the growth came as businesses stopped running down their inventories. In the second quarter, inventories were the whole story: final demand actually fell. And lately straws in the wind that often give advance warning of changes in official statistics, like mall traffic, have been blowing the wrong way.
Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured?
Krugman needs to know enough to avoid snarky comments that could be taken seriously ten years later!
Of course, he was warning about the housing bubble long before most others, e.g., in 2006:
It would be an exaggeration to say that there's no inflation threat at all. I can think of ways in which inflation could become a problem. But it's much easier to think of ways in which the Federal Reserve, wrongly focused on the phantom menace of a new wage-price spiral, could be slow to respond to bigger threats, like a rapidly deflating housing bubble…