Paul Krugman

Paul Krugman @paulkrugman

RT @nytopinion: Remembering what Odessa might have become will help remind us how important it is that this attempt at conquest fail, write… — PolitiTweet.org

Paul Krugman @paulkrugman

Basically, NY is a great place to live — shops and restaurants are buzzing — but you wouldn't want to work there. Hit hard by the shift to remote work, which is bad for all the businesses that cater to office workers https://t.co/cYjwN7STNu — PolitiTweet.org

Paul Krugman @paulkrugman

For reference on something I'm working on: total compensation of workers in the euro area over the course of the pandemic https://t.co/WkUmwLhPsI — PolitiTweet.org

Paul Krugman @paulkrugman

RT @nytopinion: "Major Chinese cities like Shenzhen, a crucial world manufacturing hub, are back under lockdown. And it’s not at all clear… — PolitiTweet.org

Paul Krugman @paulkrugman

That's the sense in which I disagree with claims that the Fed is obviously far behind the curve. I want to see step by step interest rate increases until we see the whites of disinflation's eyes — not a Big Bang of rate hikes 4/ — PolitiTweet.org

Paul Krugman @paulkrugman

... which in turn, together with supply improvement, can bring inflation down to tolerable levels. Of course we don't know that, but I think it's premature to demand that the Fed hit the economy over the head with a 2X4. 3/ — PolitiTweet.org

Paul Krugman @paulkrugman

But it's not clear that this will require a drastic, Volcker-type monetary tightening. Fiscal drag as the ARP fades in the rear-view mirror plus gradual rate rises may be enough to bring growth down and allow a modest rise in unemployment ... 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

No, I don't think those forecasts make sense. The US economy is clearly overheated, and needs a period of sub-potential growth, which the Fed needs to let happen 1/ — PolitiTweet.org

Paul Krugman @paulkrugman

Wish we could do things like this in reverse. Was recently talking The Expanse with a friend, and we agreed: Avasarala for fucking president. (Fans will get it) — PolitiTweet.org

Paul Krugman @paulkrugman

I still don't know whether the Fed's proposed trajectory for rate hikes is right. But right now , once you take front-loading into account, it implies a real interest rate for, say, late 2023 that isn't far out of line with where rates were pre-pandemic 15/ — PolitiTweet.org

Paul Krugman @paulkrugman

So if you say something like "Interest rates are only 0.25% but inflation is 6, so we have minus 6.25% real interest rates" you're not talking about the real rate that matters, which isn't nearly that low 14/ — PolitiTweet.org

Paul Krugman @paulkrugman

Expected inflation is very front-loaded; real interest rates over the next year are very negative, but not so much so if we look at the implicit rates starting 1 or 2 years from now. And I'd argue that those are the relevant real rates for investment in structures 13/ — PolitiTweet.org

Paul Krugman @paulkrugman

In that case, the real interest rate that matters isn't the rate over the 10 years starting today; it's the real rate over the 10 years that start *one year from now*. Ordinarily that's not an important distinction. But times are unusual 12/ — PolitiTweet.org

Paul Krugman @paulkrugman

But wait: suppose it takes time to plant a tree — you can't borrow the $100 and immediately put it in the ground. Instead, suppose that it takes a year from conceiving of the investment to actually laying out the money 11/ — PolitiTweet.org

Paul Krugman @paulkrugman

(I said I was going to ignore compounding). Now suppose you expect 1% inflation, so the tree can be sold for $120. Then it's worth doing if interest rate <2%; it's the real interest rate, nominal minus expected inflation, that matters 10/ — PolitiTweet.org

Paul Krugman @paulkrugman

Suppose you have point-input point-output investment — say, you can plant a tree and sell it 10 years later. Suppose planting costs $100, and in a world of stable prices you'd expect to sell it a decade from now for $110. Then the investment is worth it if you can borrow @<1% 9/ — PolitiTweet.org

Paul Krugman @paulkrugman

Why do we talk about real, not nominal, interest rates as determinants of investment? Let me start with an Austrian-style example — deliberately silly and unrealistic, plus I'm going to ignore compound interest for simplicity. Bear with me 8/ — PolitiTweet.org

Paul Krugman @paulkrugman

I tried to write about the demand side yesterday, but I suspect nobody understood my point. So here's another try 7/ https://t.co/DH4XgwS0o0 — PolitiTweet.org

Paul Krugman @paulkrugman

On the supply side, inflation probably isn't baked into wage- and price-setting yet, so that we probably don't need a large bulge of excess employment to bring inflation down 6/ — PolitiTweet.org

Paul Krugman @paulkrugman

So expected inflation is somewhat elevated over the medium to long term, but mostly that appears to reflect higher inflation over the next year or 2 — that is, expected inflation is front-loaded in a way it wasn't back then. This matters for both supply and demand 5/ — PolitiTweet.org

Paul Krugman @paulkrugman

We don't have TIPS yields from back then, but current breakevens (using 4/15/2023 bond for 1-year) tell basically the same story 4/ https://t.co/nkihwA2Kkc — PolitiTweet.org

Paul Krugman @paulkrugman

Compare Michigan Survey results for short- and longer-term inflation from 1980 and today 3/ https://t.co/Cu7kq2Sasw — PolitiTweet.org

Paul Krugman @paulkrugman

The big difference between now and the big disinflation of the 1980s is that back then everyone expected high inflation to be more or less permanent. Now you get ridiculed if you say "transitory", but every measure we have says people expect inflation to be ... transitory 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

People won't be surprised that I agree with Brad here. The Fed might be behind the curve, but people who think it's obvious are making what I consider careless parallels with the 70s 1/ — PolitiTweet.org

Paul Krugman @paulkrugman

And eventually the freshly armed IDF was able to go on the offensive. The parallel seems obvious: overpowering but sluggish Russian advance, now huge inflows of Western arms. Not a prediction — really, really not my department. But worth a thought? 3/ — PolitiTweet.org

Paul Krugman @paulkrugman

The new state of Israel was heavily outgunned, and despite heroic resistance steadily lost ground at first. But Israel was far more successful than the Arab nations at acquiring fresh arms from abroad — helped by ill-advised Arab agreement to a temporary truce 2/ — PolitiTweet.org

Paul Krugman @paulkrugman

Like many people, obsessively reading Ukraine news in full awareness that I have zero expertise. I do, however, read a lot of history. And I wonder if other people are seeing analogies to the first (1948-9) Arab-Israeli war? 1/ — PolitiTweet.org

Paul Krugman @paulkrugman

Basically, *do not* uncritically use TIPS yields as indicators of the looseness of monetary policy. Given front-loaded inflation expectations, they almost certainly make policy seem more expansionary than it really is 14/ — PolitiTweet.org

Paul Krugman @paulkrugman

I think there are other issues involving the role of oil prices and supply-chain issues, but am still working those out. Nor do I want to argue out right now how far the Fed may be behind the curve. My point for now is analytic 13/ — PolitiTweet.org

Paul Krugman @paulkrugman

It's the inflation rate starting some time in the future — not multiple years out, but certainly multiple months out. And that makes a big difference when inflation expectations are, as I said, extremely front-loaded 12/ — PolitiTweet.org