Daily Ticker

Paul Krugman is Right, It Turns Out, About ‘Uncertainty’

Daily Ticker

New York Times columnist and Nobel-prize winning economist Paul Krugman is taking on the role of mythbuster: in his latest column "Phony Fear Factor" -- he claims to have already blown up the following economic myths:

  • Monetary expansion needn’t cause hyperinflation.
  • Budget deficits in a depressed economy don’t cause soaring interest rates.
  • Slashing spending doesn’t create jobs.
  • Economic growth doesn’t collapse when debt exceeds 90% of G.D.P.

And that leads him to his latest target. Krugman writes "now the latest myth bites the dust: No, 'economic policy uncertainty' — created, it goes without saying, by That Man in the White House — isn’t holding back the recovery."

Related: Why the U.S. Economy Deserves a "B-" Grade

That got our very own Yahoo! Finance Columnist Rick Newman thinking about the Economic Policy Uncertainty Index which has plunged to levels not seen since 2008. "Uncertainty has improved," says Newman.

"This tells you that even despite the antics in Washington and all the sort of scary headlines we're hearing about, people aren't as worried about the future anymore," he explains.

This is a good place to point out that the Economic Policy Uncertainty (EPU) Index is controversial. And complicated.

Mike Konczal, fellow with the Roosevelt Institute, thinks the EPU is "nonsense." He recently wrote on The Big Picture blog: "we should ultimately be careful with studies that take this index and plop it into" one analysis or another. Konczal points out: "The problem comes from trying to push their definition of EPU onto these disagreements" about inflation and spending forecasts.

At the end of the day, we're all just trying to sort through the data and figure out if Wall Street and Main Street can look confidently at the economy in the near-future.

Related: Wall Street Banks Have Still Never Been Held Accountable, Says Tavakoli

"We've sort of been through the worst, and we survived," Newman says in the accompanying video. "We survived the fiscal cliff, we survived sequestration... it may have shaved a little bit off the economy but businesses keep moving forward and consumers keep repairing their finances and they're still spending money. So we're doing okay despite all of this."

The Daily Ticker's Lauren Lyster points out: "The more you get used to these kind of issues and antics and threats, it kind of gets priced in. And I mean that in a broad metaphorical sense, [for] the economy."

Krugman brings it full-circle: "The truth is that we understand perfectly well why the recovery has been slow, and confidence has nothing to do with it. What we’re looking at, instead, is the normal aftermath of a debt-fueled asset bubble..."

Of course he is making a political argument as much as an economic one. Too bad no one in Washington is listening... they're all on vacation.

Watch the video above to see why Newman thinks Americans should pay less and less attention to D.C. these days.

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