What Kind of Doctor Is This?

September 17, 2009

by Gene Callahan

Let’s say you are suffering from a moderately severe cold; you’re operating at, say, 90% of your peak energy level, and so you go the doctor to see if he can help get you back to 100%. After examining you, the doctor says:

“The point of our therapy is to approach the current malady in the spirit that we’ll do whatever it takes to turn things around; if what has been done so far isn’t enough, do more and do something different, until health starts to flow and the patient starts to recover.”

Wouldn’t you be inclined to sprint out the door? You’re not feeling that badly, and yet this doctor is proposing to just try some remedy, whatever it is; if you get worse, he’s going to do even more of something else that pops into his head, and just keep treating you like a lab rat until you either get better or expire. This might be the proper course of treatment for someone who is terminally ill and about to pass on any day, but certainly not for someone who is just a little under the weather.

But what if it’s the economy that’s operating at 90% or so of its capacity, what with 10% unemployment and a 5% or so drop in output? Here’s what our Nobel-prize-winning doctor prescribes:

“The point of all this is to approach the current crisis in the spirit that we’ll do whatever it takes to turn things around; if what has been done so far isn’t enough, do more and do something different, until credit starts to flow and the real economy starts to recover.”

9 Responses to “What Kind of Doctor Is This?”

  1. Richard Schulman Says:

    Krugman must admire FDR’s arbitrarily setting the gold price each day with Treasury Secretary Henry Morgenthau Jr.

  2. Daryl Brown Says:

    This analogy makes two assumptions:

    1) The economy is perfectly self regulating, that it, like the human body, will eventually get back to “100%” if there were no interference.

    2) This recession is like “a moderately severe cold” and not symptoms of a more serious ailment. It also assumes “moderately severe” isn’t a contradiction.

    The tone implies that “whatever it takes” is “anything at all,” as if whatever is done isn’t calculated.

  3. Gene Callahan Says:

    “1) The economy is perfectly self regulating, that it, like the human body, will eventually get back to “100%” if there were no interference.”

    The human body is not “perfectly self regulating” — medical intervention is often appropriate.

    There is no assumption (in my post) that the economy will ever return to 100%. I just assume it’s better to be at 90% than to be killed by the medecine aimed to get you to 100%.

    ‘This recession is like “a moderately severe cold” and not symptoms of a more serious ailment.’

    It could be that there is a more serious ailment present — even so, if the patient is only slightly ill so far, we have time to find out how serious the illness is, before resorting to desperate measures.

    ‘It also assumes “moderately severe” isn’t a contradiction.’

    Which, of course, it is not — ‘severity’ is a matter of degree, and some of those degrees can be reasonably described as ‘moderate.’

    ‘The tone implies that “whatever it takes” is “anything at all,” as if whatever is done isn’t calculated.’

    If the ‘calculations’ involved in the response mean anything, there is no sense to Krugman’s assertion about trying one thing after another.

  4. Roger Koppl Says:

    Brilliant, Gene! Very nice.

    Daryl, I do think we have to recognize that a 10% unemployment rate is a very serious thing indeed if you’re one of the 10% unemployed. That’s an important point IMHO. The importance of the point suggests to *me* the desirability of unemployment benefits and other measures my libertarian friends tend to oppose. Providing such relief is far from the “Fix it now!” approach Krugman seems to have desired last December. Here is a SNL joke on that approach:

  5. Daryl Brown Says:

    Thanks for the return, Gene! It’s a good point regarding a “more serious ailment.”

    I’m still not sure about how a calculated response would make attempts devoid of sense, but the analogy holds; a doctor trying many solutions would probably analyze and legitimize each new attempt.

    (grammar, not economics: I believe the medical cliché is “moderate to severe.” I still think severe inflation (or acne, or whatever) is by definition not moderate.)

    Koppl: I do agree; a general malaise is not the best analogy, since some sectors are in very poor health and others are quite strong indeed. Is that what you consider the problem with Krugman’s holistic and vague “fix it” approach?
    (The SNL sketch is pretty good.)

  6. Roger Koppl Says:

    You are certainly right about sectoral differences, Daryl. For example, Detroit is in such bad shape it’s heartbreaking. My point, though, was unrelated to that. I was really just acknowledging that even a mild recession is a big deal if you lose your job.

    Gene is pointing out that even this relatively severe recession has not been that big a deal. It is way less sever than anything that would justify the sort of thing Krugman said. It is, indeed, a head cold. But if you say that, it might seem that you don’t appreciate the the suffering of others who are less fortunate. Well, we should acknowledge that suffering and we should IMHO have social insurance to help the folks who get the bad end of adjustment processes. The economist’s “adjustment process” is often a worker’s job crisis!

    Somehow I thought you were getting at the idea that it’s no picnic for those thrown onto the unemployment lines. That’s why I directed the comment at you. I think I may have been mistaken on where you were headed. No matter, I’m glad for the opportunity to say those things anyway!

  7. Dave Says:

    Well does it depends on where I anticipate my health is going? If I anticipate the 10% getting worse, I think I will hear the doctor out. If I anticipate getting better, then I will run out of the office.

    p.s.: It is easy to say that 10% unemployment is not “that bad” when all you are looking at is the numbers.If you are in daily contact with this unemployed 10%, you MIGHT have a different point of view.

  8. Drewfus Says:

    100% of what? Capacity?

    The economy never runs at 100% of capacity. But it may run at 100% of normal capacity utilization.

    Operation at less than 100% of normal capacity is a disequilibrium. Normal capacity is an equilibrium. For the differential to never be removed would imply either a stuck variable, or that a required constant is inappropriately variable.

    The alternative is that the economy is indeed self-righting.

    Daryl Brown, why do you assume;
    1) the former is the case?
    2) that ‘interference’ will be successful?

    Regarding (2), i believe liberals have a strong propensity to conflate intentions with outcomes. Since it is economics that often explains why the two are different, this would then explain the liberal’s common, rather antagonistic description of neoclassical/new classical/austrian economics as ‘fundamentalism’.

  9. Gene Callahan Says:

    “It is easy to say that 10% unemployment is not “that bad” when all you are looking at is the numbers.If you are in daily contact with this unemployed 10%, you MIGHT have a different point of view.”

    Yes, Dave, Roger already acknowledged that. The same point holds if the unemployment rate is 1%, in fact — being unemployed would still suck.

    And if the unemployment rate was 1% and Krugman was advocating “just keep trying things until the economy is fixed,” what would you think?


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