June 23, 2003

Krugman Watch
(via PrestoPundit)

Poor and Stupid remembers Paul Krugman's analysis of the last market bubble:

Here's what Krugman was really saying then about the market and the economy. On January 5, 2000, just nine days before the Dow Jones Industrial Average topped out at the never-seen-again level of 11,723 Krugman wrote in his still brand new New York Times column,

"...current stock prices already have built in the expectation of economic performance that not long ago we would have considered incredible; performance that is merely terrific would be seen as a big letdown. So which will it be -- terrific or incredible? We all have our opinions -- being a pessimist by nature, I think that things will be merely terrific..."

"Merely terrific"? You can't make this stuff up. This classic top-of-the-market epiphany for Krugman came after a decade of singing in a Greek chorus of Ivy League economists who were forecasting that Japan and Europe would take over the world economy and leave American industry in the dust (see Krugman's The Age of Diminished Expectations). Several weeks later, on February 27, after the Dow had drifted lower while the NASDAQ and the S&P 500 were still climbing toward their March 2000 peaks, Krugman said to ignore the falling Dow, and offered this apologia for the economy in his Times column:

"The social and psychological hallmarks of a bubble -- like the fact that the TV in my local greasy pizza place is now tuned to CNBC, not ESPN -- are plain to see, but so is the spectacular pace of technological progress. I'm not sure that the current value of the Nasdaq is justified, but I'm not sure that it isn't. In any case, the fall in the Dow is not a verdict on the economy as a whole. As long as we have full employment and low inflation, I say let the blue chips fall where they may."