Rational Action

Yes, my friends, today I finally admit that Paul Krugman does not read this blog. Still, I’m going to connect the dots and claim that he takes inspiration from this fine domain. His latest op-ed column, channeled by way of Brad DeLong, explains that the long-run rate of return from diverse stock investment cannot exceed GDP. Krugman explains that unless the aggregate Price-to-Earnings ratio of stocks continually rises, stock prices must reflect profit growth. And corporate profit growth cannot, over the long-run, be geater than GDP, since that would imply the corporate sector’s eventually becoming larger than the country’s economy itself.

This logic is, in some sense, an amplification of the now-classic Sacarny post, “Conversations with Father: Part 1.” Father was happy to hear that Krugman agrees with him.

Yet the privatizers continue their attack! Former CEA chief economist Andrew Samwick has responded to Krugman’s piece, outlining a defense to Krugman’s argument. I can’t say I understand it, which is a reflection of the complexity of this argument, and thus my understanding of it, not a reflection of Samwick.

Dean Baker, with whom Krugman claims to have worked out the math for his privatization attack, replies to Samwick via MaxSpeak. Again, I am confused.

The blogosphere seems to be advancing well-reasoned arguments along quite quickly, maybe a bit too quickly for my increasingly-economically-inclined mind. Hopefully Samwick will explain himself again, in more Krugmanesque terms. If only they all could!

This entry was posted on Wednesday, February 2nd, 2005 at 6:46 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.