Monday, February 03, 2014

Krugman the moderate



"Even Paul Krugman has been known to say some rather nutty things at times."

Chris House was a bit surprised when that statement received considerable pushback. It seems like an innocuous, throwaway line, sort of like when a political writer says "and of course the Democratic party has its extremists too." A gesture toward centrism. But is it true?

Krugman is a bit unusual, in being both an economist who talks about serious economics, and an unabashed political pundit. Since politics is a highly emotional and highly subjective area, I wouldn't be surprised if people's emotional reaction to Krugman's politics - or politics itself - bleeds into their reading of his economic writing. On top of that, there exists a contingent of right-wing quasi-economists out there in the blogosphere who think Keynesianism is communism (you know who you are). And Krugman himself does occasionally say mean things about his rhetorical opponents (though he is pretty humble when it comes to the topic of his own expertise).

But when looked at dispassionately, how "nutty" is Krugman's economics itself?

Krugman's ideas about the macroeconomy seem to be something like this:

1. Recessions are usually caused by some sort of aggregate demand shocks, and monetary policy affects demand. There is a short-term inflation-unemployment tradeoff. If monetary policy is too easy in a boom (or during a negative supply shock like the 70s), you'll get harmful inflation. So the Fed should lean against the business cycle with monetary policy.

2. Under normal circumstances, recessions can and should be fought with monetary policy alone. But if nominal interest rates hit zero, then unconventional monetary policy can only work if the Fed can convince people of its commitment to keep policy easy for a long time after the recession. Since convincing people of that is very hard, fiscal policy is a better tool when nominal interest rates are zero.

3. Recessions are usually temporary things. But if the economy's trend growth rate is too slow, we could enter a period of "secular stagnation", where nominal interest rates continually hit zero. In this case, we need something special to boost us back to the more normal realm of positive interest rates - a higher inflation target, for example. An asset bubble might also do the trick, though with very damaging consequences down the road.

Are these beliefs nutty?

#1 is absolutely non-nutty, and is probably the majority view in the macroeconomics community. This is very close to the view of Milton Friedman. It's the view of New Keynesian models, which are the dominant type of DSGE model used at central banks.

#2 is a somewhat unusual view, but not out of the mainstream at all. It's basically just the theory outlined by Mike Woodford (probably the most influential macroeconomist working in academia today) and Gauti Eggertsson in 2003. Other prominent macroeconomists, such as Bob Hall, have also called for fiscal stimulus.

#3 is a very unusual view, which goes by the name of "secular stagnation" and has recently been propounded by Larry Summers. It is a new idea, and has not yet been the subject of much academic research. So while this isn't a mainstream view, I would call it "new", not "nutty". It certainly doesn't contradict the mainstream ideas in #1.

What about macroeconomic methodology? Unlike most working macroeconomists, Krugman has criticized the mainstream DSGE methodology, calling for the use of "ad-hoc" models like Old Keynesian IS-LM as a supplement to the more complex, intricate DSGE models - the rationale being that those models can be modified more quickly in an emergency and are more effective at communicating ideas to policymakers (or even to oneself). He is in general very skeptical of the value of the whole DSGE/microfoundations revolution.

This definitely puts Krugman out of the mainstream...of macroeconomics. Only a few maverick macro people, like Ricardo Caballero, speak out against the dominant paradigm. But outside of macro, the sentiment is less iconoclastic; plenty of non-macro economists wrinkle their noses at the mention of DSGE macro models. Krugman, in his academic career, was a trade theorist, which is close to macro, but not so close that his attitude toward DSGE is rebellious and eyebrow-raising.

Now, Krugman's rhetorical opponents have, upon occasion, accused him of wanting to tear up all of modern economics and replace it with the literary wisdom of musty old books. This accusation is partly motivated by Krugman's famous 2009 New York Times magazine article, "How did economists get it so wrong?", which was a blast of frustration leveled at the macroeconomics and financial economics professions for having missed the possibility of a crisis. You can judge for yourself whether you think the article was nutty; personally, I think it was pretty typical of the sentiment at the time among not just the public, but many economists themselves.

But the accusations that Krugman wants to tear up modern economics are overblown. They are typically made by people who don't like Krugman's overall worldview and approach - in other words, people who aren't buying the particular brand of modern macroeconomics that Krugman is selling. That leads them to caricature his views. I'm sure similar things are said behind a few closed doors in academia as well, by those academics who don't like even Krugman's mainstream ideas.

This is similar to the way conservative media tried for years to paint Hillary Clinton as a dangerous radical left-winger, despite her moderate stance on most issues. It was effective rhetoric. It got a lot of news media to buy into the story of Hillary the left-wing radical. It probably forced her to vote for the Iraq War in order to maintain centrist cred, thus leading to the victory of Barack Obama in the 2008 primaries. But it was never a realistic portrait of Hillary.

Nor is the portrait of Krugman as a radical fringe economist accurate. His economics is somewhat out of the mainstream on certain points, but generally within the standard deviation.


Updates:

Paul Krugman has more. Note that I didn't say that Krugman took Idea #2 from Eggertsson and Woodford, only that the ideas are the same!

121 comments:

  1. I think that when people accuse Krugman of nuttiness they are talking about things like his infamous alien invasion comment or his unfortunate thoughts on the Internet in 1998 - hate to link here, but
    http://www.dailypaul.com/280333/paul-krugman-in-1998-internet-will-have-no-greater-econ-impact-than-faxmachines-by-2005

    It also seems like the people that accuse him of nuttiness have absolutely no logical refutations of his main ideas - big surprise.

    Great article as usual - good to have you back.

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    1. Anonymous5:42 PM

      I never understood why the alien comment was taken the way it was. He was making a point that if people decide to make stuff, more stuff will get made, even if the original motivation ceases to be relevant (like planning for an alien invasion that never comes). He's a science fiction buff, so he went with aliens. He could have used a hurricane, nuclear war, or anything else, but he purposely chose something silly to emphasize how even if the motivation is completely silly, the end result of making stuff is still good. But, for whatever reasons, people pounced on "aliens" and disregarded the point of the post. Well, we know the reasons...because it was a pro-fiscal stimulus post and it was easier to make fun of aliens than it was to refute the economic argument.

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    2. Anonymous12:20 PM

      The amusing thing is how all those libertarian nutters are validating their beliefs since Krugman was wrong about his internet prediction. However, the joke is on them. It was never a serious prediction. Here is Krugman's response to people who like to bring up that quote.

      "Well, two things.

      First, look at the whole piece. It was a thing for the Times magazine's 100th anniversary, written as if by someone looking back from 2098, so the point was to be fun and provocative, not to engage in careful forecasting; I mean, there are lines in there about St. Petersburg having more skyscrapers than New York, which was not a prediction, just a thought-provoker.

      But the main point is that I don't claim any special expertise in technology -- I almost never make technological forecasts, and the only reason there was stuff like that in the 98 piece was because the assignment required that I do that sort of thing. The issues about Bitcoin, however, are not technological! Everyone agrees that it's technically very sweet. But does it work as money? That's a very different kind of question.

      And the fact that people are throwing around my 98 quote actually shows that they don't get this point -- that they're confusing technology with monetary economics."

      http://www.businessinsider.com/paul-krugman-responds-to-internet-quote-2013-12#ixzz2sNHXXtYG


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  2. How about the myth of the "90s Krugman"? The actual economics hasn't changed at all, but when he dared to publish his views of politics he is suddenly a left-wing hack.

    That is a good idea to troll certain forums though, just post a new article as 90s Krugman and you'll see people liking it en masse.

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  3. Also Krugman started talking about the modern liquidity trap 5 years before the Woodford paper.

    This guy Woodford seems to be turning into a economoderate shibboleth. :D

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  4. Anonymous5:25 PM

    Great article as usual! As you say, Krugman stands out for having strong political views, while making sure his views are based on serious economics. He has often said that economics is not a morality play.

    Let's not forget that he sometimes departs from typical leftist positions. In 1997, for example, he defended sweatshops in an article for Slate, "In Praise of Cheap Labor". He has also said on several occasions that he will become a deficit hawk once the US economy fully recovers and reaches full employment.

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  5. excellent Article as usual Noah although that is a tautology plus in your case!

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  6. Most of what some people consider "nutty comments" from Krugman are (perhaps purposefully) misunderstood jokes. Like the Alien Invasion thing. Though if he didn't make those cracks, I'm sure people would find something else to complain about.

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  7. Krugman himself has admitted that he was politically traumatized and radicalized by the George W. Bush administration's penchant for lying and its rejection of the "reality based community."

    How many right wingers now remember (admit?) that the Bush administration was of the view that "deficits don't matter."

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    1. I remember Akerlof being also outspoken against the Bush tax-cuts as well:
      http://www.berkeley.edu/news/media/releases/2003/02/12_akerlof.shtml

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    2. http://krugman.blogs.nytimes.com/2013/04/27/the-great-degrader/?_php=true&_type=blogs&_r=0

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    3. but Krugman also said deficits dont matter

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    4. cesium623:55 PM

      Krugman might have said "deficits don't matter ... in a liquidity trap". Krugman continuously points out that absolutes like "deficitis don't matter" are silly. Policies must change based on current economic circumstances. Also, he basically implies that in the current economy, deficits matter *a lot*. Specifically, we need more of them and bigger ones to get back to full employment quickly.

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  8. Krugman is not fringe but he did say some idiotic things exactly because he is a mainstreamer. His lack of knowledge of MMT led him to say some positively hilarious stuff:

    "What I envision is that at some point, we have about 10 years now until the baby boomers hit the United States." "I think, where in that 10 years the crunch comes, I don't know. I think there's a real possibility that next year or one or two years from now, when they see that actually the same irresponsible tax cuts as the solution to everything continue, we might have a crisis that soon but more likely towards the end of the decade." Paul Krugman 2004

    So basically this year we are running out of money to pay Social Security because the US borrows money made in China, scaaary stuff!!!, big yawn.

    "The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

    (...)

    What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

    I know: it all sounds unbelievable."

    Yeah, it does, That is because it is technically IMPOSSIBLE. The US is a currency issuer not a user. But thanks for scaring us! That's one of the reasons we didn't get enough stimulus in 2008.

    http://www.abc.net.au/lateline/content/2004/s1064193.htm
    http://www.pkarchive.org/column/101403.html

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    1. This is a mistake that Krugman has admitted on at least one occasion: http://krugman.blogs.nytimes.com/2010/09/01/mistakes/

      On the other hand it is a logical that the capabilities of country to tax and print money are NOT limitless. Krugman has in fact classified such cases as type-1 and they are very common in the developing world. So his mistake is actually underestimating the US tremendously, not that this situation is impossible.

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    2. You are off topic. The question was not whether PK has apologized/admitted but whether he has said some nutty stuff. To that the answer is a resounding "yes".

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  9. "But the accusations that Krugman wants to tear up modern economics are overblown. Those accusations are typically made by people who don't like Krugman's overall worldview and approach - in other words, people who aren't buying the particular brand of modern macroeconomics that Krugman is selling."

    Now, there's a really nutty idea. Krugman is NOT selling ANY brand of modern macroeconomics. Like you, he doesn't know what it is.

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    1. Just your average, middle-of-the-road macroeconomist. What happened, do you owe him a favor, or are you looking for one?

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    2. Mr. Williamson your comment is despicable.

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    3. Anonymous4:32 AM

      Mr Williamson, your spite speaks volumes. And, lest you make a martyr of yourself in order to polish your own credentials, your comment is particularly despicable because you can't be bothered to offer anything of substance.

      That casual disrespect, that drive-by flipping of the finger, stands as the marker of your character.

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    4. Anonymous5:01 AM

      Is this the same economist who embarrassed himself recommending higher rates to boost inflation? It wasn't that the conclusion was so wild. It was that the reasoning amounted to a shallow accounting exercise.

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    5. Anonymous9:50 AM

      SW and his ilk in the money search field are emblematic of what is wrong with academic macro. This inbred culture dominates "top" macro journals like JME (of which he is editor), publications to which are viewed as testament to how good an economist is. In fact the same cronies (with their students and co-authors) will make every effort to deny entry for others into the profession (check out how many of these cronies are in the list of editors and you will know how this works.)

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    6. Yikes, that got a reaction. Thought I was just stating the obvious.

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    7. Just to be clear, it's fine if Noah wants to be part of the Krugman cheering section. If that works for him, it's OK with me.

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    8. Steve, have you been desk-rejecting people from the JME? Naughty naughty...

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    9. Anonymous12:03 PM

      If one wanders off to the wrong web site a typical response to a defender of Krug is that you are involved in some sort of sexual act. Mr. Williamson, congratulations on raising the bar on this sort of response from gross and tacky to boring and pointless.

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    10. Anonymous12:22 PM

      Doesn't Krugman have a recent paper in the QJE? Isn't it being cited by the burgeoning literature on the ZLB? Hmm, it seems to have 242 citations on google scholar.

      Isn't this the paper that Stephen Williamson "desk rejected" on his blog, like he would one of his grad student's papers, because it had agents with positive debt in steady state? A paper he referred to being at the level of a first-year macro exam question?

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    11. Anonymous12:32 PM

      Stephen Williamson11:14 AM Yikes, that got a reaction. Thought I was just stating the obvious."
      __________________________________________________________

      Oh, this is hilarious! As if Mr. Williams wasn't, in fact, "trolling" for a reaction when he posted his remarks. Tell us another one, Mr. Williams! Or maybe not...my sides are starting to split...

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    12. Anonymous12:40 PM

      Noah, let me translate: Steve is practically telling you that if you're "part of the Krugman cheering section", you can kiss your academic macro career goodbye.. Sadly for you, Krugman doesn't hold the keys to the JME/IER vault ... Steve does... so don't say you weren't warned.

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    13. I admire your passion, but get serious. What is it that you people see in your Dear Leader? I agree with Krugman on how to vote, and I agree that the Affordable Care Act is better than what we had before. I grew up in Canada, where we are all socialists. But my agreement stops there. First, I don't like his methods. Basically, he's dishonest. A large fraction of the words he writes is in the service of encouraging others to hate the people he disagrees with. The strange thing is that this is easy to see through, so I think you understand that too. So why do you support that kind of behavior?

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    14. Anonymous2:55 PM

      Mr. Williamson, "you people"? Seriously? OK, I'll try to respond to your claims seriously:

      1) I currently live in Canada, where we are not "all socialists".
      2) "Basically, he's dishonest." - no examples of alleged dishonesty provided
      3) "A large fraction of the words he writes is in the service of encouraging others to hate the people he disagrees with" - no examples of Krugman expressing or inciting hatred are provided, unless ridicule= hatred
      4) "The strange thing is that this is easy to see through, so I think you understand that too." - The strange thing is that what seems obvious to you isn't to the rest of us. There are a couple of possible explanations for this. One is that you have insights the rest of us lack. The other is that you are talking nonsense. Oh dear, I suppose even suggesting the latter possibility makes me guilty of inciting hatred against you...

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    15. Anonymous3:32 PM

      Wow.....Williamson is a first class troll.

      I agree with Krugman that we have an AD deficiency problem that needs to be rectified. Nowadays, most sane economist would agree with this assessment. Unfortunately, a few years ago this was highly debatable and we abandoned basic macroeconomics for austerity measures. These actions have cause a lot of unnecessary harm, which Krugman has pointed out over the years.

      I don't know why it is still so controversial to remedy our AD deficiency problem with working class tax relief, rolling back the unprecedented austerity measures at the state and local level, and investing into our outdated and decaying infrastructure.

      These would seem like no-brain argument for anyone with the most basic understanding of economics. Unfortunately, we live in a world where many economists tried to reinvent the wheel and many politicians listened to them.

      Krugman does write a lot of negative things about Republicans, but it is well deserved. We have two parties in America; a reasonable moderate party and a batshit crazy radical regressive party.

      The GOP has become radicalized over the years and have done a lot of damage. The fact that they were willing to shut down the government and take the global economy hostage to pass their agenda spoke volumes. Not only was it a subversion of our political process, but they were really willing to harm people over this.

      Democrats are not without fault or criticism, but Krugman shines a light on how radically regressive and destructive Republicans have become over the years. They have certainly lost their moderate Eisenhower roots.

      Williamson is butthurt over this, as well as solving our AD deficiency problem with basic Keynesian economics.

      Any respect that I had for Williamson has flown out the window with his current posts. He is more interested in acting like a troll, than having a decent conversation. Really sad.

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    16. Now now, anonymoids. Let's be polite. Steve may be an angry old grumpus, but he ain't corrupt. I'm sure if I wrote a money search paper, he wouldn't desk-reject it.

      Hmm, maybe I should write a money search paper...

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    17. Anonymous3:46 PM

      Sorry Noah, I didn't mean to "encourage people to hate" our dear friend Mr. Williams by pointing out the asininity of his comments and the absurdity of his reasoning. I'll try to do so more politely next time. If only Paul Krugman could learn about civility from Mr. Williams' shining example here I'm sure we could all live in online peace and harmony, mercifully free from the depredations of trolls :)

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    18. Anonymous3:48 PM

      Sorry, Mr. Williamson - I hope he won't take offense at my getting his name wrong

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    19. Anonymous7:33 PM

      Ironically Williamson, an voodoo monetarist who thinks that low rates lead to low inflation and who has predicated inflation>5% during the last years is a far worse macroeconomist than Noah (who is of course technically not a macroeconomists but is nonetheless better at it).

      His pathetic trolling is funny though. :D

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    20. Anonymous9:35 PM

      You mad, bro?

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    21. Anonymous9:58 PM

      *What is it that you people see in your Dear Leader?*

      Well I don't know, like being right on spot about some of the most important events of the global economy in recent years, unlike you and "your people"?

      You might think your pseudo-scientific hand-waving methodology is so self-evidently superior and all, but the fact is that mainstream DSGE hocus-pocus has been an abject empirical and explanatory failure for the events of the last couple of years. Oh, but then I forget you and your people think empirical evidence is irrelevant to the usefulness of your "work"... Never mind.

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    22. I appreciate Professor Williamson showing such fine examples of "ad hominem" argument as "Paul Krugman" is dishonest!! Noah Smith has corruptedly joined his "cheering section."

      I would at least say that Krugman did try to engage Professor Williamson's ideas about QE, (something he was not a ardent supporter of, although he believes it had weak positive effect in 2011 - 2013 to keep the U.S. out of double dip while President Obama and tea party Congress engaged in major Fiscal austerity. Perhaps his argument could have used more tact, but he did not call you corrupt or a liar. Krugman has a post that cuts through a lot of the BS concerning Williamson’s model:

      “…OK, so “agents require” a fall in the inflation rate to induce them to hold more currency. How does this requirement translate into an incentive for producers of goods and services — remember, we’re talking about stuff going on in the real economy — to raise prices less or cut them? Don’t retreat behind a screen of math — tell me a story.

      I don’t think either Andolfatto or Williamson have any such story in mind; they are, in some form, invoking the doctrine of immaculate inflation. And I don’t even think they realize that they have a problem…”

      http://krugman.blogs.nytimes.com/2013/12/02/immaculate-stability-wonkish/

      And you know, I don’t even really mind that there isn’t a coherent story (unless you honestly think “agents require a fall in the inflation rate to induce them to hold more currency” is coherent). What I object to is the fact that nobody defending Williamson’s model both realizes that this is what the model actually claims, and can simultaneously point to clear empirical evidence of this actually happening in real life.

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    23. Anonymous11:16 PM

      I think Krug only promotes hatred of faulty and self-serving arguments. Williamson may confuse this with hatred of himself, but that his his problem.

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    24. Anonymous7:57 AM

      The Salieri's and the Mozart's of our current times in macroeonomics.

      You remember quite well that in the late 18th century there was a brilliant musician and composer (Mozart) with no power in the status quo of the Viena imperial capital, while the other (Salieri), despite being a mediocre composer, managed to control most musical life in the Vienna palaces.

      The comment by Williamson is very clear and illustrative: it's about power, not about knowledge, not about talent. Williamson knows (!) that Krugman has been correct in many recent discussions about the essence of macroeconomic issues. The only problem is that "being right" is not enough and Williamson knows this quite well. He knows that the current status quo in academia favours his own positions and so he looks unashamed when he seems to threaten Noah to be "polite" to Krugman and to be part of his "cheering section". Well, all the other guys out there, when they get their hands in one of your papers, Noah, they will make sure that what you do is not "proper macroeconomics".

      This is sad and hilarious at the same time. We all know very well, even now, which one of those (Krugman vs Williamson) looks more like Salieri, and who looks more like Mozart (if we may). Notice that even at the time of Mozart and Salieri, most knew who was the brilliant and who was the mediocre one (just look at the poem by Alexander Pushkin "Mozart and Salieri" published in 1831). Like in music, the History of Economic Thought will tells us, in the future, what we know already very clearly: there are mediocre people out there that make their voices heard just because of political status and power. We know who they are.

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  10. Dr. Smith: Please send this post to Miles Kimball, your teacher.

    (I am sooo confused as to why that writer of so much interesting and good stuff wastes no opportunity, small or big, to "show" that Krugtron is ...wrong - I tell you - wrong!)

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    1. Miles is mainly motivated by the desire to have an interesting intellectual engagement.

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  11. When I read something from a commentator I don't know I like to search for his or her opinions on Paul Krugman; it gives you a lot of information: views on policy, methodology, civility, politics, is the person holding a personal grudge etc. etc.

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  12. When I think of Krugman's nuttiness I think about things such as his assertion last week that "high inequality leads to worse health" and then providing a link to back up his claim which actually says the opposite. It's not only the sloppiness that gets me, but his transparent eagerness to believe something that is self-evidently ridiculous (let's also note that arguably the most high-profile proponent of this health-inequality linkage -- the book The Spirit Level -- has been described by The Economist as "largely debunked"). This isn't the sign of someone who calmly assesses matters, but rather someone who engages in mindless cheerleading for his side of the ideological spectrum, for which inequality in currently en vogue as an issue.

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    1. Where in the link does it say the opposite? The very line makes the point.

      The economist is arguably more stridently idealogical than Krugman. Krugman has changed his mind when shown to be wrong. The economist, on the other hand, frequently endorses presidential candidates based on how often they obey right wing economic shibboleths rather than properly examine the substance of their proposals. See their endorsement of Bush junior, for example, or of UK's austerity program vs France (following the austerity program, uk was doing worse).

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    2. Anonymous11:56 PM

      Csning: "Where in the link does it say the opposite?"

      Oh, please, do no try to defend the undefensible... Mankiw provided the relevante quotation, showing that Krugman utterly misused it.

      http://gregmankiw.blogspot.com.br/2014/01/does-income-inequality-increase.html

      "... once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner9 using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. (...) There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard."

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    3. Anonymous5:10 AM

      So, once you take away a huge part of data about blacks, who are usually poorer and less educated, for historical reasons proper to the united states, you have a more homogeneous population (wealth/education), with education and poverty ratios nearer to the median and surprise, health issues also nearer to the median.

      If you take away the young and rich, the stats on health will probably change also.

      I don't see that as an argument. Moreover, health stats for socialist europe (aka France) says that mortality is higher for blue collar workers vs white collars. So why would that be?

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    4. It does look like Krugman misinterpreted that paper ... but the paper makes a somewhat nuanced argument, about how if you eliminate for the way reduced inequality actually leads to higher incomes for the poor and just focus on the discrepancy of income then inequality doesn't matter for health.

      But it's certainly not "self-evidently ridiculous" to believe that the marginal impact of reducing inequality through transfers, given the generally greater welfare effects of an extra dollar for a poor person vs a rich person, would have a net positive effect on the health of the population as a whole. Nor does the link seem to "say the opposite" of what Krugman claimed.

      Sloppy ... yes indeed, but really if this example is the best you can find for Krugman supposedly saying nutty things, I'd consider that great evidence for Noah's point.

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    5. Anonymous6:26 AM

      Anonymous: "So, once you take away a huge part of data about blacks, who are usually poorer and less educated, for historical reasons proper to the united states, you have a more homogeneous population (wealth/education), with education and poverty ratios nearer to the median and surprise, health issues also nearer to the median."

      Oh, please. I've deliberatelly ommited the passage that addresses this issue -- too many racial flame wars in this blog already! -- but you are asking for it. As you read this passage, remember that that is something some people call "Occam's razor", and that some "liberal creationists" (people who think all people are created literally equal, and that human evolution misteriouslly stopped at the neck. Some people: http://www.youtube.com/watch?v=5j2F4VcBmeo

      "Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner9 using the Medicare records data."

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    6. Anonymous6:41 AM

      ST: "Nor does the link seem to "say the opposite" of what Krugman claimed."

      Haha. If only you were so lenient and pollyana to your own -- liberal -- side... It seems like he said ALMOST the opposite of what the quoted paper said. So, he is only 90% wrong -- something the usually clear minded Krugman is wont to do when it is ideologically or politically convenient to NOT think clear-mindedly (v.g.: Krugman knows unconventional monetary policy works, but likes to invoke "the ineffacy os monetary policy at the zero lower bound" as an argument against "austerity"). Some people are intelligent and rational, but ridiculously meta-stupid and meta-irrational -- and that is a benevolent interpretation of the matter; personally, I think some people -- even, especially, very intelligent persons -- act like hacks and ideologues, when it is convenient to act so.

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    7. Anonymous6:53 AM

      ST: "But it's certainly not "self-evidently ridiculous" to believe that the marginal impact of reducing inequality through transfers, given the generally greater welfare effects of an extra dollar for a poor person vs a rich person, would have a net positive effect on the health of the population as a whole."

      Maybe it is not "self-evidently ridiculous" to think so. But by this time, you HAVE TO know "culture of poverty" arguments; incentive to irresponsible behavior arguments; and behavioral economics arguments against too much redistribution. For starters, see this beautiful paper by Bryan Caplan and Scott Beaullier: http://modeledbehavior.com/2011/02/01/behavioral-economics-and-the-welfare-state/

      "Abstract:
      Critics often argue that government poverty programs perversely make the poor worse off by encouraging unemployment, out-of-wedlock births, and other "social pathologies." However, basic microeconomic theory tells us that you cannot make an agent worse off by expanding his choice set. The current paper argues that familiar findings in behavioral economics can be used to resolve this paradox. Insofar as the standard rational actor model is wrong, additional choices can make agents worse off. More importantly, existing empirical evidence suggests that the poor deviate from the rational actor model to an unusually large degree. The paper then considers the policy implications of our alternative perspective."

      Delete
    8. @csning The economist is arguably more stridently idealogical than Krugman.

      This, the same Economist which endorsed the Democratic presidential candidate in 2004, 2008 and 2012? Please.

      @Anonymous 5:10: Moreover, health stats for socialist europe (aka France) says that mortality is higher for blue collar workers vs white collars. So why would that be?

      Because being poor is also associated with bad lifestyle choices and/or fewer healthy options? Note, the problem here -- if indeed it is due to insufficient money -- is one of their absolute condition, not their relative condition compared to the rich. To believe that inequality *per se* results in higher mortality, you have to believe that Bill Gates doubling his income -- and thus pushing up inequality -- worsens some else's health even if their income remains the same or even rises somewhat. This is why people who believe in this linkage often make silly arguments such as higher mortality resulting from people being stressed out over others doing better than them.

      @ST But it's certainly not "self-evidently ridiculous" to believe that the marginal impact of reducing inequality through transfers, given the generally greater welfare effects of an extra dollar for a poor person vs a rich person, would have a net positive effect on the health of the population as a whole.

      Except, that's not the issue. Krugman claims that inequality results in higher mortality and worsened health, which the paper he links to does not support. He doesn't say anything about the ameliorative effects of transfers.

      Nor does the link seem to "say the opposite" of what Krugman claimed.

      Krugman says that inequality results in worsened health and higher mortality. The paper he links to says "there is no evidence of any link between the estimated coefficients and state-level measures of income inequality" and "once we control for the fraction black, income inequality has no effect on mortality rates" and "There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard."

      Oh, and then the paper also goes on to note that growing inequality in both the US and UK after 1970 correlates with an *acceleration in the decline* of mortality.

      Delete
    9. @ST Sloppy ... yes indeed, but really if this example is the best you can find for Krugman supposedly saying nutty things, I'd consider that great evidence for Noah's point.

      I didn't do an exhaustive search, I just pulled up an example from literally just last week in which Krugman led himself astray because of his ideological zeal.

      Delete
    10. So Colin, you are saying in effect, that being poor is a health hazard, but being poorer than others is not. But if we increase inequality, (given that normally at higher income levels there are fewer people), there will be more poor people. So isn't this rather splitting hairs?

      Delete
    11. Besides which I suspect "being black" is not in itself a health hazard, but is a proxy for something else. I don't like using ill-defined racial categories as a criteria.

      Delete
    12. Anonymous9:41 AM

      @reason: "if we increase inequality, (given that normally at higher income levels there are fewer people), there will be more poor people."

      #Logic fail

      If America is much more rich than Europe -- which it is --, even though more unequal -- which it is too -- then is possible that one compensates the other. For example, Americans of Swedish ancestry PWN Sweden in all income classes, except the 5% poorest (see: http://super-economy.blogspot.com.br/2010/03/super-economy-in-one-picture.html).

      Delete
    13. Anonymous9:45 AM

      Also, Cuba and USSR were much more equal than America, yet much poorer. Care to bet where the poor fare better? Absolute overall prosperity is MUCH MORE IMPORTANT to living standards than Gini coefficients and other "unequality" indicators.

      Delete
    14. Anonymous10:28 AM

      What the problems a non-economist like me has with economists--and one the PK seems to have, too,--is that they come up with papers like this one, which massages data this way and that to prove what? That the poor a whole lot sicker than the rich but as the rich get richer and richer, the poor get no sicker, except for Black folks in the US. Because PK somehow missed this "nuance," we're going to drive him into the outer darkness?

      Delete
    15. Anonymous10:42 AM

      And I have the following problem with PINKOs: they care much more about socioeconomic "inequality" than with the real living standards of the poor. You don't really give a f... for the poor, just for the fact that there are a lot of people higher than you on the social ladder, and envy-mongering can give you some redistribution of income and -- more importantly -- status.

      In her last address to the Parliament, Margareth Thatcher defended her legacy mentioning exactly this fact about you.

      https://www.youtube.com/watch?v=USVxizHuJbA

      The Prime Minister
      People on all levels of income are better off than they were in 1979. The hon. Gentleman is saying that he would rather that the poor were poorer, provided that the rich were less rich. That way one will never create the wealth for better social services, as we have. What a policy. Yes, he would rather have the poor poorer, provided that the rich were less rich. That is the Liberal policy.
      Mr. Hughes
      No.
      The Prime Minister
      Yes, it came out. The hon. Member did not intend it to, but it did.
      The extraordinary transformation of the private sector has created the wealth for better social services and better pensions—it enables pensioners to have twice as much as they did 10 years ago to leave to their children.
      We are no longer the sick man of Europe—our output and investment grew faster during the 1980s than that of any of our major competitors.

      Delete
    16. Anonymous12:42 PM

      "And I have the following problem with PINKOs..." blah blah blah....

      Sorry, but I have a problem with name-calling and lazy generalizations. The point made by Thatcher - even if it were valid about the person to whom she was addressing it, which is far from certain - is certainly not valid about all people who are concerned about economic inequality. To claim that it does requires making the heroic assumption that policies that increase growth necessarily lead to more inequality, and vice versa. Not only that, but that this assumption should be obviously true to all. In fact there is no basis in history for making that claim: for example, economic growth in the time of rising inequality (since the late 1970's) has NOT been greater than growth in the time of stable or declining inequality (from WWII to the mid 1970's)

      Delete
    17. Anonymous1:32 PM

      Swedish immigrants are a biased sample of all Sweds.

      Delete
    18. Anonymous1:38 PM

      "To claim that it does requires making the heroic assumption that policies that increase growth necessarily lead to more inequality, and vice versa."

      Indeed, the assumption is unwarranted. Likewise the one that links inequality to poor economic performance... America/UK/Australia are not underperformers in relation to France/Sweden/Germany, albeit they are more unequal societies. I think poverty is the real problem, and people like to conflate it with another quite unrelated and less grave problem -- that is: economic inequality. New York City is fair more unequal than any other city in History; but it is no more hellish a place than, say, Imperial Rome or rural Minnesota.

      Delete
    19. Anonymous3:10 PM

      "I think poverty is the real problem" - What's poverty, and what makes it the "real problem" rather than inequality? Why do people so often make the argument that "we shouldn't worry our pretty little heads about A because B is the real problem"? Alas, in this complicated world of ours we have a myriad of "real" problems, so saying that one thing is "the real problem" is meaningless. Whether New York City truly is "far more unequal than any other city in history" is, shall we say, debatable. It is true that living conditions for the poor there are better than they were in Imperial Rome, but the relevance of such an observation to any discussion of NYC's current problems is unclear at best.

      Delete
    20. Anonymous3:19 PM

      I'll literally link to the first result in a google image search for each term:

      Poverty: http://www.occupy.com/sites/default/files/hungerpoverty.jpg

      Economic Inequality: http://bordersandwalls.files.wordpress.com/2012/02/incomegap.jpg

      Can't you SEE (intuit/feel/whatever) which is the "real" problem!? Or at least the most crucial?

      Delete
    21. Anonymous3:22 PM

      Well, Colin, the Economist says The Spirit Level's been debunked, has it? I guess that must be the gospel truth because as we know, the Economist is not, and has never been, a cheerleader for neo-liberal policies that have made societies more unequal in the last thirty years or so. No, absolutely not. It's claims are always based on pure science, never in ideology, and must therefore be taken, as I said, as gospel truth!

      Delete
    22. Anonymous3:31 PM

      Anonymous3:19 PM:

      Why is this an issue to you?

      Unless you are assuming that there is a necessary tradeoff between dealing with poverty and dealing with inequality, there is no point to arguing over which is the most "crucial", because in fact policies that reduce inequality will also tend to reduce poverty.

      Delete
    23. Anonymous3:39 PM

      "there is no point to arguing over which is the most "crucial", because in fact policies that reduce inequality will also tend to reduce poverty"

      Not true. (i) Since the economic reforms of Deng Xiaoping, inequality and prosperity have drastically increased in China; (ii) Freer trade correlates with more inequality; (iii) Since the economic reforms of Thatcher, the United Kingdom has overperformed other countries in the Eurozone, but inequality has increased, too; (iv) Ditto for Chile, in the last 30 years or so: more inequality and more prosperity.

      I don't think there is always an inverse relationship between policies that promote prosperity and policies that promote inequality, but when there is, we should now which is the more important.

      Delete
    24. Anonymous4:58 PM

      "I don't think there is always an inverse relationship between policies that promote prosperity and policies that promote inequality, but when there is, we should now which is the more important."

      Sigh....again, unless you want to ASSUME an inverse relationship - and you say you don't - why not go for policies that promote growth while not promoting inequality? Radical, I know. I'm not denying that in some cases the incomes of the poor can go up even as inequality increases - although that has not happened in the US in recent decades. But to say that incomes went up is not enough. You have to say that the incomes of the poor went up more than they otherwise would have under an alternative set of policies that would have allowed for growth while not promoting inequality.

      Delete
    25. Anonymous5:42 PM

      You have to prioritize. Let's see one policy that works in reducing inequality for sure: lots of taxation (40% or more) associated with lots of redistribution. Every rich coutry that adopts this policies (the Eurozone, basically) have lower GDP per capita and lower inequality than the USA. But there is not one single poor country that became rich (v.g.: South Korea, Japan, Taiwan, and now Chile) with a large welfare state. Not. a. single. one. The ones who did (think Brazil and Argentina) are mired on the middle-income trap.

      Delete
    26. Anonymous5:56 PM

      *The ones who did adopt high taxation with lots of redistribution (think Brazil and Argentina) are mired in the middle-income trap.

      Delete
    27. @anonymous:

      "Haha. If only you were so lenient and pollyana to your own -- liberal -- side..."

      I think you said this backwards ... "haha" ... but anyway, I said Krugman misinterpreted the paper, but also that you guys don't seem to know what "opposite" means. The "opposite" of "high inequality leads to worse health" is that "high inequality leads to better health", not "we found no link..."

      But that's me splitting hairs, I admit.

      "Maybe it is not 'self-evidently ridiculous' to think so."

      Thanks for the acknowledgment, but you really don't need the "maybe." Even if you disagree, the original point of this discussion was whether the belief is "nutty," which it isn't.

      @colin:

      "Krugman says that inequality results in worsened health and higher mortality. The paper he links to says 'there is no evidence of any link...'"

      Which is NOT the opposite, which again, is me splitting hairs and I admit that.

      "Except, that's not the issue. Krugman claims that inequality results in higher mortality and worsened health, which the paper he links to does not support. He doesn't say anything about the ameliorative effects of transfers."

      Ok, I did confuse the conversation by using the word "transfers", but the point I was trying to make is that you were splitting hairs, as reason pointed out. The Deaton paper made a nuanced argument, how if you somehow isolate inequality from the pure income effects, inequality doesn't have an effect on health.

      But that's not the reality of the debate on inequality. Nobody is arguing that reducing inequality simply by the rich poorer and the poor no richer is going to somehow benefit the poor. It's not about the gini coefficient in isolation, it's about the fact that the the rising income share at the top has left the rest poorer, which any reasonable person could (and probably should!) believe affects health.

      "I didn't do an exhaustive search, I just pulled up an example from literally just last week in which Krugman led himself astray because of his ideological zeal."

      Sure. And what you came up with to support the "Krugman nuttiness" is "such things as..." was a link in a throwaway line in a blog post about a different topic, which you proceeded to try to inflate into something very significant. Lack of exhaustiveness, indeed.

      Delete
    28. "...something the usually clear minded Krugman is wont to do when it is ideologically or politically convenient to NOT think clear-mindedly (v.g.: Krugman knows unconventional monetary policy works, but likes to invoke "the ineffacy os monetary policy at the zero lower bound" as an argument against "austerity")"

      First, the worst can be said about that quote of Krugman's is that, in that instance, he failed to include the clarifying qualifier "conventional" in front of monetary policy.

      Second, I know MMers like to claim, implicitly or explicitly, that somehow the fact that unconventional monetary policy can and does have some traction even at the ZLB means that fiscal policy doesn't matter.

      But that's wrong wrong wrong. Even if central banks were to target NGDP (which they don't!), that STILL does NOT make real growth a fixed outcome irrespective of fiscal effects.

      Basically, even by their own model of the world fiscal policy matters, though the market monetarist crowd either fails to admit this or actually claims it isn't so.

      But sure, tell us again how it's actually Krugman that is wont to take the "politically and ideologically convenient" position. "haha"

      Delete
    29. Anonymous9:12 PM

      @ST: "But that's wrong wrong wrong. Even if central banks were to target NGDP (which they don't!), that STILL does NOT make real growth a fixed outcome irrespective of fiscal effects."

      You'll love this precious little graphic: http://thefaintofheart.files.wordpress.com/2014/01/monetary-offset.png?w=640

      QE 1 is ennacted, Nominal GDP grows immediatelly, Real GDP grows almost immediatelly. Fiscal policy (government purchases) is unaltered until late 2010, when austerity raises its ugly face, barking loudly. The economy is not scared at all, though, since monetary policy is accomodative (QE2 and 3). The fiscal dog barks, but it doesn't actually bites -- at least if the monetary authority is half not completelly stupid (oh, those poor Europeans...)

      QED.

      Delete
    30. "QED"

      Look at your own graph, anonymous. Fiscal policy was not "unaltered" in 2009 when growth inflected, spending was growing rapidly. Do you not recall that whole "Stimulus Bill" thing everyone was talking about at the time.

      We're not in some bizarro calculus world where fiscal policy is measured in second derivatives rather than first, so the fact that that spending graph was sloping massively upward as the growth curve shifted should be a clue.

      We were also experiencing a massive decline in tax revenues, which is another form of fiscal stimulus. I need to reiterate ... you just pointed to a growth shift in 2009, which is probably the worst year in history for you to use for the argument you are trying to use it for:

      http://research.stlouisfed.org/fred2/graph/?id=FYFSD

      And besides ignoring the data, you were already making an inference based on a short time period in a single country. Lots else was happening around that time ... like, for example, a stabilization of markets following a giant financial crisis!

      And then ... you point to an economy in ensuing years that is below trend in both inflation and employment, that is abjectly failing to return to equilibrium. as somehow being "not scared at all."

      Lastly, you completely ignored my point about how even the monetarists own model of how NGDP is supposed to work (using central bank omnipotence to modulate inflation and dampen the effects of shocks on real growth) does NOT in any way preclude fiscal policy effects.

      Those are shocks too! Do you honestly claim fiscal policy shifts are some kind of special immaculate shocks that, unlike any other, somehow don't affect real growth? Really?

      It's absurd when said out loud. MMers often get around this by being incoherent on the subject, vacillating between arguing that any outcome must somehow have been what central banks wanted, to blaming central bank incompetence for any outcome that doesn't seem to fit their model.

      What this shows, I think, is a great illustration of MMers odd penchant for completely unjustified triumphalism. "QED"

      Delete
    31. Anonymous7:59 AM

      Fiscal policy had not the oomph. Monetary policy had. How can you explain that the greatest fiscal consolidation in decades did not make the economy wail in despair, crashing and burning in the field of Lost Hopes?

      Two words: "monetary offset".

      @ST "And besides ignoring the data, you were already making an inference based on a short time period in a single country."

      Welcome to the macro world, boy. We're going to base a lot of knowledge on natural experiments and ambiguous data. But a lot of circumstancial evidence in one single direction does an resemblance of certaint makes. At least, one that suffices for guidance of policy.

      I see that data on the biggest economy in the world does not satisfies you. Fair enough. Maybe data on the third biggest world economy can make the trick?

      http://thefaintofheart.files.wordpress.com/2014/01/abenomics-1-year-on_2.png

      Abeonomics begins. The authorities anounce their intention of raising inflation. Nominal GDP grows, Real GDP almost immediatelly follows. Same pattern. Note that the fiscal instance remained unaltered.

      Delete
    32. Anonymous8:17 AM

      * "stance" (not "instance").

      Dear @ST, I don't doubt that fiscal policy can be a "shock" too. What I doubt is that it cannot be offset by sufficiently accomodative monetary policy... Monetary Policy DOMINATES Fiscal Policy, got it? I think this guy -- great guy, by the way -- nailed it on Quora:

      http://www.quora.com/Market-Monetarism/Why-do-some-market-monetarists-advocate-fiscal-austerity

      Why do some market monetarists advocate fiscal austerity?

      The short answer is the Market Monetarists do not advocate fiscal austerity. What MM'ers are arguing is that monetary dominates fiscal policy. Hence, IF fiscal policy is tightened then it will not necessarily have an negative impact on aggregate demand - or nominal GDP - if the central bank for examples targets inflation or the nominal GDP level. This is known as the Sumner Critique.

      The view that monetary policy dominates fiscal policy in the determination of nominal spending in the economy makes Market Monetarists less fearful fiscal austerity than for example keynesians. Furthermore, Market Monetarists are highly skeptical about discretionary policies - both monetary and fiscal - and that leads Market Montarists to advocate rule based fiscal and monetary policy. (...)

      Delete
    33. These anonymous posts seem to do a great job of illustrating my point for me.

      I argue it's wrong, even by their own models, to claim that monetary policy makes fiscal policy irrelevant.

      He/She/They argue back that the brief experience of 2009 somehow is evidence otherwise.

      I point out that evidence, being a complete muddle of events, doesn't even show what they claim, and that they still haven't addressed the point about how their own models don't even refute the relevance of fiscal shocks.

      He/She/They go on pretending that somehow the muddle of 2009 proves their point, and then go on to muddle the issue further by shifting the goal posts from fiscal policy being irrelevant to having it be "dominated" by monetary policy.

      Anyway...

      "Hence, IF fiscal policy is tightened then it will not necessarily have an negative impact on aggregate demand - or nominal GDP - if the central bank for examples targets inflation or the nominal GDP level. This is known as the Sumner Critique. "

      This is STILL wrong. Follow along, I will explain it slowly again: if you target nominal GDP, you STILL do not get an economy that is immune to demand shock. Nominal GDP targeting DAMPENS but does not ELIMINATE the effect of shocks on REAL GDP.

      But MMers, as I've pointed out and they've illustrated, refuse to acknowledge this. Presumably, the refusal is based on their abhorrence for government, so even while they make noises about their agnosticism on fiscal policy they can't come out and just admit it has real effects even in the magical model world where competent and omnipotent central banks actually adopt their preferred targeting system (which they haven't in real life!).

      Welcome to the macro world indeed ... where nothing is disprovable so everyone feels free to claim whatever they want to suit their ideological needs.

      Delete
    34. Anonymous1:32 PM

      @ST: "Nominal GDP targeting DAMPENS but does not ELIMINATE the effect of shocks on REAL GDP."

      This is all you can possibly WANT from an stabilization policy. Fiscal policy has to be assessed on a cost/benefit analysis, not as countercyclical toy. Why? Because monetary policy does it so much better than fiscal policy. So, your question must be: "Building this new public school / bridge /whatever can be justified from a cost-benefit analysis? Or is it just pork?" Well, if you can justify it, build it. But do not fool yourself thinking you needed such a blunt instrument to "stabilize" the economy. You don't!

      @ST: "the muddle of 2009 proves their point"

      Look, that precious little graph shows that: (i) we had a precipitous fiscal policy tightening (the biggest in DECADES!); (ii) it didn't translated on a bump. Market monetarists have a clear answer why this happened: monetary offset (think QE 1, 2 and 3). Fiscal policy fans have not.

      It is THAT simple.

      Delete
  13. "Only a few maverick macro people, like Ricardo Caballero, speak out against the dominant paradigm."

    What a truly arrogant and ignorant statement. Classic logical fallacy of argument from authority just to begin with. Most of the heterodox community criticizes the ridiculous DSGE paradigm. And besides from them, what realistic way do you have for approximating such a statement? Certainly you have no objective basis other than a possible "9 out of 10 people I know agree with me." type of logic.

    ReplyDelete
  14. Anonymous12:37 AM

    He definitely says nutty things. Have you seen music he promotes ?

    ReplyDelete
    Replies
    1. Anonymous4:31 PM

      Thank you! I knew I couldn't be the only one.

      Delete
  15. John Soriano12:55 AM

    Eh, while we're talking about Krugman, it's worth mentioning this. I guess it isn't "nutty", but it's either lazy or incredibly dishonest of him at the expense of harming someone else's career.

    Part 1: http://www.thebigquestions.com/2013/06/07/lies-and-lying-liars/
    Part 2: http://www.thebigquestions.com/2013/06/10/the-story-darkens/
    Part 3: http://www.thebigquestions.com/2013/10/29/lying-low/

    ReplyDelete
  16. Caballero was one of the few at a top place like MIT, but there were quite a few more who had been complaining for some time at less well-known institutions.

    ReplyDelete
    Replies
    1. Sure, of course.

      Also, I meant people who work within the mainstream but want to reform it, rather than people who want to see the dominant paradigm replaced entirely.

      Delete
  17. PK loves the Platinum Coin - that all you need to know to confirm nutty.

    ReplyDelete
    Replies
    1. What's nutty is a voluntary sovereign default on obligations. The platinum coin is definitely silly, but a not nutty remedy to the prospect of an insane and self-inflicted wound.

      Delete
    2. This is exactly like the famous Keynes example of burying banknotes and having enterprising people dig them up.

      It is not a suggestion as to what the best solution might be, but a suggestion about what might be (curiously enough) better than doing nothing.

      Delete
    3. Anonymous9:46 PM

      Yea, so nutty that the Justice Department drafted a memo outlining its legal case in case the absurd impasse was not resolved in time:

      http://krugman.blogs.nytimes.com/2014/01/31/about-that-coin/

      But then, you might also think the Obama administration is nutty too, so what the heck. Damn those commies, right Mr. Bruce?

      Delete
    4. Anonymous11:03 PM

      The debt limit is a stupid law, inviting stupid demagoguery. Krug's prefered way to neuter this abomonation seems rather appropriate.

      Delete
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    ReplyDelete
  19. The Blorch8:58 AM

    Why the bit about Hillary? I think all the commentators missed the point about the article. It wasn't about Krugman at all. It was a Hillary for President commercial. The bit about Krugman was the Super Bowl and the bit about Hillary was like paid advertisement. Seeing the forest from the trees is like seeing the commercial from the program.

    As far as Hillary not being as liberal as her detractors claim, we need proof of this. All the warnings about how liberal she is pull her to the center so its complicated to determine how intrinsically liberal she is. We don't know how liberal she is with out all the warning about how liberal she is. We don't know the counter factual.

    ReplyDelete
  20. Anonymous10:47 AM

    Picking out overarching themes to combat a claim of nutty comments is rather disengenuous. I don't think House mentioned the space invasion comment, but even if that is what he was referencing, please... ANYBODY in the process of making (what they and others believe to be) reasonable claims will say some off the wall things every once in a while. And only a true believer would say--"Oh yes, Krugman makes perfect sense all the time." Try to have just a smidge of perspective!

    ReplyDelete
  21. The thing to understand about PK is that he's the most effective controversialist writing today about political economy. First, there's his stance: he admits when he's wrong, he's straightforward about his ideology yet argues from data up instead of ideology down, he attacks what his opponents say and do instead of their characters (see Williamson above, though I realize he may be kidding), he always sounds reasonable, his arguments are coherent, and he has a pretty good record of accurate predictions. Look closer, and he usually raises a question, touches on (to refute) a solution or two, answers the question with some reference to evidence or supplies an amazing clear explanation, and provides a concluding paragraph which creates the sense that there's really nothing more to say on the subject. That is a gift, but it is a gift which brings with it some problems. First, he does this in 750 words or less and must perforce simplify things. So guys like Williamson are always saying, "Hey, wait a minute, what about this loooooong list of other stuff?" and because they don't have that gift, wander off into the high weeds and sometimes the dark woods, leaving folks like me wonderng "WTF?" Second, when he turns that gift against those who disagree with him, he simply destroys them, leaving them whining that he's hurt their feelings (see Cochrane and Ferguson for my favorite bleats: not strong rhetorically) or silences them completely (Mankiw, most of Booth faculty, though I admit that Cochrane is trying to answer him, always, alas ending up in the weeds). Combine those attacks with the accuracy of his predictions and the plausibility of his explanations, and you have someone who's tough to argue with. As someone who has zero interest in the economics, except for how it's postponed my retirement and threatened my kids's futures, and who has even less knowledge, I like everything about Krugman, even the bad, because reading him is not only fun, reading him gives me the idea, perhaps completely wrong, I admit, but what no one else gives me, that I'm gaining bit by bit a better understanding of the world.

    ReplyDelete
    Replies
    1. Anonymous12:20 PM

      If, as you say, you have "zero interest in economics", how do you know if Krugman is right or wrong, or even if his ideas make sense? In fact, your claim of him destroying the people who people who disagree with him belies your, sorry to say, ignorance.

      Your metaphor about getting into the weeds is interesting. If weeds are not tended to, they overreach and kill the flowers and fruit you actual want. Getting rid of the weeds matters, if you care about truth at all--so beware what you get in 750 words!

      And finally, remember: A weed is just a plant you don't want. By calling opposing arguments weeds, you're admitting to having biases.

      Delete
    2. David, extremely well said. And, while I'm here, let me say that the anger displayed on this thread by those that really don't like Krugman says volumes about the aptness of your comments. Their anger casts them past the weeds into the very dark woods, where, for all their froth, they become indistinguishable from the mist.

      Delete
    3. I don't know whether PK is right or wrong. I'm commenting merely on his rhetoric, and he destroys people rhetorically by silencing them or reducing them to whining about their hurt feelings. As for "weeds," that's a metaphor for getting so immersed in details and nuance that I find the argument unpersuasive. That said, in terms of the discipline of economics, it's the weeds that matter. Simon Wren-Lewis has a longish discussion of this somewhere, though he doesn't use my metaphor.

      Delete
    4. Great post but maybe since you are open to learning from others, you could learn a thing or two from Anonymous about breaking a long post into shorter paragraphs.

      Delete
  22. Krugman HAS said nutty things. (Not quite macro but...). Here him in 1998.

    “The growth of the Internet will slow drastically [as it] becomes apparent [that] most people have nothing to say to each other…. By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”

    ReplyDelete
    Replies
    1. Anonymous1:16 PM

      "Nutty" is an opinion that is immediately and easily provably false, or based only on ideological projection. The word you are looking for in this instance is "wrong". It is also sociological not economic. If one is nutty for making an error on a social trend then we all should be institutionalized.

      I think feeling the compulsion to look back through 10 years of commentary to find this "aha!" is more telling of the trolls than Mr. Krugman.

      Delete
    2. Anonymous1:26 PM

      Sorry, 16 years! Even better. Also, while he got this wrong I suspect it was a bit in reaction to the era of "profits don't matter". I suspect a lot of investors wish they had shared Krugs "nutty" view at the time.

      Delete
    3. I agree that hilariously wrong in retrospect is not he same as nutty. Also, he wrote it as part of a 'fun' piece about the future for Time's 100th anniversary. http://www.businessinsider.com/paul-krugman-responds-to-internet-quote-2013-12

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  23. Anonymous12:09 PM

    I think the idea that Krugman is an extremist comes from 3 sources:

    (1) His politics. He has said a lot of pretty extreme things about (say) the Republican party and conservative economists.

    (2) His bluntness and lack of attention to political feasibility. He usually just gives his economic analysis and sticks to his guns. Probably comes from not being directly involved in policy-making. He also might be somewhat lacking in social skills. Not entirely a bad thing.

    (3) His critique of mainstream macro. I think he's pretty far out there compared to most economists in terms of thinking of all macro since 1980 as a robustness check on IS-LM. Though this is partly a generational thing, I think he's even extreme compared to members of his generation who have stayed active in macro research.

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    1. Hmm, I can't speak to #3, but re #1: the estimate of the relative "extreme-ness" of the commentator should be discounted by the extremeness of the topic.

      In other words, the GOP lately looks pretty nuts, and conservative economists have sold out. Is it possible to make those observations without sounding "extreme"?

      They (both!) are pushing tight money and tight budgets in an economy with low interest, inflation and employment, and babbling supply side theory in a demand downturn.

      Basically, they really are either knaves, fools or lunatics, but if that observation sounds extreme the blame really should be on them.

      And contrast that with the guys (many of the same people!) who shout loudly about how supposedly "extreme" President Obama is, with the "socialism" charges and such, for doing things like passing Mitt Romney's health care plan.

      Not equivalent!

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  24. Anonymous2:55 PM

    I'm not an academic economist. I have an undergraduate degree in economics, and I follow the news, economics blogs, and other related info far more closely than an ordinary person. So from that perspective, here's what I think about all this:

    1) Krugman gets a lot of heat for two reasons. One is his political writing, the other is that he's the most public defender of Keynesian ideas, and that pisses certain academic economists off. His political writing can be basically summarized as "Republicans=evil and/or ignorant". The thing is, he argues this using facts and evidence, and he's very convincing. I happen to agree with him that the Republicans are evil and/or ignorant, but for someone who is a devout Republican, it's understandable that he'd hate Krugman for saying this. The fact that Krugman's arguments are so effective would make him even more frustrating.

    2) Krugman's defense of Keynesianism threatens certain "freshwater" macroeconomists because the implication of Krugman's argument, if he's right, is that those economists built their careers on a series of giant mistakes- they've added nothing of value to the discourse other than showing how to be wrong. Another way of putting it is that they've devoted their careers to the equivalent of a geocentric model of the universe, and here comes this guy, arguing in the most prominent newspaper in the country that the Earth actually moves around the Sun. The arguments sound convincing, and people are listening. Most people won't want to believe, or even be told, that they've been wrong their whole lives about what they've devoted their lives to, so the anger is understandable. And that's regardless of whether the Keynesians or RBC crew are right- it's understandable that the RBC people are frustrated. This is even more understandable when you add in the fact that the RBC people seem to have so isolated and protected themselves at certain universities and in certain journals that they apparently didn't know that Keynesians were anything other than an aging and endangered species.

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    1. Anonymous2:55 PM

      ...continued...

      3) Again, I'm not an academic economist or a phd. But it seems to me that the Lucas critique and all of DSGE has added nothing of value to the world. I think Matt Yglesias described it best when he said it was a giant trolling effort to say that you "can to" get Keynesian results from a DSGE framework. But really, the economics of 1978 seems to be the best framework we have today for understanding the world:
      http://delong.typepad.com/sdj/2012/06/httpfaculty-webatnorthwesternedueconomicsgordongru_combined_090909pdf-is-modern-macro-or-1978era-macro-more-rel.html

      I could go through all the reasons why- the evidence I see around the world, recent, less recent, and older, from around the world. (One example- what's the RBC explanation of why Argentina fell deeper and deeper in depression under the currency baord, until it finally ended the currency board, devalued, and defaulted? Or more generally, the fact that nominal exchange rate changes seem to change real prices and have actual effects on employment and output? Or more generally, why have there been, in many times and places, periods of high unemployment?) Why aren't there microfoundations for the microfoundations- perfectly rational and informed individuals doesn't seem to be a very accurate assumption, so garbage in = garbage out. They're assuming something anyway, rather than proving it, but the RBC crew are making the wrong assumptions at the wrong level.

      There's also the fact that outside of the walled-off academic ghettos, nobody seems to believe in RBC. No banks use this stuff. The excuse that easily usable, good models aren't available strikes me as ridiculous, because with billions of dollars on the line, you'd think banks and investment funds would invest to get the best economic model available, even if it meant hiring a hundred genius econ or math phds to work a year or two and get it right. But they haven't done that. The IMF and other international institutions don't use RBC. Even within the Republican Party, there are plenty of economists who are Keynesian of one type or another. The Bush Administration was filled with them, and used it in its own economic reports. Why aren't there any or many Democratic RBC types? What does that tell you, that both parties have Keynesians, and only one party has RBC guys?

      Anyway, I shouldn't continue this rant.

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    2. Anonymous2:57 PM

      My paraphrased quote above from Yglesias should be "can too", not "can to".

      Delete
    3. Anonymous3:15 PM

      One more thing- in general, people hate being told that they're wrong. Especially if they're being told that they're wrong by someone who is very believable and convincing about something that they care about. Krugman currently devotes most of his energy to telling Republicans and the RBC crew that they're wrong, so that's where most of the hate comes from. But even in this post's comments, you can see the dislike- dare I say hate?- from the MMT side, despite the fact that nothing related to MMT was mentioned here. About ten years ago, I knew a smart guy who was further left than I am, who hated Krugman because of Krugman's defense of free trade. I'm still not sure if this guy will read Krugman, despite the fact that he'd probably agree with 98% of what Krugman's written for the past ten years.

      So it's not as if this psychological phenomenon is limited to people who are right-of-center. Nobody likes being told that they're wrong about something that they're passionate about.

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    4. Anonymous3:56 PM

      Under what administration was the most Keynesian policy implemented (in 2008) since Keynes?

      Did Sargent, Lucas, Prescott, all the other gods - provide the intellectual framework for this, the most important macro-economic policy change in decades?

      No.

      Can they or there farcical models offer anything useful to say about this or anything else?

      No.

      Delete
    5. Anonymous4:00 PM

      Whoops, sorry "their".

      Delete
  25. Krugman is also selling totally non-standard views based on some random models he developed with Eggertson. Those models imply that flexible prices will have counter-intuitive effects at ZLB. He has no evidence that those models describe anything real (the best test was the fukushima disaster that somehow failed to raise growth and inflation, just the opposite), and as Cochrane described in detail the models rely on cherry picking a ridiculous equilibrium out of the model while the standard behaved onse are fully consistent with the set-up. Yet, he often quotes that as an established "fact" in his arguments. Easy to understand, though, where it comes from: he is a political hack.

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    1. Anonymous5:22 PM

      Re: Fukushima. It's possible that the "disaster" wasn't really that big of a disaster relative to the size of Japan. It's also possible that the disaster scared people, increasing their desire to save rather than consume and invest. It's also possible that some other factor prevented an increase in growth or inflation. (Also- aside from the infrastructure damaged in the tsunami, which could be repaired or replaced, the only long run effect on the Japanese economy seems to be that the nuclear power industry was shut down. This meant that Japan had to import substantially more fuel. It was effectively a negative permanent supply shock. The fact that a negative supply shock didn't increase inflation has interesting implications about the nature of the Japanese economy in the time immediately before the disaster- it implies insufficient aggregate demand.)

      As for this stuff: "totally non-standard views" "some random models" "the standard behaved onse". It seems pretty typical for the RBC types to treat their views as the standard, mainstream, normal, etc., type of view, and the Keynesians as either dinosaurs or weirdos or dishonest hacks. Krugman himself has noted how often the RBC'ers waive away or dismiss non-RBC arguments as obviously ridiculous stuff that nobody believes, rather than effectively arguing why the Keynesian stuff they're waiving away is wrong. I know it might hurt you (and Cochrane) to read this, but outside of their tenure-protected freshwater ghetto, nobody in the real world believes any of that RBC stuff. Not even the lead economists hired by Republican administrations and administrations-in-waiting are RBC guys- they're Keynesians. (Both McCain's and Romney's lead economists during their campaigns were Keynesian and presumably would have led their administrations' economic teams.) But every single Democratic economist (are there anyyyy exceptions?) is somewhere in the Keynesian camp. What does this tell you about which group is a bunch of political hacks, and which aren't?

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    2. Anonymous5:38 PM

      5:22PM here. Also, the fact that nobody in the real world believes in RBC doesn't mean that RBC is wrong. It's possible, in any situation, that one lone guy knows the truth and the whole rest of the world is deluded. But the fact that the RBC viewpoint is a minority among academic economists and nearly non-existent among everybody paid to do economics outside of academia means that it is a bit strange for the RBC'ers to call themselves the mainstream, normal, standard guys.

      Again, they could be right- nearly every idea starts with one person- but they shouldn't be arguing from the position of being the mainstream authorities here.

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    3. Anonymous10:03 PM

      Yep, other than the Great Depression, the Great Recession both of which played out pretty much exactly as Keynes predicted, there hasn't been any other confirmation of the model. 2 successful real world experiments aren't much to hang your hat on, but that's 2 more than RBC has.

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  26. Anonymous3:41 AM

    "tenure-protected freshwater ghetto"

    Quite. Ironically they advocate flexible labour markets. If they were in any other profession and their contribution to policy making or dealing with unemployment and third world poverty was on their performance evaluation they would have been out long ago.

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  27. Anonymous4:28 AM

    " Note that I didn't say that Krugman took Idea #2 from Eggertsson and Woodford, only that the ideas are the same!"
    That is a cheap argument. You said:
    "#2 is a somewhat unusual view, but not out of the mainstream at all. It's basically just the theory outlined by Mike Woodford (probably the most influential macroeconomist working in academia today) and Gauti Eggertsson in 2003. "

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  28. Anonymous9:07 AM

    I am surprised no-one has yet brought out the following example of Krugman nuttiness: "...in the years ahead Enron, not September 11, will come to be seen as the greater turning point in U.S. society..." Enron was of course just a blip in the light of financial scandals before and financial scandals after.

    Or in a similar display of nuttiness, five days after 9/11 terrorist attacks, Krugman argued in his column that the calamity was "partly self-inflicted" due to transfer of responsibility for airport security from government to airlines. He has a tendency to allow his partisan feeling to overwhelm his judgement.

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  29. Then central thrust of Krugman's Enron comments were that if Enron was a hollow con job, there could easily be many others. You could spin that as prescient if you were interested.

    The source of that quote:

    http://www.nytimes.com/2002/01/29/opinion/the-great-divide.html

    If we had a "turning point" meter we could measure whether the remark was wrong, it does not, however seem nutty.

    (And if I were a conservative shill, I would not keep bringing up Enron, myself...)

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  30. Anonymous12:12 AM

    Yes, you could spin it that way but it would be a pretty foolish spin. Krugman got it exactly wrong. Did you even read the article and note the following quote: "They're all about ending an era of laxity, in which nobody asked hard questions as long as everything looked O.K. That era is now over." Pretty funny, no?

    At the time of publication, Krugman's column was widely ridiculed as nutty. With the benefit of hindsight, it looks even worse.

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  31. Anonymous3:00 PM

    "They're all about ending an era of laxity, in which nobody asked hard questions as long as everything looked O.K. That era is now over."

    He was write about the era of laxity - he was wrong about it being over.

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