A few weeks ago Paul Krugman suggested market monetarists were homeless. By that he means we don’t have much support among GOP Congressman. He doesn’t say why we’d want to have their support, after all, they don’t make monetary policy.
I pointed this out in a post a couple weeks ago, in reply to the Krugman post. Now Krugman has posted again, repeating the claim that we are “homeless” because the House GOP doesn’t like us. Of course there is no sign he read my reply. The only surprise is that lots of commenters think I need to reply again. But why? I already replied to his argument even before he wrote the latest post.
Still, I suppose one can always find something to comment on, so let’s consider this:
But there’s also a big difference in the intellectual roles of MM on the right and Keynes on the left.
Talk with Barack Obama, and you’ll find that he has a basically Keynesian view of the world. It may have wobbled a bit in the past, at times when he seemed to buy into the Confidence Fairy, but it’s still his basic outlook — and his aides are very much IS-LM macro types. True, they haven’t gone all out to push for fiscal expansion in the face of opposition (but remember the payroll tax cut), but that’s mainly a political judgement on their part. It’s not a fundamental difference in worldview from friendly economists.
Contrast this with Republican leaders, who get their macroeconomics from Hayek and Ayn Rand, and are clearly liquidationist; it’s not that they don’t take advice from MM, they’re actively hostile to its very concepts.
That’s what I mean when I say that MM is homeless, in a way that my tribe isn’t.
Most politicians are morons when it comes to economics. That’s nothing to be ashamed of; I’m a complete moron about most non-economics fields in science and the humanities. Would you care about my views on particle physics or French poetry? What I don’t see is why someone would be proud that certain politicians seem to like their economic theories. I never get a chance to “talk with Barack Obama,” but I very much doubt he is a “Keynesian.”
1. Obama thought the high unemployment of 2008 was due to ATM machines taking jobs from bank tellers. Maybe he’s a Luddite.
2. Obama thought a low interest rate policy was dangerous, because it could lead to asset bubbles. Maybe he’s an Austrian. Or maybe he listens to Larry Summers.
3. Obama would often leave Fed seats empty for long periods, believing the Fed could do nothing when rates had fallen to zero. When he finally did appoint people to the Fed, they were not people who agreed with Krugman on monetary policy. At one point 6 of the 7 members of the board were Obama appointees, and not a single one agreed with Krugman on monetary policy. Obama didn’t even bother making any appointments in 2009, when they would have been really helpful, and when he had a filibuster-proof majority in the Senate. Maybe Obama only reads Krugman on the days where Krugman says monetary policy is ineffective at the zero bound, not the days when he says monetary stimulus is highly desirable at the zero bound.
4. Obama thinks so little of monetary policy he is supposedly looking for someone with “community banking experience” for the Board. I’m sure all the community banking experts out there are up to date on Woodford’s latest models of how to do policy at the zero bound. Maybe Obama is a follower of Elizabeth Warren, the senator who said super inflation hawk Paul Volcker would be a great choice to head the Fed. (After all the Fed is all about regulation, not monetary policy, isn’t it?)
Oh, and that payroll tax cut that Krugman mentions, it was a GOP idea, Obama had to be convinced:
The White House is counting the 2 percent payroll tax cut among its “wins” in the tax deal worked out with congressional Republicans. But it’s a win based on a Republican idea and one that many congressional Republicans support.
You may recall that a payroll tax break or “holiday” was a Republican proposal back in 2009. Conservatives liked the idea then in lieu of a tax credit.
. . .
In 2009, the White House rebuffed the idea, preferring its grab bag of stimulus spending programs.
Of course the employee-side payroll tax cut did not speed up the recovery in 2011, nor did the repeal in 2013 slow it down, as Keynesians like Krugman predicted. They should have done the employer-side payroll tax cut that Christy Romer suggested, which would have cut labor costs and boosted employment.
And followers of the IS-LM model? Those would be the folks who thought money couldn’t have been tight in the early 1930s (or 2008), because interest rates were low. Or the people who thought the US economy would slow down in 2013 due to savage austerity. Or the people who thought monetary stimulus in Japan was pointless, they were at the zero bound. Or the people who said the Swiss National Bank would not be able to stop the franc from appreciating. Or the people who blamed the eurozone double dip recession on fiscal austerity, even though the US did slightly more austerity. Or the people who said British fiscal policy really, really, really was quite contractionary, until growth picked up suddenly and they realized it could not have been contractionary.
PS. And now Congress wants to pass a law requiring the Board of Governors to have at least one expert on community banking. You can’t make this stuff up.