I don’t think I’ve ever enjoyed blogging as much as I did yesterday. For a week I had been bombarded in the comment section by people insisting that my criticism of Simon Wren-Lewis and Paul Krugman was mistaken Monday night when I read David Glasner’s post I began to wonder if I had made some sort of silly mistake.
Then I realized that his example actually supported my argument. So I did a post explaining why, and I think it’s fair to say that things turned around (at least in the comment section a bunch of people are saying that I’ve finally convinced them.)
But Paul Krugman still insists he hasn’t made any error, and that I’m the one who is mistaken. We’ll see how long he can hold out.
In the last week Paul Krugman has completely mischaracterized my views on several occasions. First he argued that I didn’t understand the Keynesian cross. That I failed to grasp that an attempt to save more might not cause an increase in investment, but rather a fall in income that frustrated the public’s attempt to save more. He spent an entire post patiently explaining the crude 1962-vintage Keynesian cross like I was some dim-witted second-grader. What can one do other than roll one’s eyes. That’s just Krugman being Krugman. Then he suggested I thought that identities could be used to prove causal relationships. In fact, I often argue that equations like MV=PY are merely definitions, and prove nothing. I once criticized DeLong for suggesting that MV=PY expressed the Quantity Theory. And S=I is also a definition. My criticism of Krugman and Wren-Lewis was that their argument implicitly assumed that actual saving doesn’t equal actual investment. (Of course the planned amounts can differ.) And I think everyone agree that’s a no no. (Whether they actually made that mistake is of course debatable, but not that fact that it would have been a mistake.)
Then yesterday he did a post that literally took my breath away. But first, a bit of background. Over the past three years I’ve criticized the “Treasury view” on many occasions. This is the idea that fiscal stimulus cannot work because the money used in deficit spending programs must come from somewhere else in the economy. This view is of course wrong, because fiscal stimulus can increase velocity even if the money supply is fixed. Readers of my blog know that I most certainly do not hold this view. So here’s what Krugman said yesterday:
But take an NK model like Mike Woodford’s (pdf) — a model in which everyone maximizes given a budget constraint, in which by construction all the accounting identities are honored, and in which it is assumed that everyone perfectly anticipates future taxes and all that — and you find immediately that a temporary rise in G produces a rise in Y, with none of either the Ricardian effects Lucas declares important nor the kind of adding-up constraints that Cochrane or Fama or Sumner seem to think are decisive. If your verbal reasoning led you to think that expansionary fiscal policy can’t be expansionary as a matter of logic, well, your logic was wrong.
That was like the cherry on top of the sundae for an already wonderful day. The moment I read that I thought; “now I’ve got him nailed, no one can every again dispute me when I claim he repeatedly misrepresents my views.” Now I’m sure some Krugman supporters will come over here and insist I misunderstood his comments. That he wasn’t really saying what I claim. They do that every time. But it seems clear to me that Krugman thinks I believe there are “logical” proofs that stimulus can’t work. The irony here is that Krugman seems to be the one that is increasingly drawn to airtight proofs in favor of stimulus (a post on that is coming), whereas I take the nuanced view that it depends in things like the monetary reaction function.
Another irony is that I’ve criticized Lucas and Fama and Cochrane for seeming to imply that accounting relationships prevent fiscal stimulus from working. Here’s a quotation from the post where I first criticized Krugman and Wren-Lewis:
I also find Cochrane’s critique of Keynesianism to be very weak (and equally arrogant), because he has no model of NGDP determination. Indeed at times he seems to imply that if NGDP is the problem, then we are talking about monetary policy, not fiscal policy. That’s my view as well, but if you plan to persuade Keynesians you need to do so with an explicit model of NGDP determination. He needs to explain why fiscal stimulus won’t boost velocity, or why any boost would be offset by a lower money supply. Cochrane doesn’t do that.
And from the same post:
Now that doesn’t mean the balanced budget multiplier is necessarily zero. Here’s the criticism that Wren-Lewis should have made:
“Cochrane ignores the fact that tax-financed bridge building will reduce private saving and hence boost interest rates. This will increase the velocity of circulation, which will boost AD.”
I’m skeptical of fiscal stimulus, and clearly favor monetary stimulus, but for reasons that have nothing to do with “adding-up constraints.”
You might notice that in all these posts where he makes reckless and false changes, he never once quotes anything I said. I’m almost willing to give him a pass on the S=I charge, because so many commenters found the post confusing. But claiming that I’m some sort of adherent of the Treasury view doesn’t even pass the laugh test. It’s as absurd as claiming I’m an Austrian, or an MMTer.
What about the title of the post? Tyler Cowen recently scolded Krugman for not trying to be more civil, not trying to first give the most positive interpretation to what the other side was trying to say. Krugman dismissed Cowen’s suggestion. Yesterday was a great example of why Cowen is right and Krugman is wrong. But seriously, haven’t wise people been giving Cowen’s advice for 2500 years?
One reason I did so many posts on the error made by Krugman and Simon Wren-Lewis was that I hoped when Krugman saw his mistake he’d have a little more humility. Instead he’s lashed out, tossing one reckless charge after another at me. Some of which are so obviously false that he’s ending up hurting his own reputation. Paul Krugman really is brilliant, but he’s also his own worst enemy. Krugman should have actually read my posts, not just skimmed under the assumption that anyone criticizing Paul Krugman must be a fool or a knave. He should have tried to discover what I actually believe.
Cynics will say my posts are so garbled and unintelligible that no one can figure out what I’m saying. Fine, then ignore me. But if this were true why does Christina Romer have my blog on the reading list for her grad macro course at Berkeley? Why did Ezra Klein call it the most influential policy blog of 2011? That doesn’t make me right, but they don’t seem to have any trouble figuring out what I’m saying.
John Cochrane had a recent post that did a great job of exposing the flaw in Krugman’s tendency to assume the worst in those he is debating:
Good advice to anyone: If you get up one morning with the brilliant insight, “Bob Lucas thinks that a family who takes out a $100,000 mortgage will reduce consumption by $100,000,” have a cup of coffee, settle down and think, “Wait, Bob’s a pretty smart guy. Did I get this wrong somehow?” before hurling insults Bob’s way in the New York Times’ blog section.
(Note, this is about Krugman’s analysis, not stimulus in general. There are plenty of serious analyses of fiscal stimulus that do not make simple logical errors. The plausibility of their assumptions and how they fit the data is an interesting topic. For another day.)
Exactly. And by the way, from the second paragraph it looks like he was also wrong about Cochrane. But I’ll leave that for another post.
PS. In the comment section from the previous post commenter o. nate summarizes the entire long week in a concise little gem:
I think the most charitable explanation to Wren-Lewis is that he meant to invoke the RE argument but stated it clumsily. Krugman probably scanned it a bit too quickly before reposting it on his blog. In his original post, Scott correctly pointed out this error, but in so doing invoked S=I in a way that was prone to misinterpretation. Krugman pounced, again perhaps a bit hastily. I think the bottom line here is that Krugman is not always a close reader of other bloggers, and he has a tendency to assume those who support his conclusions are reasoning correctly and those who don’t aren’t.
It takes me 1000 words to make the same point.