And a cherry on top! (Why Cowen is wiser than Krugman)

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.


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163 Responses to “And a cherry on top! (Why Cowen is wiser than Krugman)”

  1. Gravatar of Kevin Donoghue Kevin Donoghue
    18. January 2012 at 07:04

    But it seems clear to me that Krugman thinks I believe there are “logical” proofs that stimulus can’t work.

    Scott, I don’t want to be uncivil or anything, but I’m pretty sure he doesn’t greatly care what you think. He just doesn’t want you or anyone else sowing confusion about what theory tells us about fiscal policy. This is the crucial point:

    “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.”

    If your reasoning didn’t lead you to that belief then that’s fine.

  2. Gravatar of D R D R
    18. January 2012 at 07:06

    “In his original post, Scott correctly pointed out this error”

    Um… what error?

  3. Gravatar of J Mann J Mann
    18. January 2012 at 07:06

    Scott, I’m not an economist, and I haven’t taken the time to unwind Krugman’s paragraph, but IMHO there is one useful area where he could disagree with you.

    If I understand you correctly, you believe that if the Fed sticks to the same fixed inflation target both and without stimulus, then the multiplier for fiscal stimulus is pretty close to zero. (I don’t know if you think this is logically necessary, or if it’s just true based on your beliefs about real world conditions.)

    If I’m right, then if Krugman read you carefully and really wanted to engage with you, he could present:

    1) A model showing that it was at least *possible* that fiscal stimulus could have a significant multiplier even if the fed is targeting inflation;

    2) Some evidence showing that #1 is not only possible, but likely; or

    3) Some evidence that the fed’s inflation target is affected by stimulus in a way that does not reduce the multiplier.

    Since I don’t have the time to read Krugman carefully, I don’t know if he’s addressed these points, and usually rely on you or DeLong to summarize Krugman for me. Use that awesome responsibility humbly, please. ;-)

  4. Gravatar of D R D R
    18. January 2012 at 07:12

    To be clear, a tax hike of 100 (in isolation of any spending) could induce (via consumption smoothing) a fall in consumption of 25 and *no* change in investment. And S=I and Y only falls by 25 percent of the tax.

    So what, exactly, is the problem?

  5. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 07:22

    D R:

    “Um… what error?”

    The fact that Wren-Lewis ignored investment, and conflated spending with consumption only, in his critique of Cochrane, leading him to believe that consumption smoothing arguments refutes Cochrane, when Sumner just pointed out is not the case.

    Are you going to write up another series of crazy numerical examples that are totally irrelevant to the main point?

  6. Gravatar of tom tom
    18. January 2012 at 07:24

    Scott have you read Woodford’s paper?
    Please try to do this and you will see that temporary rise in G can produce a rise in Y without any assumption about velocity.

  7. Gravatar of D R D R
    18. January 2012 at 07:27

    Major,

    Why do you insist that Wren-Lewis ignored investment?

    If you take his statement to mean that the fall in private spending is all on the consumption side, his argument still works out.

  8. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 07:27

    D R:

    “To be clear, a tax hike of 100 (in isolation of any spending) could induce (via consumption smoothing) a fall in consumption of 25 and *no* change in investment. And S=I and Y only falls by 25 percent of the tax.”

    Yes, that is possible, but it is not related to Sumner’s point.

    Sure, if you assume the Keynesian stimulus model is true, then of course you will believe that 75 would have otherwise been hoarded as cash, in order to justify the “*no* change in investment” criterion.

    Sumner is not trying to advance a particular model over another as being true. He is ONLY saying that Wren-Smith treated “spending” as consumption spending only, and failed to take into account investment and saving that might also be affected by tax financed government spending.

  9. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 07:31

    D R:

    “Major,

    Why do you insist that Wren-Lewis ignored investment?”

    Because he did?

    “If you take his statement to mean that the fall in private spending is all on the consumption side, his argument still works out.”

    Why should I take his statement to mean that when he quite clearly said “when you put those two things together” when referring to C + G? He didn’t say “C + I + G” and “when you put those three things together”.

    You are trying to alter what he meant by creating a new concept “C + I”, as if that is what Wren-Smith was referring to. But nowhere did he even hint at that.

    Why are you trying to change the arguments around?

  10. Gravatar of D R D R
    18. January 2012 at 07:31

    Major,

    It is the very core of Sumner’s post.

    Both Sumner and I agree that both sides may produce models which lead to the desired conclusions. Sumner claimed that Wren-Lewis’ argument was not consistent.

  11. Gravatar of Andrew Andrew
    18. January 2012 at 07:35

    Scott:

    With all duerespect, you’ve written thousands of words on a supposed error, and to be honest your writing isn’t really all that clear – meaning it’s hard to see your logic.

    I’m guessing Krugman et al didn’t want people thinking that fiscal policy can’t be expansionary. As your writing isn’t all that clear, that’s what I took from a skim of your posts.

  12. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 07:35

    “If you take his statement to mean that the fall in private spending is all on the consumption side, his argument still works out.”

    No, that is exactly what makes his argument NOT work out. The fact that he assumed that only consumption spending falls when tax financed government spending rises, such that “consumption smoothing” refutes Cochrane, is exactly what Sumner corrected him about.

  13. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 07:39

    D R:

    “Both Sumner and I agree that both sides may produce models which lead to the desired conclusions. Sumner claimed that Wren-Lewis’ argument was not consistent.”

    It wasn’t consistent. It wasn’t consistent because contrary to Wren-Smith, consumption smoothing does not refute Cochrane. Sumner has shown that if you don’t ignore investment, then consumption smoothing cannot work as a valid premise to refute Cochrane. In other words, contra Wren-Smith, consumption smoothing does not guarantee a positive BBM. It is consistent with a zero BBM.

    Andrew:

    “I’m guessing Krugman et al didn’t want people thinking that fiscal policy can’t be expansionary. As your writing isn’t all that clear, that’s what I took from a skim of your posts.”

    I can only speak for myself, but I can say that it was perfectly clear to me. I mean, the point he made is so obvious. You have to already be muddled in order to not see the point.

  14. Gravatar of D R D R
    18. January 2012 at 07:43

    That is not true. If consumption smooths by a factor of five, then

    C -25
    I +0
    G +0
    T +100
    Y -25
    Yd-125
    Sp-100
    Sg+100
    S +0

    So it does work out.

  15. Gravatar of Cthorm Cthorm
    18. January 2012 at 07:43

    Well done Scott. Few things are as fun as exposing hubris, right?

    I don’t endorse the “treasury view” as you call it, because it’s being presented in a literal sense rather than a rule-of-thumb. I think it’s a perfectly valid view to take as an explanation for lay people, especially if you include points about distributed information and normal organization inefficiencies.

    If you consider that the funding for fiscal stimulus must come from current or future incomes as tax (dead weight loss, inefficiency #1), that funds will be allocated in a political and not a market process (#2), and that administration of this central spending is not cost-free (#3), it seems a multiplier truly greater than 1 would be quite the special case. If such stimulus also produced a sufficient change in M*V then it seems more likely, but you’re more likely to end up with a change in M*V that counteracts the fiscal stimulus than one that amplifies it. Even with a purely Hayekian view it seems monetary stimulus, which is spent in a distributed fashion in the normal operation of markets, is clearly superior. The only way I can understand favoring fiscal stimulus if you actually believe the spending decisions made in a political process are superior to those made made by individuals for themselves.

  16. Gravatar of tom tom
    18. January 2012 at 07:43

    Major_Freedom, have you read Woodford’s paper?

  17. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 07:55

    D R:

    AGAIN you are presuming the Keynesian model to be true, by failing to take into account investment. You just presumed investment change was zero. Well sure, if you assume investment change is zero, then you immediately get to the conclusion that tax financed spending with consumption smoothing increases NGDP.

    But this, again, for the millionth time, is not what Sumner is denying COULD happen. Again, for the millionth time, he is saying that even with consumption smoothing, it does not follow that tax financed spending raises NGDP, because it is POSSIBLE that investment falls. Wren-Smith insisted that Cochrane was wrong because he didn’t take into account consumption smoothing.

    Sumner’s only point is that hey wait a minute, even with consumption smoothing, that is not enough to refute Cochrane, because there is investment that cannot be ignored and is decisive.

    STOP presuming that there is no investment change and then shouting on the rooftops that Wren-Smith’s point about consumption smoothing is somehow right when interpreted in a different way.

  18. Gravatar of D R D R
    18. January 2012 at 08:00

    The question is not whether the model is right, but whether it is both consistent and results in a positive BBM.

    And it succeeds on both counts.

  19. Gravatar of John Schultz John Schultz
    18. January 2012 at 08:00

    “I think the most charitable explanation to Wren-Lewis is that he meant to invoke the RE argument but stated it clumsily.”

    Yes, that is exactly what I think happened here!

    “In his original post, Scott correctly pointed out this error …”

    Whether Wren-Lewis made an error and of what type it was is actually the big question to me.

    Sumner’s entire criticism could have amounted to nothing more than saying that Wren-Lewis could more correctly state his argument by using the phrase “the private sector” instead of “consumers” so that his intended meaning was more clear.

    To me, Wren-Lewis’ “error” was that his english in a lay explanation was open to misinterpretation. That is not a fundamental error. That is an imprecision of english error, which hardly implies that Wren-Lewis has his head on backwards.

    Instead, Sumner assumed the worst possible interpretation of Wren-Lewis and then went on and on and on about how / why it was wrong (and saying most Keynesians often make the same mistake) without ever discussing how Wren-Lewis’ statement could have mildly been restated that would be correct.

    Wren-Lewis stated the RE argument imprecisely, but then Sumner assumed the worst possible interpretation of that statement and then went on and on and on about how his interpretation was wrong. Well, yes, if you interpret what Wren-Lewis said uncharitably then it is wrong.

    Maybe you should examine whether your interpretation that you are railing against is actually what he meant?

    “Krugman probably scanned it a bit too quickly before reposting it on his blog.”

    Krugman was wrong only if you assume that Krugman read Wren-Lewis the same way Sumner did, thought it through and thought it was correct. If Krugman instead understood that by “consumers” that Wren-Lewis meant “the private sector,” then Wren-Lewis is right and Krugman agrees.

    “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.”

    I can definitely agree with that. :)

  20. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:00

    tom:

    “Major_Freedom, have you read Woodford’s paper?”

    Yes, but not recently. Do you believe anything in the paper refutes Sumner’s charge against Wren-Smith? If so, how exactly?

  21. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:01

    D R:

    “The question is not whether the model is right, but whether it is both consistent and results in a positive BBM.”

    No, the question is whether a positive BBM can be shown from consumption smoothing arguments.

    As Sumner has shown, that is not the case.

    Yes, you can presuppose a model where investment is unchanged and get the result of a positive BBM, but that’s not Sumner’s point.

  22. Gravatar of Lars Christensen Lars Christensen
    18. January 2012 at 08:03

    Scott, isn’t this a little silly? Everybody in the world with the exception of Paul Krugman has given up the idea that fiscal policy can have any impact on aggregate demand.

    That said, it seems like a very “hot” topic…as it was in 1975…odd…

  23. Gravatar of D R D R
    18. January 2012 at 08:04

    My example proves that Sumner’s reasoning was flawed.

  24. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:05

    John Schultz:

    “Sumner’s entire criticism could have amounted to nothing more than saying that Wren-Lewis could more correctly state his argument by using the phrase “the private sector” instead of “consumers” so that his intended meaning was more clear.”

    “More correctly state”? That’s a funny way of saying he was wrong.

    No, by saying “more correctly state”, you are implying that there was some correctness already present. But there wasn’t. Consumption smoothing is about consumption. It is not about “C + I” which is what “private sector spending” would require, and the last time I checked, there is no such thing as consumption smoothing being interpreted as “C + I smoothing.”

    This whole debate wouldn’t have been necessary if only Wren-Smith didn’t ignore investment when he said consumption smoothing was enough to refute Cochrane.

  25. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:08

    D R:

    “My example proves that Sumner’s reasoning was flawed.”

    No, your example only proves your ability to understand Sumner’s point is flawed.

    You can’t show Sumner’s reasoning is “flawed” by presuming a model that contains an assumption of unchanged investment that Sumner agrees is POSSIBLE.

    He isn’t, for the millionth time, saying that your unchanged investment model is wrong. He is saying that consumption smoothing alone is not an adequate foundation for saying Cochrane is wrong to hold BBM = 0. Sumner ALSO isn’t saying that he agrees with Cochrane’s arguments or conclusion. He is just talking about the efficacy of Wren-Smith’s arguments, nothing more.

    For you to sit there and give a numerical example that just presumes the Keynesian model is true, and then claim that it somehow exposes a flaw in Sumner’s reasoning, can only mean that you are extremely confused and terribly muddleheaded.

  26. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:12

    Sometimes I feel like I’m in a crazy clown funhouse here.

  27. Gravatar of There is no such thing as fiscal policy « The Market Monetarist There is no such thing as fiscal policy « The Market Monetarist
    18. January 2012 at 08:13

    [...] Scott continues the fiscal debate (lets stop it Scott, we won long [...]

  28. Gravatar of ssumner ssumner
    18. January 2012 at 08:13

    Kevin, You said:

    “This is the crucial point:

    “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.”

    If your reasoning didn’t lead you to that belief then that’s fine.”

    Have you ever thought of becoming a lawyer?

    DR, The error is this:

    Wren-Lewis claimed C would fall, but would decline less that Y-T. That means saving falls. Not just planned saving, but actual saving. That means actual investment would fall. Then Wren-Lewis said fiscal stimulus would work because G would rise more than C fell, forgetting that I also fell!!

    And Krugman endorsed his argument, and still does as far as I know.

    I simply don’t see why this is so complicated. Which of those 5 sentences I provided do you think is wrong?

    J Mann, Yes, that would be an interesting line of analysis for Krugman. I assumed that most new Keynesians agree with me that the multiplier is zero if the Fed inflation targets.

    I seem to recall that Krugman agreed during “normal times,” when rates aren’t at zero.

    DR, In that case there is no consumption smoothing.

    Tom, I agree it can if you assume supply side effects–see Nick Rowe’s analysis. I was talking about Keynesian demand-side stimulus. I’ll do a post later.

    Andrew, If your defense of Krugman is correct and my writing is so bad that no one can understand my argument, then why comment on something you don’t understand?

    Can you please provide an example of a paragraph you don’t understand, and why you think it’s confusing?

    Cthorm, The big problem here is the Keynesian C+I+G approach, which is deeply misleading. It makes both pro and anti-Keynesian arguments seem highly flawed to the other side. Too much is swept under the rug.

  29. Gravatar of tom tom
    18. January 2012 at 08:15

    Major, Scott claims that in order to have effective fiscal stimulus you need to make additional assumptions e.g. regarding velocity. This is false. Michael shows that under liquidity trap when nominal short term interest rates are equal zero (jus like today) multiplier should be larger than one. He makes no additional assumptions about velocity to reach this conclusion.
    And if you want still to debate whether Wren Lewis is wrong please first read this:
    http://en.wikipedia.org/wiki/Savings_identity

  30. Gravatar of D R D R
    18. January 2012 at 08:18

    Scott,

    Hence my example. Utterly consistent with Wren-Lewis. What is wrong with my demonstation?

  31. Gravatar of JKH JKH
    18. January 2012 at 08:19

    There’s something wrong (and there has been from day one) if his opinion matters that much to you. Although, seems like you’re not the only one in that regard.

    If you’re right on stuff, you should be able to ignore him and still prevail in the longish run.

    If you’re not right on stuff, it won’t matter either way.

  32. Gravatar of tom tom
    18. January 2012 at 08:26

    Scott especially under liquidity trap Keynesian demand-side stimulus is effective and supply side effects are direct consequence of this stimulus. Please read Woodford.

  33. Gravatar of Will Will
    18. January 2012 at 08:28

    Advice on blogging from TheIncidentalEconomist:

    “Ignore the noise. If you get cited a lot, people will attack you. Ignore it unless it furthers what you want to do. Don’t get sucked into endless blog wars and snark. It’s really not that interesting. Only top bloggers can do it and get a lot of play out of it. The rest of us have to deliver content of unique and more lasting value. Save your snark for Twitter. It’s a better format for it.”

    Your little war is not so very interesting to me: and I like your blog!

  34. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:28

    tom:

    “Major, Scott claims that in order to have effective fiscal stimulus you need to make additional assumptions e.g. regarding velocity. This is false.”

    Not in his criticism of Wren-Smith. He doesn’t need to invoke the theory that fiscal stimulus requires additional assumptions regarding velocity, in this particular incorrect assertion made by Wren-Smith.

    “Michael shows that under liquidity trap when nominal short term interest rates are equal zero (jus like today) multiplier should be larger than one. He makes no additional assumptions about velocity to reach this conclusion.”

    It’s funny. You say that Sumner is wrong to say that effective fiscal stimulus requires additional assumptions, e.g. velocity, but then you go ahead and favorably mention someone who argues that fiscal stimulus can be effective, but only if additional assumptions like liquidity traps.

    I like you. You’re like a Aikido master who flips himself over.

    “And if you want still to debate whether Wren Lewis is wrong please first read this: http://en.wikipedia.org/wiki/Savings_identity

    You give me a link to wikipedia, on wikipedia’s blackout day? How cruel. BTW, yes, I know what the savings identity is about.

  35. Gravatar of ssumner ssumner
    18. January 2012 at 08:29

    DR, Utterly inconsistent. He claimed AD would rise, you have it fall. He examined the impact of more G, you didn’t change G. He assumed a balanced budget multiplier you didn’t. That’s probably your key mistake, as it creates a gap between private and total saving. Both Wren-Lewis and I assumed a balanced budge case.

    You might as well stop wasting your time, there’s no way to save his argument–it’s wrong. Find which of my 5 sentences is wrong, and we’ll save a lot of debating time.

    JKH, But this is so much FUN, what else do I have to look forward to in life? Who would have dreamed I could wake up someday debating a Nobel Prize winner on topics we both love, (the most famous economist in the world), and keep winning (according to publications like The Economist, and the Financial Times, which occasionally referee the disputes.)

    Tom, I answered you in my previous reply.

  36. Gravatar of bill woolsey bill woolsey
    18. January 2012 at 08:31

    Major Freedom:

    No…

    The implicit assumption is that the only reason why Sumner would criticize Lewis-Wren is because he believes that fiscal policy cannot have an expansionary effect.

    It must be in there somewhere.

    No….

    More fundamentally, the only reason he would write anything would be to take sides in the current political conflict between Republicans and Democrats.

    Is he for or against Obama’s stimulus package?

    That Sumner was really wanted to make a point about how government spending can only effect nominal spending if it impacts the demand to hold money (or the quantity of money) is like speaking a foreign language to people whose sole interest is today’s fight between the Reds and Blues.

  37. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:32

    tom:

    “especially under liquidity trap Keynesian demand-side stimulus is effective and supply side effects are direct consequence of this stimulus.”

    False. Woodford’s assumption that people won’t invest/lend when interest rates are low, is incorrect. He also fails to take into account the fact that interest rates can be low due to monetary policy holding them there, which means economic stimulus can be had by raising rates. Yes, that means NGDP will not rise by as much as it otherwise would have, but the notion that economic prosperity is founded upon “aggregate spending” is a myth.

    Woodford hasn’t shown anything that has not already been refuted time and time again.

  38. Gravatar of RueTheDay RueTheDay
    18. January 2012 at 08:32

    It seems to me that all of these arguments about Ricardian Equivalence, consumption smoothing, accounting identities, etc. amount to looking for one’s keys under the streetlight since that’s where the light is even if the keys weren’t dopped there.

    What problems are we really trying to solve here? Aren’t we trying to understand why capitalism is prone to periodic financial crises, why these crises usually result in severe recessions/depressions, and why high unemployment can persist for long periods of time after the immediate crisis is resolved? Then, once we’ve sufficiently explained the phenomenon, don’t we want to look at the appropriate policy response?

    If so, then playing around with barter economy models, comparative statics, accounting identities, etc. isn’t going to be particularly useful.

  39. Gravatar of tom tom
    18. January 2012 at 08:33

    Major read this because Wren is 100% right (I copied it for you from wikipedia):
    Note that this is an “identity”, meaning it is true by definition. This identity only holds true because investment here is defined as including inventories. Thus, should consumers decide to save more, and spend less, the fall in demand would lead to an increase in business inventories. The change in inventories brings savings and investment into balance without any intention by business to increase investment.[2]
    Note, that as such, this does not imply that an increase in savings must lead directly to an increase in investment. Indeed, business may respond to increased inventories by decreasing both output and intended investment. Likewise, this reduction in output by business will reduce incomes, forcing an unintended reduction in savings. Even if the end result of this process is ultimately a lower level of investment, it will nonetheless remain true at any given point in time that the S=I identity holds.

    Major: “but only if ” not only but especially. Try to read first and then respond.

    Scott read Woodford and then discuss.

  40. Gravatar of John Schultz John Schultz
    18. January 2012 at 08:34

    DR: “Why do you insist that Wren-Lewis ignored investment?”

    MF: “Because he did? … Why should I take his statement to mean that when he quite clearly said “when you put those two things together” when referring to C + G? He didn’t say “C + I + G” and “when you put those three things together”.

    You are trying to alter what he meant by creating a new concept “C + I”, as if that is what Wren-Smith was referring to. But nowhere did he even hint at that.

    Why are you trying to change the arguments around?”

    =================

    Major_Freedom, you (and Wren-Lewis) are asserting that your interpretation of what Wren-Lewis wrote is the only reasonable interpretation. Both DR and I disagree with you (and Sumner). The core contention is over the meaning of this english sentence:

    “If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X.”

    You (and Sumner) read this to mean that when Wren-Lewis says “consumers … spending” he is restricting the reaction to increased G solely to consumption in the national accounting sense, C, and Y — that is he is talking about Y = C + I + G, but he is implicitly holding I constant. Furthermore, because he said “consumers … smooth” Wren-Lewis is basing his argument on the idea that when after tax income changes C changes by less than the change in Y – T.

    Given that interpretation, Sumner is correct that “consumption smoothing” alone does not yield an increase in Y. Therefore, Wren-Lewis essentially assumed his conclusion. Furthermore, he completely ignored any potential effect on S, I, which is a major, common flaw in Keynesian thinking according to Sumner.

    Allow me to restate the contentious sentence again:

    “If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X.”

    I (and DR) read Wren-Lewis as making the Ricardian Equivalence argument that Krugman had made and recently brought up again in response to Cochrane’s and Lucas’ comments circulating. Wren-Lewis was basically chiming in and repeating the argument.

    I interpreted “consumers … spending” as “private … spending.” That is, Wren-Lewis is talking about Y = P + G and isn’t implicitly holding any of the variables fixed. He doesn’t care to nor is he trying to decompose P into its constituent parts of C and I.

    MF: “Why should I take his statement to mean that when he quite clearly said “when you put those two things together” when referring to C + G? He didn’t say “C + I + G” and “when you put those three things together”.”

    The two things he is putting together are the change in (G, AD) and the imputed change in P. You are trying to put words into his mouth that make him seem stupid.

    I interpreted “consumers will smooth over time” as the private sector engaging in RE in response to an increase in government.

    With my interpretation Wren-Lewis is completely correct. With your interpretation Wren-Lewis is making multiple bad assumptions, reasoning incorrectly and ignoring a major component of the national economy.

    So the question becomes: Is Wren-Lewis more likely speaking in slightly, potentially confusing terms (i.e. – using the specific word “consumers” might lead some readers astray) or is he a very bad economist who can’t logically reason?

    I think Occam’s Razor says DR and I are right and you and Sumner are wrong.

  41. Gravatar of tom tom
    18. January 2012 at 08:35

    “Woodford hasn’t shown anything that has not already been refuted time and time again.”
    You are an ignorant

  42. Gravatar of D R D R
    18. January 2012 at 08:35

    Scott,

    Please do not be obtuse. My example covers the tax hike, which is where the debate lies. Wren-Lewis said private spending falls… by less than the tax.

    The tax costs 25 in AD, which does not fully offset the 100 gain from the bridge.

  43. Gravatar of ssumner ssumner
    18. January 2012 at 08:38

    Tom, Check the abstract of Woodford if you want to see why I don’t find the topic interesting. he assumes monetary policy is impotent. But it’s not!

    Will, I appreciate the advice, but you are unusual. My readership is soaring.

    But I do respect your opinion. My suggestion is take a week off from me and come back later. I’ll move on soon to something else.

    Bill, Thanks, that’s right.

  44. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:38

    bill woolsey:

    “The implicit assumption is that the only reason why Sumner would criticize Lewis-Wren is because he believes that fiscal policy cannot have an expansionary effect.”

    Oh really? So you’re taking into account not just what people are saying, but their secret agendas as well?

    It is irrelevant WHY Sumner would feel emotionally or intellectually compelled to criticize Wren-Lewis. As long as his arguments are sound, that’s all that matters.

    Wren-Smith is wrong to assume that consumption smoothing arguments somehow disproves Cochrane’s positive that the BBM is zero.

    Whether or not fiscal policy does lead to a positive BBM is besides the point. Sumner is just saying “Don’t forget investment can fall too when there is a tax financed spending program.”

    “More fundamentally, the only reason he would write anything would be to take sides in the current political conflict between Republicans and Democrats.”

    LOL, you’re funny. You just proved yourself to be sensitive to such thinking, which can only mean you yourself think in those terms. The thought never even occurred to me.

    “Is he for or against Obama’s stimulus package?”

    Why not ask him through email, and in the meantime, maybe you can contribute an explanation on why is it not wrong to fail to take into account I (as defined by investment and inventory), when talking about whether or not tax financed stimulus has a positive BBM? I don’t know, just a thought.

    “That Sumner was really wanted to make a point about how government spending can only effect nominal spending if it impacts the demand to hold money (or the quantity of money) is like speaking a foreign language to people whose sole interest is today’s fight between the Reds and Blues.”

    He “really” wanted to make that point? Weird, because the only point I see is the one he actually made.

    The only reason why I am defending Sumner so much is because he’s right, and yet so many seemingly intelligent people who like to ramble on and on, are totally missing the point.

  45. Gravatar of johnleemk johnleemk
    18. January 2012 at 08:40

    To repeat myself from earlier (sorry D R, I don’t have the time to specifically reason through the numerical example you gave in the other thread): Wren-Lewis points out that Cochrane and Lucas sloppily expressed themselves (this is a charitable interpretation of Wren-Lewis, since he might have just thought they were flat out stupid economists — but it seems unlikely) and their statements would not pass muster in an undergrad exam.

    Wren-Lewis then himself writes a statement which would not pass muster in an undergrad exam. Poll professors and lecturers of economics on how they would grade a student asked to respond to the statements of Lucas and Cochrane if the student wrote of “consumer spending” without discussing investment or clearly invoking Ricardian equivalence. That student would not get full marks.

    Sloppy writing betrays sloppy thinking. The point Scott wants to make, I think, but which he has probably not adequately made yet, is that Keynesian discussions of national income for whatever reason gloss over the role of investment. If a student consistently talked about the contribution of “consumer spending” to Y but never investment over the course of a semester, that student would not get an A. Scott is holding Wren-Lewis and Krugman to the same standard they held Lucas and Cochrane to.

  46. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:41

    tom:

    “Major read this because Wren is 100% right (I copied it for you from wikipedia):”

    No tom, Wren is 100% wrong. Consumption smoothing cannot be a basis for disproving someone who thinks the BBM is zero.

    “Major: “but only if ” not only but especially. Try to read first and then respond.”

    “Scott read Woodford and then discuss.”

    tom, read Sumner then come back and discuss what you think about Sumner’s argument.

  47. Gravatar of ssumner ssumner
    18. January 2012 at 08:42

    DR, You are calling me obtuse? The whole debate is the BBM, everyone except you seems to realize it. Now you are doing a Ricardian equivalence problem of tax cut only. Even Krugman accepts their logic on that point. The debate over Wren-Lewis’s comment is entirely over the BBM assumption. If you don’t like the debate, talk about something else. But that’s what he’s talking about and that’s what I’m talking about. If you have something constructive to add to that specific debate, then do so. But don’t tell me I’m wrong by showing something I never claimed in the first place.

  48. Gravatar of math math
    18. January 2012 at 08:43

    Scott Sumner,

    Your logic is somewhat flawed. Krugman has not made mistake, he didn’t notice Wren-Lewis’ mistake.

    You has assumed that both Wren-Lewis and Krugman omitted the accounting identity S=I when analyzing the economic example. It is just your guess.

    I don’t know why Wren-Lewis has made his mistake. But Krugman could have not noticed Wren-Lewis’ mistake because he just didn’t sleep well the night before but not because he forget about the said identity (I see that actually you have admitted it too in the post scriptum).

    But Krugman’s logic is still better than that of Chicago school monetarists is even with his occasional mistakes in my view.

  49. Gravatar of bill woolsey bill woolsey
    18. January 2012 at 08:44

    Woodford’s paper somehow has the central bank manipulating interest rates when there is no money. That is impossible.

    That in reality there are changes in either the quantity of money or velocity (behind the scenes, as it were,) is exactly what concerns Sumner.

    If, like Lewis-Wren, you completely ignore the quantity of money and the demand to hold it, then perhaps you can think that consumption smoothing is all that counts.

    By the way, if you are at the zero bound, I don’t think that actual market interest rates have to go up to raise velocity. What is true, however, is that the expansionary fiscal policy must somehow reduce the demand to hold money (raise velocity) or else raise the quantity of money–if it is going to raise nominal expenditure on output. Exactly how it does that is the _key_ argument.

  50. Gravatar of John Schultz John Schultz
    18. January 2012 at 08:46

    MF: ““More correctly state”? That’s a funny way of saying he was wrong.”

    That’s great! You are trying to nail me on semantics rather than meaning exactly as you are trying to do with Wren-Lewis. Way to add to the evidence that you are a pedantic reader!

    Yes, I should have said “more precisely state.”

    MF: “Consumption smoothing is about consumption. It is not about “C + I” which is what “private sector spending” would require”

    First, that is completely incorrect. Consumption smoothing is the concept that in the face of temporarily decreased (increased) income that “consumers” try to maintain their consumption by eating into (adding onto) their savings. Consumption smoothing definitely can impact both C and I in the national accounting identity.

    Second, Wren-Lewis wasn’t referring to consumption smoothing as you interpret him above but was instead referring to the RE response of the private sector to an increase in government (i.e. – the effect on the present day value of all expected future taxes).

  51. Gravatar of Alex Godofsky Alex Godofsky
    18. January 2012 at 08:53

    Can’t this dumb fight just die? Even if one side is completely right and the other is completely wrong, everyone comes out of this looking bad and the whole thing really doesn’t matter.

  52. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 08:56

    John Schultz:

    “Major_Freedom, you (and Wren-Lewis) are asserting that your interpretation of what Wren-Lewis wrote is the only reasonable interpretation. Both DR and I disagree with you (and Sumner).”

    John, you (and D R) are asserting that your interpretation of what Wren-Lewis wrote is the only….

    “The core contention is over the meaning of this english sentence:”

    “If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X.”

    Exactly. This sentence completely ignores INVESTMENT SPENDING, which D R admits is CAPABLE of eliminating a positive BBM.

    “You (and Sumner) read this to mean that when Wren-Lewis says “consumers … spending” he is restricting the reaction to increased G solely to consumption in the national accounting sense, C, and Y — that is he is talking about Y = C + I + G, but he is implicitly holding I constant. Furthermore, because he said “consumers … smooth” Wren-Lewis is basing his argument on the idea that when after tax income changes C changes by less than the change in Y – T.”

    Wren-Lewis is “implicitly holding I constant”? That’s just you presuming a particular model that is totally apart from consumption smoothing. If you hold I constant, then you are no longer talking about consumption smoothing. But since Wren-Lewis was talking about consumption smoothing…

    “I (and DR) read Wren-Lewis as making the Ricardian Equivalence argument that Krugman had made and recently brought up again in response to Cochrane’s and Lucas’ comments circulating. Wren-Lewis was basically chiming in and repeating the argument.”

    “I interpreted “consumers … spending” as “private … spending.” That is, Wren-Lewis is talking about Y = P + G and isn’t implicitly holding any of the variables fixed. He doesn’t care to nor is he trying to decompose P into its constituent parts of C and I.”

    Was that “interpretation” before or after Sumner criticized Wren-Lewis?

    How can you interpret “consumers spending” to be “consumers consuming and investors investing”? That’s crazy! You’re resorting to changing the entire definitions of commonly understood economic phrases and words.

    Give it up already.

    MF: “Why should I take his statement to mean that when he quite clearly said “when you put those two things together” when referring to C + G? He didn’t say “C + I + G” and “when you put those three things together”.”

    “The two things he is putting together are the change in (G, AD) and the imputed change in P. You are trying to put words into his mouth that make him seem stupid.”

    No, I am not putting any words into his mouth. You are. You are trying to put into his mouth the words “investors investing” even though he said “consumers spending.”

    “I interpreted “consumers will smooth over time” as the private sector engaging in RE in response to an increase in government.”

    Your interpretation is silly. “C + I smoothing” is something no economist is talking about when they say consumption smoothing.

    You’re just making things up at this point.

    “With my interpretation Wren-Lewis is completely correct.”

    You should be a Marxist. His followers also change the meaning of what he said to turn his errors into truths.

    “With your interpretation Wren-Lewis is making multiple bad assumptions, reasoning incorrectly and ignoring a major component of the national economy.”

    Oh no! Wren-Lewis made an error! IMPOSSIBLE! It must have been an error in intepreting him to mean consumption when he said consumption, rather than the obvious interpretation, which is that consumption really means consumption and investing.

    Wow.

    “So the question becomes: Is Wren-Lewis more likely speaking in slightly, potentially confusing terms (i.e. – using the specific word “consumers” might lead some readers astray) or is he a very bad economist who can’t logically reason?”

    You see? You’re so worried about him being labelled a bad economist that you will refuse to even consider the possibility that he can be wrong. I am not saying he is a bad economist. I am just saying Sumner corrected him.

    “I think Occam’s Razor says DR and I are right and you and Sumner are wrong.”

    I think the English language and accepting the horrific fact that even Keynesian economists can make mistakes, says that D R and you are horribly wrong, and Sumner is right.

  53. Gravatar of D R D R
    18. January 2012 at 08:57

    Scott,

    I apologize, but I thought I was clear. Wren-Lewis broke up his argument into the effect of the bridge and the effect of the tax.

    The bridge in isolation:
    Multiplier of 1.0 implies C+I does not change. If consumption smoothing applies to the bridge as well as the tax, then C+20, I-20, G+100, T+0

    The tax in isolation:
    C-25, I+0, G+0, T+100

    In total:
    C-5, I-20, G+100, T+100, Y+75, Yd-25, Sp-20, Sg+0, I-20

    What is the problem?

  54. Gravatar of Morgan Warstler Morgan Warstler
    18. January 2012 at 09:00

    woolsey, you wound me!

    “If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X.”

    John, you do not need to channel him, he’s just a professor for god’s sake.

    ASK HIM.

    simon.wren-lewis at economics.ox.ac.uk

    At the end of it, when he clarifies himself, 10:1 says he’ll still be in brier patch because he won’t want to admit it was a mistake of reasoning, just communication.

    And Scott will jump on his bones again.

    CLUE TRAIN: DeKrugman not saying “consumption smoothing”

  55. Gravatar of Greg Ransom Greg Ransom
    18. January 2012 at 09:03

    First they came for the Jews,, the mentally challenged, & the homosexuals ….

    Krugman has been playing this game for decades, but everyone gave him a free pass and pretended it wasn’t happening because it was the other guys OC who was being gored.

    It’s really important for the functioning of science to identify who in the scientific community is being dishonst & who is spreading falsehoods and who is committing scientific fraud. Biomedical science is weeding out the corrupt and dishonest on a regular basis, which you know if you read the scientific press.

    Good luck sustaining a genuine scientific culture if you can’t do that.

  56. Gravatar of Greg Ransom Greg Ransom
    18. January 2012 at 09:04

    Other guys ox which was being gored … geez, the IPad won’t let me type ox …

  57. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 09:06

    John Schultz:

    “MF: “More correctly state”? That’s a funny way of saying he was wrong.”

    “That’s great! You are trying to nail me on semantics rather than meaning exactly as you are trying to do with Wren-Lewis.”

    Haha, nice try, but no dice. No, I am not trying to nail you on semantics. You’ve already been refuted on argumentation alone. I just ADDED that to point out your clearly dogmatic devotion to an ideology and all of its adherents despite the actual arguments and statements made.

    And you haven’t at all shown me to be trying to “get” Wren-Lewis on semantics. The only person who is doing that is you. You are trying to play semantics and get me to believe that “consumer spending” is supposed to be taken to mean “consumers consuming and investors investing.”

    You’re making no sense.

    “Way to add to the evidence that you are a pedantic reader!”

    Wait, “add” to the evidence? That would imply you had any to begin with. Is that your silly game? Pretend that you have all this “evidence” from the past, to mislead the other readers here that I am doing something I am not, when in fact it is precisely you who is doing what you accuse me of doing?

    That’s rich. You probably post on Krugman’s blog too. “Don’t attack the queen bee!”

    “Yes, I should have said “more precisely state.””

    Oh, so you agree. But this is no better, for it still presumes Wren-Lewis was to any degree “precise.” He wasn’t precise. He was wrong. Being wrong means zero precision.

    Yes, that probably upsets you. Do I care? Not so much.

    “MF: “Consumption smoothing is about consumption. It is not about “C + I” which is what “private sector spending” would require””

    “First, that is completely incorrect. Consumption smoothing is the concept that in the face of temporarily decreased (increased) income that “consumers” try to maintain their consumption by eating into (adding onto) their savings. Consumption smoothing definitely can impact both C and I in the national accounting identity.”

    Absolutely false. If consumers maintain their consumption in the face of a tax hike, then they cannot possibly “add” to their savings. They can only reduce their accumulated savings.

    Yes, of course, consumption smoothing does impact both C and I. THAT’S SUMNER’S POINT.

    The consumption smoothing itself concerns consumption, but it has effects on investment and saving, which is what Wren-Lewis ignored when he claimed that it alone refutes Cochrane for holding a BBM of zero, when in fact it does not.

    “Second, Wren-Lewis wasn’t referring to consumption smoothing as you interpret him above but was instead referring to the RE response of the private sector to an increase in government (i.e. – the effect on the present day value of all expected future taxes).”

    That’s just your silly reinterpretation. He wouldn’t have said “those two things taken together” when referring to C and G, if he really truly included I as well, implying he held it constant, thus presuming his own model of positive BBM to be true, rather than correctly showing Cochrane’s model of zero BBM to be false. There’s a huge difference there.

  58. Gravatar of D R D R
    18. January 2012 at 09:08

    “Yes, of course, consumption smoothing does impact both C and I. THAT’S SUMNER’S POINT.”

    If that is Sumner’s point, then realize that it is not necessarily true. Consumption smoothing may also impact C and Y so that I does not change.

  59. Gravatar of Thomas Thomas
    18. January 2012 at 09:09

    You are much nicer than me, and also much nicer than Krugman. Me, I’d say that the reference to “adding-up constraints” is simply a rejection of the idea that S=I. (I’m not saying it’s the only reading, but it’s a plausible one, and, following Krugman, we should always choose the plausible reading that we like best.)

  60. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 09:15

    D R:

    “If that is Sumner’s point, then realize that it is not necessarily true. Consumption smoothing may also impact C and Y so that I does not change.”

    Sumner didn’t claim it is “necessarily” true. He is only saying that consumption smoothing alone cannot disprove someone who says BBM is zero.

  61. Gravatar of Greg Ransom Greg Ransom
    18. January 2012 at 09:18

    I thought “rigor” ruled out the impossible.

    I thought math eliminated confused thinking found in “verbal” reasoning.

    Maybe nit so much …..

    Bill writes,

    “Woodford’s paper somehow has the central bank manipulating interest rates when there is no money. That is impossible.”

  62. Gravatar of John Schultz John Schultz
    18. January 2012 at 09:26

    WL: “If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X.”

    MF: “This sentence completely ignores INVESTMENT SPENDING …”

    Granted, that is your (and Sumner’s) understanding of that english sentence. Now, if you take your understanding and try to work it through in any reasonable model you run into multiple problems that seem to not support Wren-Lewis’ argument and conclusion as Sumner demonstrated.

    Given that, one path is to kick off on a huge public analysis and debate that shows how your interpretation doesn’t support Wren-Lewis’ argument and conclusion. Alternatively, you can take Cochrane’s advice, which Sumner endorses, that “If you get up one morning with [a] brilliant insight [that economist X thinks something stupid] … have a cup of coffee, settle down and think, “Wait, [economist X] is a pretty smart guy. Did I get this wrong somehow?”

    Sumner took the first path. I wish he had instead taken the second path.

    Me: ““I interpreted “consumers … spending” as “private … spending.” That is, Wren-Lewis is talking about Y = P + G and isn’t implicitly holding any of the variables fixed. He doesn’t care to nor is he trying to decompose P into its constituent parts of C and I.”

    MF: “Was that “interpretation” before or after Sumner criticized Wren-Lewis?”

    It was before I read Sumner. In fact, I couldn’t understand what Sumner was talking about at first at all. I had to read and re-read and re-read Sumner’s posts before I finally understood what he was saying and realized that the whole thing boiled down to a semantic misunderstanding on Wren-Lewis’ choice of words.

    MF: “Wren-Lewis is “implicitly holding I constant”? That’s just you presuming a particular model that is totally apart from consumption smoothing. If you hold I constant, then you are no longer talking about consumption smoothing. But since Wren-Lewis was talking about consumption smoothing…”

    Do you realize that you just very nicely summarized Sumner’s criticism of Wren-Lewis?!!!!

    MF: “How can you interpret “consumers spending” to be “consumers consuming and investors investing”? That’s crazy! You’re resorting to changing the entire definitions of commonly understood economic phrases and words.”

    No, I’m using the common english definition of “consumer.” For example, I am a consumer by most any english definition of “consumer” you care to try on. However, when I spend my money I engage in both consumption and investment in the national accounting senses. Indeed, there are very few private sector entities that engage solely in consumption or solely in investment. In fact, I can’t think of any off the top of my head.

    You are saying: ‘How can John, a consumer, possibly engage in both consumption and investment? That’s crazy!’

    “You’re so worried about him being labelled a bad economist that you will refuse to even consider the possibility that he can be wrong.”

    I don’t reject him being a bad economist as possible. I reject it as unlikely in this particular instance given that a very mild restatement of his argument clears up all of Sumner’s criticisms. I’m giving him the benefit of the doubt that his english in a blog was slightly less precise than it could have been and that it lead to confusion here.

  63. Gravatar of D R D R
    18. January 2012 at 09:28

    Major,

    In that case, Sumner is saying nothing of import whatsoever.

    Cochrane: If P1 (bridge and tax) then Q (BBM of 0.) Logically, not-Q implies not-P1

    Wren-Lewis: If P1 and P2 (whatever else he assumed) then not-Q. If Cochrane is correct, then, P1 and P2 implies not-P1, which is a contradiction.

    So, if Cochrane is correct, then P2 must be impossible. Not certain. Not even likely. Just possible.

  64. Gravatar of D R D R
    18. January 2012 at 09:30

    The last line should read “Wren-Lewis is correct so long as P2 is possible. Not certain. Not even likely. Just possible.”

  65. Gravatar of D R D R
    18. January 2012 at 09:33

    “That’s just you presuming a particular model that is totally apart from consumption smoothing. If you hold I constant, then you are no longer talking about consumption smoothing. But since Wren-Lewis was talking about consumption smoothing…”

    Um… that’s simply not true. Constant-I does not imply no-consumption-smoothing.

  66. Gravatar of tom tom
    18. January 2012 at 09:42

    Scott: “he assumes monetary policy is impotent”

    It is not true he considers different cases. Read the whole text. My advice wasnt intended to be rude. It would be just easier to discuss if you read his examples where expansioray fiscal policy can be effective without any additional assumptions you claim are needed (e.g. velocity etc.)

  67. Gravatar of BW BW
    18. January 2012 at 09:44

    Generally speaking, if you think articles critical of you “prove” your point, you have entered a world of dogma.

    Scott, I’ve lost interest in what you are arguing about, but you might consider that your engagement with Krugman is asymmetric. You are directly addressing him at length; his posts are addressed to a much broader audience and don’t directly engage you. Notice that Krugman’s latest post uses your argument as an illustrative example, and not more.

    It’s also rich that you and Cochrane “roll your eyes” at being lectured at by Krugman. You guys attack him in the exact same fashion. Nobody teaches Keynesian economics, Keynesian arguments are fairy tales, Simon Wren-Lewis doesn’t understand S=I, blah blah blah.

    I said in an earlier comment that I think Krugman should try to check his ego at the door and be nicer and more respectful to people. But that goes both ways. You don’t have the moral high ground here.

  68. Gravatar of John Schultz John Schultz
    18. January 2012 at 09:48

    MF: “Absolutely false. If consumers maintain their consumption in the face of a tax hike, then they cannot possibly “add” to their savings. They can only reduce their accumulated savings.”

    Yes. I said “Consumption smoothing is the concept that in the face of temporarily decreased … income that “consumers” try to maintain their consumption by eating into … their savings.”

    Where’s the disagreement?

    The parenthetical (increased) and (added onto) that I elided in the quote above was simply to indicate that the opposite effect occurs when income temporarily increases => consumers add onto their savings.

    PS – Calm down and don’t assume I’m a partisan, Keynesian devil simply because I’m arguing that you and Sumner had a minor misunderstanding of Wren-Lewis because he used potentially confusing language. I can see how his use of the word “consumers” could cause confusion depending on the precise definition of that word that you choose to use.

    Me: “Second, Wren-Lewis wasn’t referring to consumption smoothing as you interpret him above but was instead referring to the RE response of the private sector to an increase in government (i.e. – the effect on the present day value of all expected future taxes).”

    MF: “That’s just your silly reinterpretation.”

    Then ask yourself why Wren-Lewis says “smooth over time.” Once the stimulus and tax passes why wouldn’t the economy return to it’s former equilibrium based on your and Sumner’s interpretation? Why is Wren-Lewis saying there is some kind of persistent effect? Is he just making mistake after mistake with no understanding of consumption smoothing in the permanent income sense or is he just talking about a completely different concept and effect than you assumed he was?

    For me, it was pretty clear that the reason he was talking about the response over time is because he is talking about a RE response due to a temporary expansion of government. Also, the fact that Wren-Lewis’ was generated in the midst of a public debate conducted by Krugman and DeLong on how Lucas and Cochrane seemingly don’t fully understand the implications of their own models, especially Ricardian Equivalence, was a big hint that the post was about RE and not some other concept.

  69. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 09:50

    John Schultz:

    “WL: “If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X.”

    “MF: “This sentence completely ignores INVESTMENT SPENDING …”

    “Granted, that is your (and Sumner’s) understanding of that english sentence. Now, if you take your understanding and try to work it through in any reasonable model you run into multiple problems that seem to not support Wren-Lewis’ argument and conclusion as Sumner demonstrated.”

    Why should those with this interpretation be obligated to “work it through any “reasonable” model”? You are just sneaking in your own model and calling it “reasonable”, completely ignoring the fact that investment being negatively affected by tax hikes is a “reasonable” possibility, which nullifies the assertion that consumption smoothing alone proves BBM = 0 to be an impossibility.

    “Given that, one path is to kick off on a huge public analysis and debate that shows how your interpretation doesn’t support Wren-Lewis’ argument and conclusion. Alternatively, you can take Cochrane’s advice, which Sumner endorses, that “If you get up one morning with [a] brilliant insight [that economist X thinks something stupid] … have a cup of coffee, settle down and think, “Wait, [economist X] is a pretty smart guy. Did I get this wrong somehow?””

    Doesn’t sound like you’re doing that with Sumner. Looks like you’re only being charitable to Wren-Lewis, and by charitable I mean putting words into his mouth to salvage his argument.

    “Sumner took the first path. I wish he had instead taken the second path.”

    You took the first path. I with you had instead taken the second path.

    “Me: ““I interpreted “consumers … spending” as “private … spending.” That is, Wren-Lewis is talking about Y = P + G and isn’t implicitly holding any of the variables fixed. He doesn’t care to nor is he trying to decompose P into its constituent parts of C and I.””

    “MF: “Was that “interpretation” before or after Sumner criticized Wren-Lewis?””

    “It was before I read Sumner.”

    Oh really? Then why did you write this:

    “Are you quibbling over the use of the exact terminology of “consumption smoothing” or what here? Krugman et al are arguing that (particularly in a liquidity trap) that fiscal stimulus can stimulate the economy in the year it occurs. By your own words, consumers are consuming $20M less per year “C fell by $20M”. Is that not consumption smoothing in response to the increased government spending?!!! I don’t see how you’ve refuted that point or checkmated them at all. What am I missing?”

    and then

    “You seem to be poking the Keynesians in the eye for ignoring any impact on Investment or assuming that it is constant. In fact, you claim that you’ve checkmated them if they do assume Investment is fixed — although I still don’t understand why you think that’s a checkmate, other than a lame semantic argument that the idea of “consumption smoothing” has a specific meaning in the fresh water terminology (and by using it you’ve moved into their model and therefore can’t refute them with it) and isn’t talking about the reduction in consumption that people engage in in response to the higher taxes.”

    and then

    “Aggregate output may have increased, but it had nothing to do with consumption smoothing. Wren-Lewis essentially assumed or asserted aggregate output increased because investment (savings) was constant (or largely unaffected by changes in output) and that consumption declined by significantly less than the increase in G, but his assumption is exactly what is under debate. He assumed that he was correct and then made a wrong argument to show that he was correct.”

    Source: http://www.themoneyillusion.com/?p=12636

    You yourself interpreted “consumption smoothing” to be about people reducing their consumption, and not consumption plus investment.

    You’re just making crap up right now, and so I advise you to give up while you’re still only incorrect and slightly dishonest.

    “In fact, I couldn’t understand what Sumner was talking about at first at all. I had to read and re-read and re-read Sumner’s posts before I finally understood what he was saying and realized that the whole thing boiled down to a semantic misunderstanding on Wren-Lewis’ choice of words.”

    Nope. Nice try, but playing the semantics game isn’t going to help you.

    “MF: “Wren-Lewis is “implicitly holding I constant”? That’s just you presuming a particular model that is totally apart from consumption smoothing. If you hold I constant, then you are no longer talking about consumption smoothing. But since Wren-Lewis was talking about consumption smoothing…””

    “Do you realize that you just very nicely summarized Sumner’s criticism of Wren-Lewis?!!!!”

    Do you realize that you just agreed that WL cannot use consumption smoothing arguments to prove BBM is non-zero?

    “MF: “How can you interpret “consumers spending” to be “consumers consuming and investors investing”? That’s crazy! You’re resorting to changing the entire definitions of commonly understood economic phrases and words.””

    “No, I’m using the common english definition of “consumer.” For example, I am a consumer by most any english definition of “consumer” you care to try on. However, when I spend my money I engage in both consumption and investment in the national accounting senses.”

    So “consumer spending” is “consumer spending plus investment spending”? Good grief. Just look at the hole you had to dig yourself into. This is just sad.

    Next time you catch me ignoring something, I’ll just redefine my words to include what you said I ignored.

    Oh, I ignored government spending G? Don’t worry, when I said C + I + (X-M), I REALLY meant C + I + G + (X-M). The G is silent. Like John Schultz’ ability to accept when a Keynesian made a small error.

    “Indeed, there are very few private sector entities that engage solely in consumption or solely in investment. In fact, I can’t think of any off the top of my head.”

    Blah blah blah huh? Something’s got to stick eventually.

    “You are saying: ‘How can John, a consumer, possibly engage in both consumption and investment? That’s crazy!’”

    No, I am saying “How can you call consumer spending “consumers spending plus investors investing?”

    ““You’re so worried about him being labelled a bad economist that you will refuse to even consider the possibility that he can be wrong.””

    “I don’t reject him being a bad economist as possible. I reject it as unlikely in this particular instance given that a very mild restatement of his argument clears up all of Sumner’s criticisms.”

    What you call a “mild restatement”, is in fact a total change in what he said. If you include I, then consumption smoothing cannot be used to disprove someone who holds BBM = 0.

    “I’m giving him the benefit of the doubt that his english in a blog was slightly less precise than it could have been and that it lead to confusion here.”

    You’re not trying to give others equal benefit of the doubt when your ideology conflicts with them.

  70. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:01

    DR: “Cochrane: If P1 (bridge and tax) then Q (BBM of 0.) Logically, not-Q implies not-P1

    Wren-Lewis: If P1 and P2 (whatever else he assumed) then not-Q. If Cochrane is correct, then, P1 and P2 implies not-P1, which is a contradiction.

    So, if Cochrane is correct, then P2 must be impossible. Not certain. Not even likely. Just possible.”

    I don’t think that’s right. Say P2 = “cheddar cheese is yellow.”

    I agree that if you assume both Cochrane’s and Wren-Lewis’ arguments are correct that you come to a contradiction, but that isn’t saying much. It just says that at least one of their arguments must be wrong.

  71. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 10:01

    John Schultz:

    “MF: “Absolutely false. If consumers maintain their consumption in the face of a tax hike, then they cannot possibly “add” to their savings. They can only reduce their accumulated savings.””

    “Yes. I said “Consumption smoothing is the concept that in the face of temporarily decreased … income that “consumers” try to maintain their consumption by eating into … their savings.””

    In taxation, maintaining consumption means that savings are eaten into. The context is tax hike, not tax decreases.

    “PS – Calm down and don’t assume I’m a partisan, Keynesian devil simply because I’m arguing that you and Sumner had a minor misunderstanding of Wren-Lewis because he used potentially confusing language. I can see how his use of the word “consumers” could cause confusion depending on the precise definition of that word that you choose to use.”

    I am calm. I just find it disgusting to watch the lengths that you true believers will go to defend your ilk, rather than focusing on the arguments only.

    You are not fooling anyone by pretending that “consumer spending” includes “investors investing.”

    “MF: “That’s just your silly reinterpretation.””

    “Then ask yourself why Wren-Lewis says “smooth over time.””

    Because he thought smoothing consumption over time leads to a boost in aggregate demand in the present, and is enough to refute the conjecture that BBM is zero, by failing to take into account investment spending, which when taken into account, does not refute the conjecture that BBM is zero.

    “Once the stimulus and tax passes why wouldn’t the economy return to it’s former equilibrium based on your and Sumner’s interpretation?”

    Economy’s can’t “return” to anything. Time always goes forward. The past is never repeated. If taxes are raised, than it is POSSIBLE that investment is sacrificed, and because that, we will never benefit from that investment and everything subsequent to it.

    “Why is Wren-Lewis saying there is some kind of persistent effect?”

    Ask him.

    “Is he just making mistake after mistake with no understanding of consumption smoothing in the permanent income sense or is he just talking about a completely different concept and effect than you assumed he was?”

    I think WL failed to take into account investment spending because he assumed it away as is almost universally the case in these types of models. Just look at D R’s examples. He held investment as unchanged to allegedly prove that WL was right in his criticism of Cochrane.

    “For me, it was pretty clear that the reason he was talking about the response over time is because he is talking about a RE response due to a temporary expansion of government.”

    That doesn’t follow.

    “Also, the fact that Wren-Lewis’ was generated in the midst of a public debate conducted by Krugman and DeLong on how Lucas and Cochrane seemingly don’t fully understand the implications of their own models, especially Ricardian Equivalence, was a big hint that the post was about RE and not some other concept.”

    Even if RE is or is not taken into account, the fact that the 100 in taxes can possibly reduce investment, is enough to refute the notion that consumption smoothing alone can prove BBM to be non-zero.

  72. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 10:04

    D R:

    “Major, in that case, Sumner is saying nothing of import whatsoever.”

    Wrong. It is important to knowing that, contrary Wren-Lewis, BBM can in fact be zero even including consumption smoothing.

    “Cochrane: If P1 (bridge and tax) then Q (BBM of 0.) Logically, not-Q implies not-P1″

    “Wren-Lewis: If P1 and P2 (whatever else he assumed) then not-Q. If Cochrane is correct, then, P1 and P2 implies not-P1, which is a contradiction.”

    “So, if Cochrane is correct, then P2 must be impossible. Not certain. Not even likely. Just possible.”

    This is NOT about Cochrane being correct or incorrect! For Pete’s sake DR, you’ve been told repeatedly that this is not about whether or not Cochrane holding BBM=0 is correct or incorrect. The point is that BBM can be zero even in the presence of consumption smoothing over time.

  73. Gravatar of D R D R
    18. January 2012 at 10:07

    “I don’t think that’s right. Say P2 = “cheddar cheese is yellow.”

    “I agree that if you assume both Cochrane’s and Wren-Lewis’ arguments are correct that you come to a contradiction, but that isn’t saying much. It just says that at least one of their arguments must be wrong.”

    John, I appreciate the effort to address my argument on the merits. That was sloppy of me. You are correct. If Cochrane is correct, then Wren-Lewis *must* be wrong.

    Not *may* be wrong, but must. We wind up at the same place.

  74. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 10:09

    John Schultz:

    “I agree that if you assume both Cochrane’s and Wren-Lewis’ arguments are correct that you come to a contradiction, but that isn’t saying much. It just says that at least one of their arguments must be wrong.”

    No John, this isn’t about who among Cochrane or WL is “right.”

    This is ONLY about the assertion that BBM can be shown to be zero by taking into account consumption smoothing over time. That’s it! That’s all this whole charade has been about.

    You chickens are getting your feathers all riled up because one of your roosters was corrected by a rooster from another chickencoop.

    I see Sumner meekly, then sternly after being attacked, pointing out that BBM can be zero even with consumption smoothing, because investment is not necessarily unchanged.

    I see you as “cluck cluck cluck cluck!”

  75. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 10:12

    D R:

    “John, I appreciate the effort to address my argument on the merits. That was sloppy of me. You are correct. If Cochrane is correct, then Wren-Lewis *must* be wrong.”

    No DR, that is not correct. “It”, meaning this blog, is not about whether Cochrane is right that the BBM is zero, or whether WL is right that BBM is positive. The BBM can be positive or zero depending on what assumptions you make.

    The actual argument is that WL’s criticism of Cochrane is flawed. This doesn’t mean Cochrane has to be right himself.

    You do understand the difference between pointing out when someone isn’t playing fair in a fighting match, and not liking fighting and thinking both fighters are wrong, don’t you?

  76. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:16

    MF, if in a casual dialogue someone says that “if the government raises taxes, then consumers will reduce their spending in response”

    (a) Do you honestly believe that they are only talking about consumption, in the national accounting sense? That is, you think a valid implication of their statement is that the speaker doesn’t think, for example, new car sales will be affected by the taxation in the least? Would you honestly attempt to “nail” them for completely ignoring investment in the national accounting sense?

    and

    (b) If someone else interpreted that same statement to mean spending on both consumed goods and capital goods, then would you honestly deduce that they must be an ideological, partisan, marxist Keynesian?

  77. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:21

    MF: Minor point, but I still don’t where we are disagreeing when I say

    “Consumption smoothing is the concept that in the face of temporarily decreased … income [i.e. - a tax hike] that “consumers” try to maintain their consumption by eating into … their savings.”

    and you say,

    “In taxation, maintaining consumption means that savings are eaten into. The context is tax hike, not tax decreases.”

    Please re-read these two statements closely and point out the disagreement to me because I’m at a loss over where we are disagreeing.

  78. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:23

    “John, I appreciate the effort to address my argument on the merits. That was sloppy of me. You are correct. If Cochrane is correct, then Wren-Lewis *must* be wrong.

    Not *may* be wrong, but must.”

    I agree.

    “We wind up at the same place.”

    If by “the same place” you mean back to the beginning of arguing over whether Cochrane’s or Wren-Lewis’ arguments are right or wrong, then I agree.

    :)

  79. Gravatar of D R D R
    18. January 2012 at 10:26

    “The point is that BBM can be zero even in the presence of consumption smoothing over time.”

    This would imply that Wren-Lewis was wrong only in the sense that he left unstated a critical assumption. Unlike Cochrane, who left out *all* his assumptions– we have no way of taking his argument concerning forced transfers and extending to the general case– Wren-Lewis did not leave all that much wiggle room according to Sumner’s read.

    So, we *can* assume that Wren-Lewis left unstated some assumption which makes his whole argument fall apart, or we can assume that Wren-Lewis left unstated some assumption by which his case succeeds.

    I freely admit that what I just wrote could apply equally to treatment of Cochrane. I do not, however, accept that there is an equivalence deserving of equal treatment; Wren-Lewis narrowed us down to a relatively narrow class of models while Cochrane gave us nothing.

  80. Gravatar of D R D R
    18. January 2012 at 10:34

    “If by ‘the same place’ you mean back to the beginning of arguing over whether Cochrane’s or Wren-Lewis’ arguments are right or wrong, then I agree.”

    Would you like to start over? OK. I take the position that Wren-Lewis is correct, and it is possible for the multiplier on tax-financed infrastructure to be positive. I say that in response to G+100, T+100 the economy will arrive at C-5 and I-20. This implies Y+75– implying a BBM of 0.75, which is greater than zero. Further, it implies Yd-25– consistent with consumption smoothing by a factor of 5. This implies that Sp-125, Sg+100, S-25– so S=I.

    What say you?

  81. Gravatar of D R D R
    18. January 2012 at 10:37

    Argh. Sloppy. The last set of implications are:

    C-5, I-20, G+100, T+100, Y+75, Yd-25, Sp-20, Sg+0, I-20

  82. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:42

    “Do you realize that you just agreed that WL cannot use consumption smoothing arguments to prove BBM is non-zero?”

    Yes, I completely understand your and Sumner’s point.

    I simply reject your premise that Wren-Lewis meant “consumption smoothing” the exact way that you are using it by saying “consumers will smooth this effect over time.”

  83. Gravatar of Cthorm Cthorm
    18. January 2012 at 10:50

    @D R,

    Where do you find the time? You’ve probably written at least as many lines as Sumner, Krugman, Wren-Lewis, Lucas, and Cochrane combined. All of this over the most abstract macroeconomic model. C+I+G=Y. This is like trying to reason from PV=nRT when the topic is quantum mechanics.

  84. Gravatar of D R D R
    18. January 2012 at 10:52

    Cthorm,

    I’ve actually learned quite a lot in all this. Which I realize does not answer your question.

  85. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:54

    DR: “I say that in response to G+100, T+100 the economy will arrive at C-5 and I-20. This implies Y+75– implying a BBM of 0.75, which is greater than zero. Further, it implies Yd-25– consistent with consumption smoothing by a factor of 5 …

    What say you?”

    I say that your accounting is correct and demonstrates a consumption smoothing factor, but that’s not saying much.

    The problem with your argument is that you basically assumed where C and I end up, or alternatively where Y ends up, and then analytically worked backwards to find specific values of all the variables that satisfies the accounting and consumption smoothing constraints. You did all that without making any argument about why the variables respond the way you laid out.

    So, you essentially assumed some model about how the world works and then demonstrated that in your model the national accounting identity holds and consumption smoothing is demonstrated. For me, that says next to nothing about whether or not your chosen model is a good model of the real world, which is ultimately what we all want to be discussing.

  86. Gravatar of John Schultz John Schultz
    18. January 2012 at 10:59

    Sorry,

    “I say that your accounting is correct, demonstrates a consumption smoothing factor and yields a BBM greater than zero, but that’s not saying much.”

    “For me, that says next to nothing about whether or not your chosen model is a good model of the real world, which is ultimately what we all want to be discussing. That is the true argument between the Keynesians and the freshwaters and it probably can only be determined based on convincing empirical evidence, which is very hard to obtain in macroeconomics …

  87. Gravatar of John Schultz John Schultz
    18. January 2012 at 11:03

    DR: If you assume Cochrane’s (unspecified) model and can show a BBM > 0 (might be impossible because maybe BBM <= 0 is a premise of his model), then you will be making some real headway.

    That is what Krugman et al were trying to do to at knock down the idea that Ricardian Equivalence precludes the possibility of fiscal stimulus working in the short run.

  88. Gravatar of BW BW
    18. January 2012 at 11:06

    This whole discussion, by the way, is a great illustration of why economists need to do a better job of developing communication skills if they want to be taken seriously outside of the academy.

    Say what you want about Krugman, but he clearly states his ideas and there is usually little question about what he is arguing. What he is arguing might be wrong occasionally/sometimes/almost all the time, but he’s a good communicator. Not always.

    Of course, he’s gotten better with practice. Fifteen years ago, when he was writing for Slate, he wasn’t always so clear. I wish he had been clearer about his Euro-skepticism, for instance. Not that it would have made much difference, but I found his arguments against the euro not that convincing. How wrong I was.

    Whether or not Sumner has been right all along (I think not, and even if he’s right now, of which I’m not sure, I think he’s changed his argument, which is never a problem unless the speaker is bragging that he was right all along), what’s clear is that the communication of those ideas has been poor. Whether or not Scott meant to derive empirical consequences from an accounting identity (which is always a category mistake), it sure seemed like it.

    I don’t think I agree with Krugman that “a little bit of math” helps. My rule of thumb is that, unless we are talking about saffron or cayenne, little bits are dangerous. A little bit of math can easily lead one astray. The key is to be clear in one’s mind and be able to step back and contemplate what snags might arise in presenting the ideas. Math is not a substitute for that.

  89. Gravatar of D R D R
    18. January 2012 at 11:09

    “I say that your accounting is correct, demonstrates a consumption smoothing factor and yields a BBM greater than zero, but that’s not saying much.”

    But that is enough. P1 and (my) P2 are self-consistent. The argument may be laughably flimsy. I’m not asking you to accept P2 as true– merely that P1 and P2 imply not-Q.

  90. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 11:13

    John Schultz:

    “MF, if in a casual dialogue someone says that “if the government raises taxes, then consumers will reduce their spending in response””

    “(a) Do you honestly believe that they are only talking about consumption…”

    When I see someone write:

    “Both make the same simple error. If you spend X at time t to build a bridge, aggregate demand increases by X at time t. If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X. Put the two together and aggregate demand rises.”

    Consumption smoothing is about smoothing consumption spending, not C + I spending.

    So, to answer your question, it’s not about “belief”. It is what is being written.

    My guess for why Wren-Lewis failed to take into account investment spending because his worldview is so consumer driven to begin with. I honestly don’t know why he made this mistake, but it’s not important anyway.

    “(b) If someone else interpreted that same statement to mean spending on both consumed goods and capital goods, then would you honestly deduce that they must be an ideological, partisan, marxist Keynesian?”

    No. Just ideological and partisan.

  91. Gravatar of D R D R
    18. January 2012 at 11:20

    John,

    I’m game. Tell me what Cochrane’s unspecified model is.

    If you want to say that Cochrane’s argument is that Q implies Q, then go ahead. But that is most certainly *not* a proof that Q is true, and in response to his statement:

    “if you want to defend stimulus, you have to tell us which of the ‘ifs’ you disagree with.” I can respond with, “Q. I don’t agree with Q. I say not-Q.”

    And he must accept that my argument is just as valid.

    However, even I give Cochrane more credit than that.

  92. Gravatar of anon/portly anon/portly
    18. January 2012 at 11:20

    “Then Wren-Lewis said fiscal stimulus would work because G would rise more than C fell, forgetting that I also fell!!”

    I have thought all along that this was the wrong “take” on Wren-Lewis’s argument. I would interpret him as saying that if you have an increase in G, and consumption smoothing, then you will have an increase in AD regardless of what you assume about how the equilibrium level of saving and investment is realized.

    In other words, not that he “forgot” about I and S, but that he assumes (or thinks it goes without saying) that the equilibrium change (fall) in S will be less than the change in G minus the change in C.

    [BTW in the comments at Uneasy Money John Hall points out that Glasner's model has a problem; using C = 10 + .5Y if you take away the T and G you will have Y = 420, which doesn't compare with the Y = 400 case Glasner began with. Hall suggests using C = 10 + .475Y, which makes the problem go away, but reduces the multiplier from .2 to .05 .

    Of course all Glasner is really showing is that you figure out how much I has to fall to get BBM = 0 without consumption smoothing, then combine that change in I with consumption smoothing, you will get BBM > 0. But this seems obvious because with consumption smooothing the fall in C will be less, so the (equilibrium) fall in I required for BBM = 0 must be greater.]

  93. Gravatar of D R D R
    18. January 2012 at 11:21

    John,

    “My guess for why Wren-Lewis failed to take into account investment spending because his worldview is so consumer driven to begin with. I honestly don’t know why he made this mistake, but it’s not important anyway.”

    What mistake? What makes you think he failed to take into account investment spending?

  94. Gravatar of anon/portly anon/portly
    18. January 2012 at 11:25

    “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.”

    This is the single worst thing Scott Sumner has ever written, the first truly bad thing. No! We don’t want Krugman to be less Krugmanish, we want him to be more Krugmanish. More irascible, more dismissive, more brilliant. We don’t want some dull, tepid Krugman. Next thing we’ll be hearing that Delong should be a little less over-the-top in his knight-errantry on Krugman’s behalf. No!

    Krugman: “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.”

    Yes, this blandly mischaracterizes both Sumner’s views (which are the opposite) and the point of the argument (Wren-Lewis was saying “must be” not “can be”). Sure, if he was going to post three times, he could have made a little more effort. But I think it just suggests that to Krugman, the suggestion that he and Wren-Lewis forgot S = I was so silly, he’s at a bit of a loss what to say. So he just fell back on the Fama/Cochrane thing.

    You could call his efforts “lashing out” or you could just say that’s his style. It’s an effective style! I don’t think he’s “become his own worst enemy,” I think it’s working pretty well for him.

    Btw, here is my favorite comment about this whole thing, from progrowthliberal at Econospeak:

    “Sumner tried to tease out the proposition that a rise in government purchases has no effect on the real economy from an identity….”

    http://econospeak.blogspot.com/2012/01/scott-sumner-v-paul-krugman-on-simple.html

    He’s zoomed right past the standard “incuriosity about Sumner’s views” and arrived at “total detachment from the idea that any familiarity with Sumner’s views is necessary or even a good thing.”

  95. Gravatar of D R D R
    18. January 2012 at 11:25

    anon/portly,

    Thanks for jumping in. You said,

    “In other words, not that he ‘forgot’ about I and S, but that he assumes (or thinks it goes without saying) that the equilibrium change (fall) in S will be less than the change in G minus the change in C.”

    I took this to it’s logical extreme and said that the fall in S is zero. (This would help explain why I was not mentioned explicitly.)

    Do you see anything wrong with that?

  96. Gravatar of Kevin Donoghue Kevin Donoghue
    18. January 2012 at 11:34

    Folks, you’ll see I=f(r) in a lot of textbooks. Not I=f(T) or I=f(r,T). So IT = 0 doesn’t seem like such a daft assumption. But seriously, who cares? I’ve had a look at some of Simon Wren-Lewis’s lecture notes and I’m pretty sure the man knows his stuff. If Scott thinks he’s gotta gotcha, let him bask in that glow.

  97. Gravatar of johnleemk johnleemk
    18. January 2012 at 11:36

    BW,

    There’s probably correlation with political/policy views here, but IMO Krugman’s writing has degraded somewhat since he left Slate. This isn’t so much about its content, though (although that indubitably has changed), as its tone. The old Krugman was considerably politer to those he disagreed with. Maybe he’s just polite to left-wing critics and rude to right-wing critics.

    I do agree that Krugman is one of the best economics writers out there. But it’s a mistake to assume that therefore his argument must be right as a general rule.

    It’s also worth noting that unlike Krugman, Sumner tends less to write for a general audience. This blog tends to assume some familiarity with economics concepts and jargon, although (and definitely unlike Krugman) Scott is patient to a fault in the comments section when it comes to explaining something that lay readers might not understand.

    John Schultz,

    So you’re holding Wren-Lewis to the standard of “casual conversation” then? That’s certainly not the standard he held Cochrane and Lucas to. In casual conversation, their statements are more defensible than ever, since one wouldn’t necessarily produce an in-depth explanation of one’s macroeconomic model at a cocktail party.

    If Wren-Lewis is going to say that Lucas and Cochrane were wrong because they didn’t say something that would pass muster in a basic macro exam, Sumner is perfectly right to point out that what Wren-Lewis said is equally faulty. No examiner worth his or her salt would let a student get away with determining national income purely on the basis of consumer spending.

    And again, as Scott said elsewhere, it’s telling that this is a routine mistake (or “less correct statement” if you will) Keynesians make. Sloppy writing betrays sloppy thinking. If a student consistently did this, he or she would not get an A for macro.

  98. Gravatar of Kevin Donoghue Kevin Donoghue
    18. January 2012 at 11:36

    Damn, that was supposed to be I subscript T, indicating a partial derivative, but the HTML didn’t work.

  99. Gravatar of D R D R
    18. January 2012 at 11:40

    “If Wren-Lewis is going to say that Lucas and Cochrane were wrong because they didn’t say something that would pass muster in a basic macro exam…”

    Straw man. In his “theorem” Cochrane didn’t make an argument regarding tax-financed infrastructure at all.

  100. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 11:43

    D R:

    “The point is that BBM can be zero even in the presence of consumption smoothing over time.”

    “This would imply that Wren-Lewis was wrong only in the sense that he left unstated a critical assumption.”

    That is an interesting way of conceding Sumner’s point.

    “Unlike Cochrane, who left out *all* his assumptions– we have no way of taking his argument concerning forced transfers and extending to the general case– Wren-Lewis did not leave all that much wiggle room according to Sumner’s read.”

    This is not about proving Cochrane right or wrong.

    “So, we *can* assume that Wren-Lewis left unstated some assumption which makes his whole argument fall apart, or we can assume that Wren-Lewis left unstated some assumption by which his case succeeds.”

    We *should* assume that WL left out investment, because he did, and we should understand that as being the reason for why he was wrong to claim that consumption smoothing necessarily leads to consumer spending falling by less than T, and hence positive BBM, and hence boost to aggregate demand.

    But if consumer spending falls by less than T, then that doesn’t say anything about investment, which means it does not follow from consumption smoothing that BBM is positive.

    Now, if you ask me for what I personally think, I think that even if we treat “consumer spending” as both “consumption and investment”, then it is simply impossible for the decrease in this sum to be less than the increase in T, which means BBM can’t be anything BUT zero if the spending is tax financed. This is because taxation is collected on money that is not hoarded, but used in transactions that is contained in NGDP. The government doesn’t raises taxes on people’s bank accounts, they raise taxes on people’s incomes and sales, i.e. on their transactions. This means that whatever money the government takes and then spends from within the transaction sphere, is money that would have otherwise already been in the transaction sphere. There cannot possibly be a boost to aggregate demand through tax financed spending.

    Only if taxes were imposed on cash holdings, like the Kings of yore, could a tax financed spending spree boost aggregate demand.

    This is not Sumner’s argument, it’s mine, so take it for what it’s worth.

    “I freely admit that what I just wrote could apply equally to treatment of Cochrane. I do not, however, accept that there is an equivalence deserving of equal treatment; Wren-Lewis narrowed us down to a relatively narrow class of models while Cochrane gave us nothing.”

    Who cares. I am not defending Cochrane.

    “Would you like to start over? OK. I take the position that Wren-Lewis is correct, and it is possible for the multiplier on tax-financed infrastructure to be positive.”

    “I say that in response to G+100, T+100 the economy will arrive at C-5 and I-20. This implies Y+75– implying a BBM of 0.75, which is greater than zero.

    What about the loss of 100 consumer spending and investment spending that the taxation itself made impossible? Yes, it is possible that people would not have spent or invested that 100 and kept it as cash, and that a rise in taxation was then accompanied by a rise in consumer and investment spending, leading to a taxation of 100 on those transactions, but it’s that so very unlikely? Doesn’t it stand to reason that this 100 taxed would have otherwise been used in transactions? After all, the government taxes transactions, not cash balances. It is far more likely that the entirety of the taxed transactions would have remained in transactions, thus contributing to AD from the private sector side. BBM would almost certainly be closer to 0. But again, this is a counterfactual so we can’t say with certainty.

    But is the incredibly unlikely scenario of that 100 in taxes to have otherwise been held as cash, justification for accepting tax financed stimulus, ever?

    This is what your worldview requires us to believe. Suppose I have X amount of money. I plan on holding it as cash for the next week, after which I will spend it. Today, the government announces a tax hike on transactions where they plan to collect 100 more in taxes. So what do I do? I consume and invest MORE than what I otherwise would have consumed and invested, so that the money that was originally going to remain as cash, is instead put into circulation, whereby the government than taxes those transactions in the amount of 100, then they spend it.

    Now, this whole debate is so silly because you Keynesians are completely ignoring all this, and you are instead focusing on what happens after the tax and spend, as if THAT is the decisive factor in determining the effect of taxation on NGDP. You can’t do that. You have to think of what otherwise would have happened had the government not raised taxes.

    It is far more likely that if the government didn’t raise the tax on transactions, that the transactions would have contained that additional money anyway, or at least the overwhelming majority. Fundamentally, we are to believe that government raising taxes on transactions leads to people holding smaller cash balances than they otherwise would have held. But that isn’t likely at all. With higher taxes, people will likely keep the same cash balances as they otherwise would have had (not in comparison with their past balances), spend the same in nominal terms as they otherwise would have spent (again, not in comparison with their past spending), which means all taxes will likely do is shift spending away from where the private sector would have otherwise spent, to the public sector instead. The BBM would almost certainly be close to, or very very close to, zero. It’s impossible to know for sure, because again we’re talking counterfactuals.

    You see, your problem is that you are not comparing the correct spheres. You’re comparing before and after when you should be comparing what happens with what otherwise would have happened had the taxing not taken place.

    Since taxation is collected on money that is in transactions, it is reasonable to assume that without the taxes, the that entire sum of money would have been in transactions anyway, which means NGDP would have been the same, which means BBM is zero, which means tax financed stimulus is most likely not an aggregate demand stimulus at all, but merely a transfer of spending from party A to party B.

    Wren-Lewis believes that taxation just takes money that is otherwise hoarded. He seems to have no clue that taxation is collected on money already in transactions, not in cash balances.

    “Further, it implies Yd-25– consistent with consumption smoothing by a factor of 5. This implies that Sp-125, Sg+100, S-25– so S=I.”

    “What say you?”

    I say you’re just assuming AD rises because you are assuming your model is the correct one that explains the counter-factual.

  101. Gravatar of tom tom
    18. January 2012 at 11:43

    anon good finding at econospeak
    Scott is arguing even without reading Woodford’s paper it’s amazing

  102. Gravatar of D R D R
    18. January 2012 at 11:46

    OK… I went to far on that one. Saying nothing would (I imagine) not in fact pass muster. Still, straw man.

  103. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 11:47

    D R:

    “John,”

    “My guess for why Wren-Lewis failed to take into account investment spending because his worldview is so consumer driven to begin with. I honestly don’t know why he made this mistake, but it’s not important anyway.”

    “What mistake? What makes you think he failed to take into account investment spending?”

    The fact that he only included consumer spending.

    And it was me, Major, who said that, not John. You don’t even know who you’re even talking to any more do you? It’s all just a blur.

  104. Gravatar of Kevin Donoghue Kevin Donoghue
    18. January 2012 at 11:48

    No examiner worth his or her salt would let a student get away with determining national income purely on the basis of consumer spending.

    Not so. Many textbook models abstract from investment, government spending and net exports. So the goods-market clearing condition is just C=Y. It all depends on the context.

  105. Gravatar of D R D R
    18. January 2012 at 11:49

    “But is the incredibly unlikely scenario of that 100 in taxes to have otherwise been held as cash, justification for accepting tax financed stimulus, ever?”

    No, I am not saying that this argument is sufficient justification for tax financed infrastructure. I am saying “Wren-Lewis is correct, and it is possible for the multiplier on tax-financed infrastructure to be positive.”

  106. Gravatar of D R D R
    18. January 2012 at 11:50

    Major,

    “The fact that he only included consumer spending.”

    What makes you think that including investment hurts, rather than helps, his case?

  107. Gravatar of D R D R
    18. January 2012 at 11:55

    “And it was me, Major, who said that, not John. You don’t even know who you’re even talking to any more do you? It’s all just a blur.”

    Are my arguments any less valid if I make them to John?

  108. Gravatar of johnleemk johnleemk
    18. January 2012 at 11:55

    D R,

    Is what I said a strawman? I think I restated what Wren-Lewis said about Lucas’s and Cochrane’s statements.

    Kevin,

    In that case, let’s give Lucas and Cochrane a free pass too since there are models which would support their statements. We’re still holding different people to different standards as things stand.

  109. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 11:56

    D R:

    “But is the incredibly unlikely scenario of that 100 in taxes to have otherwise been held as cash, justification for accepting tax financed stimulus, ever?”

    “No, I am not saying that this argument is sufficient justification for tax financed infrastructure. I am saying “Wren-Lewis is correct, and it is possible for the multiplier on tax-financed infrastructure to be positive.””

    But that isn’t what he argued. He argued that it is wrong to assume that the BBM is zero when taking consumption smoothing into account. That argument is not correct.

    “Major,”

    “The fact that he only included consumer spending.”

    “What makes you think that including investment hurts, rather than helps, his case?”

    I am not saying investment should be included in the concept “consumer spending”. I am saying investment should be included in the argument so that instead of just consumer spending, it is consumer spending plus investors investing, in which case consumption smoothing cannot be used to disprove someone who holds the BBM to be zero.

  110. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 11:58

    D R:

    “And it was me, Major, who said that, not John. You don’t even know who you’re even talking to any more do you? It’s all just a blur.”

    “Are my arguments any less valid if I make them to John?”

    No, but it does show you’re not thinking straight, which will hopefully lead you to doing some self-reflection, which will then hopefully lead to you realizing your arguments are not valid.

  111. Gravatar of D R D R
    18. January 2012 at 11:59

    “Is what I said a strawman? I think I restated what Wren-Lewis said about Lucas’s and Cochrane’s statements.”

    I need some more context. What did you say?

  112. Gravatar of John Schultz John Schultz
    18. January 2012 at 12:00

    MF: “Consumption smoothing is about smoothing consumption spending, not C + I spending.”

    Wren-Lewis never said “consumption smoothing” or “consumption spending.” Those phrases are what you (and Sumner) derived from his statements as his meaning.

    He said “If you raise taxes … consumers will smooth this effect over time, so their spending … will fall …”

    You latch onto the english phrases “consumers will smooth” and “[consumers'] spending” as meaning exactly, respectively, consumption smoothing and consumption spending in the national accounting sense.

    Once you’ve made that semantic leap, then you (Sumner) go on to demonstrate that Wren-Lewis’ argument does not imply his conclusion for multiple reasons.

    The problem I have with your argument is the semantic leap that you took. I reject your interpretation of Wren-Lewis’ english as not being what he actually meant.

    As I said before, consumers (and investors), in the english sense of the word(s), actually engage in both consumption and investment in the national accounting senses of those words. Assuming / asserting that,

    consumers (in english) = consumption (in national accounting)

    is pedantic thinking at best and purposely uncharitable reading at worst.

  113. Gravatar of Mike C Mike C
    18. January 2012 at 12:05

    This was my interpretation of the entire debate:

    Sumner is not saying anything absolute about the multiplier, only that consumption smoothing is not a guarantee that the multiplier will exceed 1.

    If the government builds a bridge for 100 dollars, we as consumers could pay for this by reducing our consumption wholly. However, because we often don’t want to do this (not to mention this project will take years), we will consume relatively more than we would have otherwise. Instead of wholly financing it, consumers are financing less than the whole amount. So instead of consumption dropping by X, it’s dropping by Y < X. This difference between X and Y is lost savings and investment. If we are consuming relatively more, we are saving relatively less. Therefore, the net benefit really comes down to whether the benefit of the bridge outweighs the opportunity cost of NOT using the savings/investment in another fashion.

    So I don't think Sumner was trying to say that the multiplier can't be more than one, just that it can't NECESSARILY be greater than one because of consumption smoothing.

  114. Gravatar of rob rob
    18. January 2012 at 12:05

    Can someone help me out here as I think I must be missing something basic ?

    Whichever way you look at it then in the situation described G increases consumption by 100 and T reduces it again by 100. As a response to T people adjust the way they divide their now smaller disposable income between S and C. If they save less and consume more then expenditure and AD has to increase. The fact that the extra money spent will lead to smaller inventories which may reduce I (as defined) does not change that.

    Can someone help me understand why Scott see AD as not changing ?

  115. Gravatar of BW BW
    18. January 2012 at 12:06

    Johnleemk,

    You’re right about Krugman’s tone. He has become more strident. I would say clearer, but more strident.

    I am generally not a fan of “two wrongs make a right” reasoning that proliferates on the blogosphere, and if I were Krugman’s adviser, I would suggest that he dial it down. On the other hand, Krugman has taken many more blows over the years than he’s delivered.

    Remember the “Krugman Truth Squad”? At the time, that was one of the most absurd things I had seen on the internet. A bunch of non-economist nobodies — including, if I recall, Andrew Sullivan!! — trying to “correct” all of Krugman’s “mistakes.” They were, to put it mildly, not polite. And while they were not always wrong, they were most of the time, for more or less the same reason that I would likely be wrong most of the time if I were a member of the “Stephen Hawking Truth Squad.”

    My point is that conservative lamentations about Krugman’s hubris, ego, incivility, etc. ring hollow to me. While there are undoubtedly exceptions, an awful lot of those complaints are the lamentations of sore losers. Especially those coming from Williamson and Cochrane, both of whom are insufferably arrogant and unjustifiably so.

    I don’t believe that Krugman is “right as a general rule,” and I don’t think anyone else does either. DeLong’s comments were obviously made in jest. I will say that I believe that Krugman has been generally right, but I’m not going to start believing a bunch of nonsense just because he spouts it.

    Some of my work is in law, and in law we talk of “persuasive authority.” Many judges, for instance, want to know what Posner has written on a subject when they decide an issue, even though Posner’s opinion is in no way binding on them. To be a bit Bayesian here, the fact that Posner believes X means that X is somewhat more likely to be true than a proposition Y that Posner has not endorsed (all else equal). The same is true for Krugman — when he writes something, that makes me more likely to believe it, but I’m not going to get anywhere near 100% confidence from Krugman’s word alone.

    Those who complain about Krugman-bots should keep that in mind. It may not be the views of everyone, but I’ll bet it describes more people than many think.

  116. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 12:09

    “MF: “Consumption smoothing is about smoothing consumption spending, not C + I spending.””

    “Wren-Lewis never said “consumption smoothing” or “consumption spending.” Those phrases are what you (and Sumner) derived from his statements as his meaning.”

    Wren-lewis wrote:

    “Both make the same simple error. If you spend X at time t to build a bridge, aggregate demand increases by X at time t. If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X. Put the two together and aggregate demand rises.”

    See that? Consumers smooth this effect over time. You’re being pedantic.

    “You latch onto the english phrases “consumers will smooth” and “[consumers'] spending” as meaning exactly, respectively, consumption smoothing and consumption spending in the national accounting sense.”

    Of course. “Taxes”, and “aggregate demand”, “consumers”, these are all aggregate, national accounting concepts. Again, you’re being pedantic.

    “Once you’ve made that semantic leap, then you (Sumner) go on to demonstrate that Wren-Lewis’ argument does not imply his conclusion for multiple reasons.”

    It’s not a “leap.” It’s plain English.

    “The problem I have with your argument is the semantic leap that you took. I reject your interpretation of Wren-Lewis’ english as not being what he actually meant.”

    I reject your semantic leap that by consumer spending, he meant consumer spending and investors investing. I reject your pathetic defense of what is in plain English, and commonly understood economic concepts like consumption smoothing. I reject you for insulting people’s intelligence and telling them that they aren’t reading someone correctly because they can’t divine beyond the English language and peer into the inner realms of what is true in some model, and then trying to shoehorn that model into what they said, regardless of whether or not you have to mangle the English language and economic concepts in the process.

    Stop playing people for fools.

    “As I said before, consumers (and investors), in the english sense of the word(s), actually engage in both consumption and investment in the national accounting senses of those words. Assuming / asserting that,”

    No, consumer spending is not investors investing. Stop butchering the English language to salvage an ideological ally’s incorrect argument.

    “consumers (in english) = consumption (in national accounting)”

    Semantics games.

    “is pedantic thinking at best and purposely uncharitable reading at worst.”

    You’re being pedantic and you’re being uncharitable to Sumner’s correct exposition of Wren-Lewis’ false assertion that consumption smoothing disproves a non-zero BBM.

    I think you should quit while you’re behind. I don’t know what else you can do to dig a deeper hole.

  117. Gravatar of D R D R
    18. January 2012 at 12:09

    “But that isn’t what he argued. He argued that it is wrong to assume that the BBM is zero when taking consumption smoothing into account. That argument is not correct.”

    Show me where he says this. As far as I see, you are mind-reading. He mentions consumption smoothing in his argument, and he mentions that Cochrane and Lucas have erred. I don’t see how you draw these two together.

    It seems to me the “error” is the failure to recognize the entire argument, not a part of it.

  118. Gravatar of Manny C Manny C
    18. January 2012 at 12:10

    “It takes me 1000 words to make the same point.”

    Yep, that’s the biggest criticism I have of your posts. They are too long! And you seem to assume things. Which might be fair to say a eco grad macro student, but not someone (like me) that’s only done Macro and Micro 101 and 102!

    I’ve got a summary of your NGDP futures targeting policy suggestion which I’ll post soon to see if you can give it the tick & / fill in gaps. I think this is pretty important to your argument.

    Keep up the awesome work. To see your name being thrown around in same sentence as Cochrane & Fama, you’re doing well.

  119. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 12:12

    rob:

    “Whichever way you look at it then in the situation described G increases consumption by 100 and T reduces it again by 100. As a response to T people adjust the way they divide their now smaller disposable income between S and C. If they save less and consume more then expenditure and AD has to increase. The fact that the extra money spent will lead to smaller inventories which may reduce I (as defined) does not change that.”

    “Can someone help me understand why Scott see AD as not changing?”

    He isn’t saying AD will definitely not change. He accepts possible worlds where it does increase. His point is that consumption smoothing arguments cannot disprove someone who claims AD does not change, because investment can fall as well even in a consumption smoothing scenario.

  120. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 12:19

    D R:

    “But that isn’t what he argued. He argued that it is wrong to assume that the BBM is zero when taking consumption smoothing into account. That argument is not correct.”

    “Show me where he says this.”

    http://mainlymacro.blogspot.com/2012/01/mistakes-and-ideology-in-macroeconomics.html

    Cochrane said:

    “Before we spend a trillion dollars or so, it’s important to understand how it’s supposed to work. Spending supported by taxes pretty obviously won’t work: If the government taxes A by $1 and gives the money to B, B can spend $1 more. But A spends $1 less and we are not collectively any better off.”

    Wren-Lewis said in response:

    “Both make the same simple error. If you spend X at time t to build a bridge, aggregate demand increases by X at time t. If you raise taxes by X at time t, consumers will smooth this effect over time, so their spending at time t will fall by much less than X. Put the two together and aggregate demand rises.”

    Now, look at what Cochrane said. Cochrane is saying that tax financed government spending has a BBM of zero.

    Wren-Lewis invoked the consumption smoothing doctrine to disprove the assertion that BBM is zero.

    Sumner said wait a minute, consumption smoothing cannot disprove the assertion that BBM is zero. The BBM may or may not be zero with tax financed stimulus, but you can’t get to there using the consumption smoothing route, because investment can also fall.

    “As far as I see, you are mind-reading. He mentions consumption smoothing in his argument, and he mentions that Cochrane and Lucas have erred. I don’t see how you draw these two together.”

    As far as I can see, you are butchering the English language, economic concepts, in order to shoehorn an intepretation of WL that no reasonable person would ever do, which is to believe that by consumers smoothing their spending, which clearly invokes Friedman, we are to instead interpret it as something no economists has ever done, which is treat “consumers smoothing their spending” to really mean “consumers smoothing their spending and investors smoothing their investing.”

    “It seems to me the “error” is the failure to recognize the entire argument, not a part of it.”

    I think there are now two errors here. One, Wren-Lewis’ error. Two, your error in actually believing your nonsense is believable, let alone not LOL funny.

  121. Gravatar of johnleemk johnleemk
    18. January 2012 at 12:30

    D R,

    You quoted me in your response. I’m not clear on which part of that quotation from me is meant to be a strawman.

    BW,

    While I generally agree with your criticism of Krugman’s critics, I think it is unfair to bucket Sumner with them. He is one critic of Krugman (along perhaps with Tyler Cowen) who has been quite fair to him. Krugman is an easy target for bashers who don’t care what he’s saying, yes. Which came first, his rudeness or theirs? Hard to say. At this point it’s probably a self-perpetuating cycle.

    But having said that I really think you don’t give Scott enough credit for his arguments. He is not a mindless basher who thinks Krugman can never be right. Then again, Scott isn’t writing for a general audience, so his responses are not always clear to a non-economist. (And sometimes, not even clear to economists, since he isn’t as good a writer as Krugman.)

    As for why I think you’re lumping Sumner in with the rest of Krugman’s conservative critics, correct me if I’m wrong, but you were one of Krugman’s defenders who argued that Sumner hasn’t offered any alternative to the fiscal stimulus which Krugman supports — even though Krugman himself endorsed the Sumnerite/market monetarist call for monetary stimulus a few months back.

    The main point of most posts on this blog which criticise Keynesians or Keynesianism is that they have overlooked that, at a bare minimum, monetary stimulus is a prerequisite for successful fiscal stimulus (and at best, monetary stimulus makes fiscal stimulus unnecessary). That’s what I think Scott generally tries to highlight when he seems to bash Keynesianism.

    John Schultz,

    Wren-Lewis talks about consumers smoothing their spending. What conclusion is one expected to draw from someone using words like that? Sloppy writing, sloppy thinking.

  122. Gravatar of D R D R
    18. January 2012 at 12:34

    “to believe that by consumers smoothing their spending, which clearly invokes Friedman, we are to instead interpret it as something no economists has ever done, which is treat ‘consumers smoothing their spending’ to really mean ‘consumers smoothing their spending and investors smoothing their investing.’”

    Sorry, I don’t interpret it that way at all. I interpret it as “consumers smooth their consumption spending and as a result consumption (and therefore output) must fall until savings and investment are brought into balance.”

    Alternately, one might interpret it as “consumers smooth their consumption, so consumption falls, but this leaves producers with increased inventory and thus investment *rises* by the amount of the fall in consumption”

    In this latter case, it’s true that Wren-Lewis failed to mention investment– but if he had that would have made his case stronger, not weaker. So I can afford to be generous and argue that it’s the former case.

  123. Gravatar of D R D R
    18. January 2012 at 12:44

    “You quoted me in your response. I’m not clear on which part of that quotation from me is meant to be a strawman.”

    Oh, that.

    “If Wren-Lewis is going to say that Lucas and Cochrane were wrong because they didn’t say something that would pass muster in a basic macro exam.”

    Wren-Lewis said they “made simple errors.” Wren-Lewis also said these errors “would lose marks”. He did not say that the latter implied the former.

    “A” and “B” does not imply “A implies B”

    If you plead an error in logic, I will withdraw the straw-man charge.

    We are way, way way off topic, though. Can we get back to econ?

  124. Gravatar of D R D R
    18. January 2012 at 12:45

    Er… sorry. I meant “A causes B”

  125. Gravatar of John Schultz John Schultz
    18. January 2012 at 12:52

    “No, consumer[s] spending is not investors investing. Stop butchering the English language to salvage an ideological ally’s incorrect argument.”

    You are the one being pedantic by insisting that the only possible interpretation is that Wren-Lewis used “consumers” to mean “consumption” in the national accounting sense.

    Again, simply change “consumers” to “the private sector” and none of your criticisms apply (he isn’t even talking about the same concepts that you are insisting upon) and Wren-Lewis’ argument is coherent and almost certainly correct in the real world.

    So you are left with the options that

    (a) Wren-Lewis used potentially confusing short hand in a logically coherent argument

    or

    (b) Wren-Lewis made a completely logically incoherent argument, seems to have no idea about what he’s talking and is ignoring huge components of national income.

    Given Wren-Lewis’ position and that it seemed to me he was aping Krugman’s RE argument, I am definitely going with (a).

    You are free to continue assuming that you’ve absolutely nailed him, but, honestly, you look quite small doing so.

  126. Gravatar of math math
    18. January 2012 at 12:54

    johnleemk: “I think it is unfair to bucket Sumner with them.”

    I found that Sumner thinks clearly (though not always writes frankly and to the point). That’s good. I think one can seldom find clear minds among economists (being a math guy myself).

  127. Gravatar of John Schultz John Schultz
    18. January 2012 at 12:58

    JLMK: “Wren-Lewis talks about consumers smoothing their spending. What conclusion is one expected to draw from someone using words like that? Sloppy writing, sloppy thinking.”

    Not being able to express yourself perfectly clearly in a single blog post does not necessarily imply sloppy thinking. English is a very imprecise language and we should always strive to understand what the writer actually means.

    I made the meaning of a single one of Wren-Lewis’ words more explicit / clear and it demolishes ALL of the criticism Sumner leveled. Again, Occam’s Razor and the imprecision of english argues that in such a case we should definitely give the benefit of the doubt to the writer.

  128. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:04

    D R:

    “to believe that by consumers smoothing their spending, which clearly invokes Friedman, we are to instead interpret it as something no economists has ever done, which is treat ‘consumers smoothing their spending’ to really mean ‘consumers smoothing their spending and investors smoothing their investing.’”

    “Sorry, I don’t interpret it that way at all. I interpret it as “consumers smooth their consumption spending and as a result consumption (and therefore output) must fall until savings and investment are brought into balance.”"

    First, do you not realize that you just contradicted yourself? First you said it is wrong to take WL to be referring to consumer spending when he said consumer spending. Now you’re saying OK, fine, let’s take it as consumer spending, but WL is still right because…uh, “falling consumer spending reduces output until savings and investment are back into balance.”

    Second, what you said is not even correct in itself. For falling consumer spending might be the outcome of a rise in investment spending, in which case output rises, not falls, and investment doesn’t have to fall to equal savings, because it is saving that is financing the investment. Furthermore, EVEN IF consumers just reduced their consumer spending, and started to accumulate cash balances, then we should WELCOME, and ENCOURAGE present output to fall from where it was before. It should be welcomed and encouraged because that is exactly what the consumers want! Consumers are cutting back on their present consumption! Why SHOULDN’T present production of consumer goods fall from where it was before?

    Isn’t it amazing how the Keynesian worldview is so fixated on maximizing spending and consumption that it is so easy to overlook the very reason why people work and produce all day in the first place, which is to consume?

    So what does it mean when consumers accumulate cash by reducing their consumer spending (and by “consumer spending” I trust that you understand that to mean FRIGGING CONSUMER SPENDING and not investment)? It means that they want to consume less in the present, and consume more in the future than they otherwise could have consumed had they not accumulated that cash.

    OK, so much for what the consumers want, and if you understand the whole purpose of the economy, which is to produce what the consumer wants, WHEN THEY WANT IT, then you should clean up the foam that is collecting at your mouth, and ask “What should investors and producers do differently, given the consumers’ new preferences?”

    Well, obviously the optimal solution is for investors and producers to start producing fewer consumer goods in the present, and start new projects that are geared towards consumer goods production and consumption in the future. This is trivial, right?

    Well, the next question should be “OK, that is what should happen, but is that what does happen if we just let people be free to trade?”

    The answer is yes. Why? Here’s why. If consumers cut back on their consumption spending, and accumulate cash, then this will generate a change in RELATIVE prices and profits between the various stages of production within the economy. Keynesians can’t see this because they are only focused on aggregates. If consumption spending declines, then all else equal that will generate relatively lower profits in consumer goods production, and relatively higher profits in capital goods production.

    Since investors chase profits, that will lead to a redirection of existing savings and capital away from consumer goods production (i.e. present consumption), and more towards capital goods production (i.e. future consumption).

    And wouldn’t you know it? That is EXACTLY what the consumers want!

    So just by the price system alone, consumers can coordinate themselves with investors, and a new “equilibrium” can be reached whereby the economy is now geared more heavily towards future, as opposed to present consumption.

    Yes this means output will fall. That’s GOOD.

    Yes this means there will have to be a reallocation of labor away from consumer goods industries, and towards capital goods industries. That’s GOOD.

    Yes this means that aggregate nominal spending will decline. That’s GOOD, because it leads to a higher purchasing power of money, which can then tie people over regarding consumption as they enter the capital goods stages.

    Yes this means that Keynesians are going to believe that the economy is in recession, when it really isn’t.

    Yes Keynesian policy makers will almost invariably respond to these events by attacking consumer sovereignty and forcing more present consumption at the expense of future consumption, and go against what consumers want, because Keynesians have to believe consumers don’t even know what they want, in order to justify the government’s grip over people’s economic lives, and they can’t do that if people are viewed as humans who know what they want.

    “Alternately, one might interpret it as “consumers smooth their consumption, so consumption falls, but this leaves producers with increased inventory and thus investment *rises* by the amount of the fall in consumption””

    “In this latter case, it’s true that Wren-Lewis failed to mention investment– but if he had that would have made his case stronger, not weaker. So I can afford to be generous and argue that it’s the former case.”

    No, it would have made his case WEAKER, not stronger. By including investment, then it is possible that BBM is zero, even in the presence of consumption smoothing, which means WL’s dependence on consumption smoothing in order to disprove a BBM of zero, is flat out incorrect.

  129. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:06

    John Schultz:

    “Not being able to express yourself perfectly clearly in a single blog post does not necessarily imply sloppy thinking.”

    Making an (minor) error in reasoning does not necessarily imply one is not being able to express oneself clearly.

    “I made the meaning of a single one of Wren-Lewis’ words more explicit / clear and it demolishes ALL of the criticism Sumner leveled.”

    You mean when you change the argument Sumner criticized, it means that Sumner’s criticism no longer applies? GET OUT!

  130. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:13

    John Schultz:

    “No, consumer[s] spending is not investors investing. Stop butchering the English language to salvage an ideological ally’s incorrect argument.”

    “You are the one being pedantic by insisting that the only possible interpretation is that Wren-Lewis used “consumers” to mean “consumption” in the national accounting sense.”

    No, YOU are being pedantic by insisting that consumer spending really means investment plus consumer spending.

    “Again, simply change “consumers” to “the private sector” and none of your criticisms apply (he isn’t even talking about the same concepts that you are insisting upon) and Wren-Lewis’ argument is coherent and almost certainly correct in the real world.”

    Again, changing people’s arguments and then saying that argument is correct, does not mean the original argument somehow becomes correct as well.

    And even if both consumer spending and investment were included, and WL presumes that the drop in consumption and investment is less than the tax hike, then that is no longer even talking about consumption smoothing, but “C + I smoothing”, which no economist talks about when they talk about Friedmanite consumption smoothing.

    “So you are left with the options that”

    “(a) Wren-Lewis used potentially confusing short hand in a logically coherent argument”

    No, it’s not “confusing short hand.” It is factually incorrect.

    “(b) Wren-Lewis made a completely logically incoherent argument, seems to have no idea about what he’s talking and is ignoring huge components of national income.”

    Nice exaggeration. You are presenting a false dichotomy. You expect people to believe he either wrote something a little misleading, but still knowing “the truth(tm)”, or he is a stupid, idiotic, incoherent moron who has no idea what planet he is on nor has any clue how basic national income works.

    Or, you know, we could take the more reasonable option, which is that Wren-Lewis, who is a very bright and intelligent economist, made a small mistake and got corrected on it.

    “Given Wren-Lewis’ position and that it seemed to me he was aping Krugman’s RE argument, I am definitely going with (a).”

    I’m definitely going with you not being able to accept that WL made a small error.

    “You are free to continue assuming that you’ve absolutely nailed him, but, honestly, you look quite small doing so.”

    How insulting to WL.

    Honestly, you look small by believing that your nonsense is anything but a desperate attempt to avoid saying a Keynesian made an error about something.

  131. Gravatar of John Schultz John Schultz
    18. January 2012 at 13:16

    MF: “Making an (minor) error in reasoning does not necessarily imply one is not being able to express oneself clearly.”

    Sure, what’s your point?

    If you go with your interpretation of Wren-Lewis, then he didn’t make a minor error in reasoning. His whole argument is logically incoherent and doesn’t even make sense in terms of itself as Sumner documented at length.

    “You mean when you change the argument Sumner criticized, it means that Sumner’s criticism no longer applies? GET OUT!”

    Not only that, but by slightly tweaking just one single word that Wren-Lewis’ argument becomes completely coherent and is most likely correct even with full Ricardian Equivalence and is almost surely correct in the real world.

    Again, you are left with the options that

    (a) Wren-Lewis used a noun with multiple meanings that is potentially confusing in a logically coherent argument

    or

    (b) Wren-Lewis made a completely logically incoherent argument, seems to have no idea about what he’s talking and is ignoring huge components of national income

    You are free to continue assuming that you’ve absolutely nailed him, but, honestly, you look quite small doing so.

  132. Gravatar of D R D R
    18. January 2012 at 13:17

    “Second, what you said is not even correct in itself. For falling consumer spending might be the outcome of a rise in investment spending, in which case output rises, not falls, and investment doesn’t have to fall to equal savings…”

    Might be. might be. I brought up this possibility in the next paragraph– the one which began “Alternately…”

  133. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:23

    John Schultz:

    “MF: “Making an (minor) error in reasoning does not necessarily imply one is not being able to express oneself clearly.”

    “Sure, what’s your point?”

    What was your point when you said:

    “Not being able to express yourself perfectly clearly in a single blog post does not necessarily imply sloppy thinking.”?

    “If you go with your interpretation of Wren-Lewis, then he didn’t make a minor error in reasoning. His whole argument is logically incoherent and doesn’t even make sense in terms of itself as Sumner documented at length.”

    No, it would not be incoherent. If consumer spending where the only spending, which is what his statements literally imply, then there is incoherence.

    “You mean when you change the argument Sumner criticized, it means that Sumner’s criticism no longer applies? GET OUT!”

    “Not only that, but by slightly tweaking just one single word that Wren-Lewis’ argument becomes completely coherent and is most likely correct even with full Ricardian Equivalence and is almost surely correct in the real world.”

    It’s interesting how you call totally changing the meaning of a word, by removing its typical meaning, and substituting in another one entirely, as “slightly tweaking.”

    “Again, you are left with the options that”

    I’ve already addressed those options. You’re ignoring the third option, which is that an otherwise intelligent and bright economist made a small error in thinking.

    “You are free to continue assuming that you’ve absolutely nailed him, but, honestly, you look quite small doing so.”

    Why are you repeating yourself in exactly the same way?

  134. Gravatar of John Schultz John Schultz
    18. January 2012 at 13:26

    “And even if both consumer spending and investment were included, and WL presumes that the drop in consumption and investment is less than the tax hike, then that is no longer even talking about consumption smoothing …”

    So far so good …

    “but “C + I smoothing”, which no economist talks about when they talk about Friedmanite consumption smoothing.”

    Argggghhhhhh! Off the rails again!!! You reintroduced talking about Friedman’s consumption smoothing, which is completely irrelevant to Wren-Lewis’ point!

    His point is that private sector output will slightly permanently drop as a RE reaction to the increase in government spending / taxation. That permanent drop in private sector output is the RE reaction to the taxation being spread over time from now to eternity. In the first year, the increased government expenditure will dominate the RE reaction, therefore, Y increases in the first year.

  135. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:31

    D R:

    “Second, what you said is not even correct in itself. For falling consumer spending might be the outcome of a rise in investment spending, in which case output rises, not falls, and investment doesn’t have to fall to equal savings…”

    “Might be. might be. I brought up this possibility in the next paragraph– the one which began “Alternately…”

    You misunderstand. It wasn’t that your option wasn’t a valid possible alternative among other valid possible alternatives, it’s that it isn’t even correct in itself.

    This “possible alternative”:

    “consumers smooth their consumption spending and as a result consumption (and therefore output) must fall until savings and investment are brought into balance.”

    Is factually incorrect. It does not follow from reduction in consumer spending that output MUST fall.

    Output MAY fall.

    Don’t you see how terrible the Keynesian system really is? You fall so easily into the trap of believing that ANY fall in consumption spending, “must” generate a fall in output.

    You see, it shouldn’t be so surprising for you guys when you hear the layman accuse you of being “vulgar consumptionists”, etc. I mean, just look at the nonsense you’re saying! You literally just said that a fall in consumption spending MUST reduce output!

    Or did your words get “misinterpreted”, such that by “must” you really meant “may”?

  136. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:36

    John Schultz:

    “And even if both consumer spending and investment were included, and WL presumes that the drop in consumption and investment is less than the tax hike, then that is no longer even talking about consumption smoothing …”

    “So far so good …”

    “but “C + I smoothing”, which no economist talks about when they talk about Friedmanite consumption smoothing.”

    “Argggghhhhhh! Off the rails again!!! You reintroduced talking about Friedman’s consumption smoothing, which is completely irrelevant to Wren-Lewis’ point!”

    ARRGGGGGHHHHH!!!!!!!! I didn’t “introduce” anything! WL did! WL introduced the concept of consumption smoothing, not me! AAAARRRRRGHHHH!!!!

    “His point is that private sector output will slightly permanently drop as a RE reaction to the increase in government spending / taxation.”

    No, his point is that AD will necessarily fall as long as consumption smoothing is assumed present in the presence of a tax hike.

    “That permanent drop in private sector output is the RE reaction to the taxation being spread over time from now to eternity.”

    WL was talking about aggregate demand, not physical output. Read his arguments again.

    “In the first year, the increased government expenditure will dominate the RE reaction, therefore, Y increases in the first year.”

    As is expected, you are conflating real physical output with aggregate spending. This is because you guys use the letter “Y” to represent both concepts, which confuses you into not being able to keep them distinct from each other at all times. Aggregate spending is NOT the same thing as aggregate real output. They can and do move in opposite directions.

  137. Gravatar of John Schultz John Schultz
    18. January 2012 at 13:42

    MF: “What was your point when you said:

    Me: “Not being able to express yourself perfectly clearly in a single blog post does not necessarily imply sloppy thinking.”?”

    I was responding to johnleemk who said: “Sloppy writing, sloppy thinking.”

    I was disagreeing that sloppy writing always necessarily implies sloppy thinking, which is how I interpreted his remark.

    How do you reconcile the statements:

    ML: “If consumer spending where the only spending, which is what his statements literally imply, then there is incoherence.”

    and

    Me: “If you go with your interpretation of Wren-Lewis, then … His whole argument is logically incoherent …”

    ML: “No, it would not be incoherent.”

    What the hell???

    ML: “It’s interesting how you call totally changing the meaning of a word, by removing its typical meaning, and substituting in another one entirely, as “slightly tweaking.””

    We’ll just have to agree to disagree. Using the term “consumers” as a short hand for “private sector spenders” does not seem like a long stretch at all to me.

    ML: “You’re ignoring the third option, which is that an otherwise intelligent and bright economist made a small error in thinking.”

    No that’s not really an option because if you go with your interpretation then Wren-Lewis made all sorts of very questionable assumptions, made completely illogical arguments (i.e. – circular reasoning: he essentially assumed what he set out to prove) and doesn’t seem to have any clue what Friedmanite consumption smoothing actually is.

    He either didn’t speak clearly enough to convey his actual meaning or his argument was disastrously, deeply wrong, illogical, etc. I don’t see any other options really.

  138. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 13:52

    John Schultz:

    “How do you reconcile the statements:”

    “ML: “If consumer spending where the only spending, which is what his statements literally imply, then there is incoherence.””

    and

    “Me: “If you go with your interpretation of Wren-Lewis, then … His whole argument is logically incoherent …””

    Oops. I meant to write “…then there is coherence.” as in “No, it would not be incoherent. If consumer spending where the only spending, which is what his statements literally imply, then there is coherence.”

    You said if investment is ignored, then WL’s arguments become incoherent. I wanted to say no it won’t be incoherent, it will be coherent, if it were true that consumer spending is the only spending.

    “We’ll just have to agree to disagree. Using the term “consumers” as a short hand for “private sector spenders” does not seem like a long stretch at all to me.”

    It’s not just about agreeing to disagree. Your interpretation requires a butchering of not only the English language, but also economic concepts like consumption smoothing. I’d rather give the benefit of the doubt to WL that he isn’t that muddleheaded.

    “ML: “You’re ignoring the third option, which is that an otherwise intelligent and bright economist made a small error in thinking.””

    “No that’s not really an option because if you go with your interpretation then Wren-Lewis made all sorts of very questionable assumptions, made completely illogical arguments (i.e. – circular reasoning: he essentially assumed what he set out to prove) and doesn’t seem to have any clue what Friedmanite consumption smoothing actually is.”

    That doesn’t make it not a reasonable option. It is very common for Keynesians to make circular arguments that just presume their model is true in the premises. It happens all the time. Small mistakes can do that.

    You want to believe that WL simply could not have made a mistake. You are refusing to accept he erred, and to justify this, you are either exaggerating the case and pretending that we have to think he’s totally clueless, or you are butchering the English language and economic concepts, in order to force a totally different set of arguments in replacement of his, which you hilariously believe is right, even though there are other, more serious questions with it than WL’s own arguments.

    “He either didn’t speak clearly enough to convey his actual meaning or his argument was disastrously, deeply wrong, illogical, etc. I don’t see any other options really.”

    Then open your eyes a little more. The other, obvious option, is that an otherwise intelligent economist made a simple mistake. Yes, MISTAKE. Oooooooooh!

  139. Gravatar of John Schultz John Schultz
    18. January 2012 at 13:54

    ML: “ARRGGGGGHHHHH!!!!!!!! I didn’t “introduce” anything! WL did! WL introduced the concept of consumption smoothing, not me! AAAARRRRRGHHHH!!!!”

    You seem constitutionally incapable of considering someone else’s (me) arguments in their own terms. I said replace “consumers” with “private sector”. That is:

    “If you spend X at time t to build a bridge, aggregate demand increases by X at time t. If you raise taxes by X at time t, [the private sector] will smooth this effect over time, so their spending at time t will fall by much less than X. Put the two together and aggregate demand rises.”

    From where on Earth did Friedman’s consumption smoothing concept come into play?

    If you are unwilling to consider your opponent’s counter argument in their own terms, then please allow me to introduce you to a wall instead of directing your comments to me.

    ML: “No, his point is that AD will necessarily fall as long as consumption smoothing is assumed present in the presence of a tax hike.”

    Nope! In his example the tax is only present for a single year (time slice)! Why would he say the effect (reaction) of the tax would be smoothed “over time” if he believed AD would fall only while the one year tax persisted?

  140. Gravatar of John Schultz John Schultz
    18. January 2012 at 14:03

    “Why would he say the effect (reaction) of the tax would be smoothed “over time” if he believed AD would fall only while the one year tax persisted?”

    The answer is that he believes AD will fall permanently from now to eternity (over time) because, by RE, the timing of the tax to pay for an expenditure doesn’t matter.

  141. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 14:15

    John Schultz:

    “ML: “ARRGGGGGHHHHH!!!!!!!! I didn’t “introduce” anything! WL did! WL introduced the concept of consumption smoothing, not me! AAAARRRRRGHHHH!!!!””

    “You seem constitutionally incapable of considering someone else’s (me) arguments in their own terms.”

    I think you’ve mistaken being in disagreement with being inconsiderate.

    “I said replace “consumers” with “private sector”.”

    I said that is not what WL was doing.

    “From where on Earth did Friedman’s consumption smoothing concept come into play?”

    When WL introduced it!

    “If you are unwilling to consider your opponent’s counter argument in their own terms, then please allow me to introduce you to a wall instead of directing your comments to me.”

    Talking to you is like talking to a wall. Except the wall has more personality.

    “ML: “No, his point is that AD will necessarily fall as long as consumption smoothing is assumed present in the presence of a tax hike.””

    “Nope! In his example the tax is only present for a single year (time slice)! Why would he say the effect (reaction) of the tax would be smoothed “over time” if he believed AD would fall only while the one year tax persisted?”

    Because his whole argument is to justify the belief that consumption smoothing arguments can be used to disprove a BBM of zero, which can enable a short term boost to AD.

    The “smoothing over time” criteria is made so that the first year or first period’s consumer spending change is less than the change in the tax.

    WL is arguing the case that the government can successfully bring about a short term boost to AD via tax financed spending, if we assume that consumption smoothing is present (meaning consumers don’t just drop consumer spending by the entire amount of the tax in the first year or period, thus nullifying the stimulus spending).

    ““Why would he say the effect (reaction) of the tax would be smoothed “over time” if he believed AD would fall only while the one year tax persisted?””

    You already asked that. Why are you repeating yourself?

    “The answer is that he believes AD will fall permanently from now to eternity (over time) because, by RE, the timing of the tax to pay for an expenditure doesn’t matter.”

    No, he is only considering how the government can being about a short term boost to AD through tax based spending, by invoking consumption smoothing.

  142. Gravatar of D R D R
    18. January 2012 at 14:16

    John,

    That’s an interesting argument– that Wren-Lewis isn’t talking about “consumption smoothing” at all.

    I don’t read it that way, but I do also recognize that your perspective is perfectly valid.

    Wren-Lewis’s argument would boil down to:
    A1) In response to G+100, Y+100
    A2) In response to T+100, C+I falls by less than 100.
    Therefore, in response to G+100, T+100, Y rises by more than 0.

    I’m not quite on board with A2. For what it is worth though, I am on board with:
    A1) In response to G+100, Y+100
    A2′) In response to T+100, C falls by less than 100.
    A3′) In response to T+100, I does not change
    Therefore, in response to G+100, T+100, Y rises by more than 0.

    While this is sufficient to refute Cochrane, I also do not think that Wren-Lewis argument is quite this simplistic.

  143. Gravatar of John Schultz John Schultz
    18. January 2012 at 14:19

    “No, it would not be incoherent. If consumer spending where the only spending, which is what his statements literally imply, then there is coherence.”

    “You said if investment is ignored, then WL’s arguments become incoherent. I wanted to say no it won’t be incoherent, it will be coherent, if it were true that consumer spending is the only spending.”

    By “consumer spending is the only spending” do you mean that (a) investment literally doesn’t exist (in the model) or (b) that investment exists but is held constant?

    “Your interpretation requires a butchering of … the English language …”

    Not at all.

    If you heard someone say, “Taxes are going up, so consumers will decrease their spending,” then would you think the speaker is implying nothing about, for example, new house sales? Or worse, that the speaker is implying that new house sales will be completely unaffected by the tax?

    In the absence of more context, I would interpret the speaker as likely thinking that new house sales would go down, even though that is investment (HORRORS!) in the national account sense.

    But then again, I’m a crazy butcherer of the english language, so whatevs …

  144. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 14:30

    D R:

    John Schultz

    “By “consumer spending is the only spending” do you mean that (a) investment literally doesn’t exist (in the model) or (b) that investment exists but is held constant?”

    I mean (a). It does make WL’s argument coherent, which was my only point I wanted to make about that. Not saying it’s reasonable, just saying it makes it coherent.

    “Your interpretation requires a butchering of … the English language …”

    “Not at all.”

    “If you heard someone say, “Taxes are going up, so consumers will decrease their spending,” then would you think the speaker is implying nothing about, for example, new house sales?”

    If I heard someone say taxes are going up, so consumers will decrease their spending, then I will interpret that person as saying he thinks consumers will decrease their spending, not investors.

    And please note, I consider houses to be either consumer goods or capital goods, depending on the reason for why they are purchased. If someone buys it for the purposes of selling it later on, then I consider it a capital good. If someone buys it for the purpose of not selling it later on, then I consider it a consumer good.

    “Or worse, that the speaker is implying that new house sales will be completely unaffected by the tax?”

    It’s possible, if the increased taxes fall on something other than house sales.

    “In the absence of more context, I would interpret the speaker as likely thinking that new house sales would go down, even though that is investment (HORRORS!) in the national account sense.”

    I think you’re making all this up in order to salvage your nonsensical intepretation of WL’s statements.

  145. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 14:32

    John Schultz:

    What would it mean if I asked you:

    “Taxes on derivative contract transactions are going to go up, so investors will decrease their spending”

    How would you interpret that?

  146. Gravatar of John Schultz John Schultz
    18. January 2012 at 14:37

    ML: “I said that is not what WL was doing.”

    Yes, you refuse to even consider (or at even demonstrate that you understand) my counter argument and its validity. You seemingly reject it out of hand as unreasonable even given in the imprecision of english.

    Meanwhile, I’ve gone to great lengths to consider and understand Sumner’s argument. While I agree it is a valid argument on its own terms, I end up rejecting one of its premises as being too single minded in interpreting the meaning of a single word with multiple meanings when another meaning of the same word completely removes all the problems that Sumner pointed out.

    Here’s an even better substitution than the ones I’ve offered up before, even as it has the same meaning: replace “consumers” with “people.” As in,

    “If you spend X at time t to build a bridge, aggregate demand increases by X at time t. If you raise taxes by X at time t, [people] will smooth this effect over time, so their spending at time t will fall by much less than X. Put the two together and aggregate demand rises.”

    Is it so hard to believe that Wren-Lewis used “consumers” as a stand in for the broader category of “people?”

  147. Gravatar of John Schultz John Schultz
    18. January 2012 at 14:49

    MF: “I mean (a). It does make WL’s argument coherent, which was my only point I wanted to make about that. Not saying it’s reasonable, just saying it makes it coherent.”

    What does “consumption smoothing” mean to you in a model with no savings, investment (and financing)?

    MF: “If I heard someone say taxes are going up, so consumers will decrease their spending, then I will interpret that person as saying he thinks consumers will decrease their spending, not investors.”

    Ok, but in the real world “consumer” entities are often also “investor” entities. Are you saying that agents that play both roles will only decrease their consumption expenditures and that their investment expenditures will be unaffected? Or what?

  148. Gravatar of johnleemk johnleemk
    18. January 2012 at 14:50

    D R,

    You’ve completely lost me. Wren-Lewis’s post begins: “Imagine a Nobel Prize winner in physics, who in public debate makes elementary errors that would embarrass a good undergraduate. Now imagine other academic colleagues, from one of the best faculties in the world, making the same errors.”

    In any case, it’s clear that this discussion’s productivity has fallen to near zero since we’re almost all either repeating ourselves or ignoring what each other has to say, so this will likely be my last comment in this thread. (In other words, I’m perfectly fine not resolving our disagreement, since expected resolution was not where I was getting my utility from in this discussion anyway.)

    John Schultz,

    “Not being able to express yourself perfectly clearly in a single blog post does not necessarily imply sloppy thinking. English is a very imprecise language and we should always strive to understand what the writer actually means.”

    I agree. However, there is a huge leap between choosing from a couple different plausible interpretations, versus adding to the set of options another implausible interpretation of the same words.

    Arguing that an economist who talks about consumers smoothing their spending over time did not mean to talk about consumers and consumption smoothing is, to my mind, insane. Wren-Lewis reaches I suspect the right conclusions and I agree with a good amount of what he said, but he made a mistake there, plain and simple.

    Note that I am not making a specific claim about what he thought happened to I. As you say, it is unlikely that he completely forgot Y = C + I + G. I think it quite likely that he implicitly assumed I won’t have any effect on Y, that it won’t change as a result of anything. It’s the sort of assumption I could see myself making without thinking about it. But without explaining this premise (as well as his reason for adopting it), he reaches a conclusion from very false premises. But whichever is the case, he made a mistake. Plain and simple.

    You can’t act as if the first possibility I outlined has to be the only one. A lot of very smart economists recommend fiscal stimulus on the implicit assumption that the stance of monetary policy will be fixed at whatever is necessary to ensure fiscal stimulus positively impacts AD. This is an implicit assumption of Keynesians which gets called out on this blog all the time. It’s hardly surprising that the egregious error of forgetting about the role of I in determining Y, as opposed to the role of monetary policy in determining AD, would get called out here too. Very smart people make these mistakes all the time.

    In this instance, sloppy writing definitely betrayed sloppy thinking — and this in a post berating other economists for their sloppy statements/thinking that would not pass muster in an exam.

  149. Gravatar of D R D R
    18. January 2012 at 15:23

    “You’ve completely lost me. Wren-Lewis’s post begins: ‘Imagine a Nobel Prize winner in physics, who in public debate makes elementary errors that would embarrass a good undergraduate. Now imagine other academic colleagues, from one of the best faculties in the world, making the same errors.’”

    … and now you’ve completely lost me. Congrats, we are even.

    You (johnleemk) wrote, “If Wren-Lewis is going to say that Lucas and Cochrane were wrong because they didn’t say something that would pass muster in a basic macro exam…” Correct?

    I say your premise is a straw-man. That is, Wren-Lewis did not say “Lucas and Cochrane were wrong because they didn’t say something that would pass muster in a basic macro exam.”

    The cause of Cochrane’s error was not that he didn’t say something. What does that even mean? What kind of error can not saying something cause? I can imagine it being an error to not say something. I’m pretty sure that’s been my argument all along…

  150. Gravatar of Mike Sax Mike Sax
    18. January 2012 at 15:24

    “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?”

    Scott you talk about failing the laugh test? You have called Keynesianism “mind numbingly stupid” and even wrote a post called “Why I Hate Keynesian Talk” and you claim Krugman isn’t civil and fails to put the most positive interpretation of what the other side are trying to say?

    You are awful pleased with yourself though you still haven’t proved anything.

    As far as you talk here:

    “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.”

    I don’t always find you garbled but certainly have been over the last week. The thing that really burns you I think is that there once was a consensus that fiscal stimulus was never the answer but this is no longer the case and if any one man is responsible for that change it’s Paul Krugman.

    Like it or not today people take fiscal stimulus seriously again and you will have to do much better than this if you hope to return to the Golden Age when Lucas and his friends used to giggle in class when Keynesian arguments were suggested.

  151. Gravatar of Morgan Warstler Morgan Warstler
    18. January 2012 at 15:36

    Major_Freedom,

    Going forward, I will now imagine you as elaine from seinfeld.

  152. Gravatar of John Schultz John Schultz
    18. January 2012 at 17:02

    I had to deal with real life for a while and will have to leave for it again shortly. Real quick then:

    JLMK: “In any case, it’s clear that this discussion’s productivity has fallen to near zero since we’re almost all either repeating ourselves or ignoring what each other has to say, so this will likely be my last comment in this thread. (In other words, I’m perfectly fine not resolving our disagreement, since expected resolution was not where I was getting my utility from in this discussion anyway.)”

    I concur.

    JLMK: “Arguing that an economist who talks about consumers smoothing their spending over time did not mean to talk about consumers and consumption smoothing is, to my mind, insane. Wren-Lewis reaches I suspect the right conclusions and I agree with a good amount of what he said, but he made a mistake there, plain and simple.”

    I’m going to take someone’s suggestion here and email Wren-Lewis asking him what he meant. I’ll post what I send him here and the question will not be leading. If he responds (unlikely), then I’ll post what he writes back. I’ll also go look at his blog and see if he has more directly responded to Sumner’s criticisms and report back if I find anything.

    @Major_Freedom: Out of curiosity, do you have a background in Lincoln-Douglas debating?

  153. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 17:12

    John Schultz:

    “ML: “I said that is not what WL was doing.”

    “Yes, you refuse to even consider (or at even demonstrate that you understand) my counter argument and its validity.”

    I am not interested in your personal story of what may or may not be true if the argument WL made is changed.

    If you want to talk about something else, then save it for another thread.

    “You seemingly reject it out of hand as unreasonable even given in the imprecision of english.”

    I reject your new argument for different reasons.

    “Meanwhile, I’ve gone to great lengths to consider and understand Sumner’s argument.”

    Not at all. I just understood it right away. Since then, I’ve just been debating you because you keep going to great lengths to NOT consider Sumner’s argument.

    “While I agree it is a valid argument on its own terms, I end up rejecting one of its premises as being too single minded in interpreting the meaning of a single word with multiple meanings when another meaning of the same word completely removes all the problems that Sumner pointed out.”

    “Consumer spending” does NOT NOT NOT mean “consumers consuming and investors investing.” I wholly reject your silly interpretation and I reject your attempt to deflect attention away from what WL actually said. If you had just admitted that yes, he made a mistake, then we could have gone on to bigger and better things. But you keep harping on this as if constantly throwing everything at the wall hoping something will stick and changing the arguments, is something I am even interested in.

    “Here’s an even better substitution than the ones I’ve offered up before, even as it has the same meaning: replace “consumers” with “people.” As in,”

    Not interested.

    “Is it so hard to believe that Wren-Lewis used “consumers” as a stand in for the broader category of “people?””

    Yes. Especially when he invoked consumption smoothing.

    “What does “consumption smoothing” mean to you in a model with no savings, investment (and financing)?”

    I didn’t say no saving.

    “MF: “If I heard someone say taxes are going up, so consumers will decrease their spending, then I will interpret that person as saying he thinks consumers will decrease their spending, not investors.””

    “Ok, but in the real world “consumer” entities are often also “investor” entities. Are you saying that agents that play both roles will only decrease their consumption expenditures and that their investment expenditures will be unaffected? Or what?”

    If I said taxes on derivative contract transactions are going up, and so investors will reduce their spending, are you seriously going to interpret this as meaning “consumers are going to reduce their consumption spending and investment spending” on the grounds that all investors are consumers, and “spending” can include consumption and investment spending?

    Don’t be obtuse.

  154. Gravatar of John Schultz John Schultz
    18. January 2012 at 17:16

    JLMK: “Arguing that an economist who talks about consumers smoothing their spending over time did not mean to talk about consumers and consumption smoothing is, to my mind, insane. Wren-Lewis reaches I suspect the right conclusions and I agree with a good amount of what he said, but he made a mistake there, plain and simple.”

    Please note that I am not the only one who ended up with or saw as plausible something like my conclusion. So either there are a bunch of insane people running around these blogs or you are being a tad hyperbolic in your criticism.

    Krugman obviously thought Wren-Lewis was making effectively the same Ricardian Equivalence argument that he had, which is why he endorsed it.

    Commenter “o. nate” saw the same reading as quite plausible.

    Sumner thought “o. nate’s” comment was insightful / interesting enough to spotlight it in his own post.

    Commenter anon/portly came up with essentially the same.

    Commenter “DR” thought it was a potentially valid reading here.

    Obviously, this isn’t a logical argument that my interpretation is right, but rather demonstrating, I hope, that I am not insane.

    :)

  155. Gravatar of John Schultz John Schultz
    18. January 2012 at 18:09

    MF: “If you had just admitted that yes, he made a mistake, then we could have gone on to bigger and better things.”

    FWIW, I did admit that Wren-Lewis used potentially confusing language and that his argument could have been stated more clearly.

  156. Gravatar of johnleemk johnleemk
    18. January 2012 at 19:33

    D R,

    I understand what you mean now. You don’t by any chance have a background in Chinese do you? The error you’re pointing out is a grammatical error in Chinese (it’s grammatically incorrect to make such logical errors, at least in Mandarin). Yes, I meant to have said that Wren-Lewis asserted that what Cochrane and Lucas said would not pass muster in an undergrad exam (as opposed to that they did not say something which would pass muster in an exam — in colloquial English my meaning I hope would be clear but it looks like this discussion has brought out everyone’s inner pedant).

    John Schultz,

    Yes, I exaggerated. I still maintain that what Wren-Lewis wrote is on the face of it erroneous. It is entirely possible he meant something else than what he said. But it’s a mistake as egregious as the one Cochrane and Lucas made. As Scott’s pointed out, Cochrane and Lucas likely had more sophisticated models in mind than the one(s) which apparently informed their statements — it’s entirely possible (actually quite probable, or at least more probable than I think Wren-Lewis makes it sound) they meant something other than the face-value interpretation of what they said. I don’t mind being charitable to people who misspeak, but it’s funny for Wren-Lewis and Krugman to be pointing out apparent elementary errors in Cochrane’s and Lucas’s thinking when they made similarly elementary errors themselves.

  157. Gravatar of D R D R
    18. January 2012 at 20:51

    johnleemk,

    OK, I’ll let it drop since that seems pretty clear. I agree that pedantry is the word of the week, but I kinda blame Scott for that.

    What is your interpretation of Wren-Lewis’ actual statements? I mean, not including any hidden assumptions. What do you think the words meant in economic terms?

    Do you get what I’m asking? *sigh*

  158. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 22:00

    John Schultz:

    “MF: “If you had just admitted that yes, he made a mistake, then we could have gone on to bigger and better things.”

    “FWIW, I did admit that Wren-Lewis used potentially confusing language and that his argument could have been stated more clearly.”

    That isn’t worth much. Saying he only used improper language and saying he could have said his argument could have been made more clear, implies WL can’t have made a mistake, when he clearly did.

  159. Gravatar of Major_Freedom Major_Freedom
    18. January 2012 at 22:02

    D R:

    “OK, I’ll let it drop since that seems pretty clear. I agree that pedantry is the word of the week, but I kinda blame Scott for that.”

    Scott didn’t bring pedantry into this. You and John Schultz did. Blaming Sumner for what you yourself are doing, is very offensive, and without class.

  160. Gravatar of BW BW
    19. January 2012 at 11:47

    Johnleemk,

    You wrote:

    “correct me if I’m wrong, but you were one of Krugman’s defenders who argued that Sumner hasn’t offered any alternative to the fiscal stimulus which Krugman supports.”

    No, I haven’t argued that.

  161. Gravatar of ssumner ssumner
    19. January 2012 at 13:37

    BW, You said;

    “It’s also rich that you and Cochrane “roll your eyes” at being lectured at by Krugman. You guys attack him in the exact same fashion. Nobody teaches Keynesian economics, Keynesian arguments are fairy tales, Simon Wren-Lewis doesn’t understand S=I, blah blah blah.
    I said in an earlier comment that I think Krugman should try to check his ego at the door and be nicer and more respectful to people. But that goes both ways. You don’t have the moral high ground here.”

    Excuse me, but since when is it being rude to complain about someone else insulting you?

    You said;

    “Whether or not Sumner has been right all along (I think not, and even if he’s right now, of which I’m not sure, I think he’s changed his argument, which is never a problem unless the speaker is bragging that he was right all along), what’s clear is that the communication of those ideas has been poor. Whether or not Scott meant to derive empirical consequences from an accounting identity (which is always a category mistake), it sure seemed like it.”

    Nope, go back to the first post on this (Nobel Prices . . . ) and you’ll see I’ve constantly complained about the S=I issue.

    anon/Portly, You said;

    “This is the single worst thing Scott Sumner has ever written, the first truly bad thing.”

    Thanks, but you are being far too kind. The worst thing I ever did was encouraging people to be nicer? I once ran over a squirrel.

    You said;

    I have thought all along that this was the wrong “take” on Wren-Lewis’s argument. I would interpret him as saying that if you have an increase in G, and consumption smoothing, then you will have an increase in AD regardless of what you assume about how the equilibrium level of saving and investment is realized.

    In other words, not that he “forgot” about I and S, but that he assumes (or thinks it goes without saying) that the equilibrium change (fall) in S will be less than the change in G minus the change in C.”

    No! That’s exactly the issue being debated. He thought consumption smoothing proved something, and it doesn’t.

    Kevin, You said;

    “I’ve had a look at some of Simon Wren-Lewis’s lecture notes and I’m pretty sure the man knows his stuff.”

    I don’t need any damn lecture notes! Does that make me superior to Wren-Lewis? :)

    Thanks Manny,

    Mike Sax, I wouldn’t complain at all if Krugman wrote “why I hate monetarism” It’s the personal stuff I object to. Saying so and so is a moron.

    But I’m not saying I’m anywhere near as good as Cowen, just trying to be.

    Everyone, There are an insane number of comments here, so I only answered a few offbeat ones. Many by frequent commenters like DR carry over to the next post where they got answered. Others like John have come around to my view.

  162. Gravatar of BW BW
    19. January 2012 at 14:05

    “Excuse me, but since when is it being rude to complain about someone else insulting you?”

    This is ridiculous, Scott. Before Krugman ever mentioned your posts on this issue, you wrote the following:

    “As it is, Wren-Lewis and Krugman are showing they don’t understand that not everyone agrees with the Keynesian model, and also that they don’t even know how to defend their own model. ”

    Who’s insulting who? More importantly, you’re not five years old. Stop complaining about who started it. If you’re going to criticize Krugman for condescending to you, don’t do it to him, period.

    I don’t know you, Scott. I only know what you’ve written. Some of what you write sure makes you sound like a Krugman hater. If that’s the association you want, the impression you want to give off, then keep doing what you’re doing. If, on the other hand, you want to emulate your idealized view of Tyler Cowen, then cut out the personal sniping.

    And of course I’d say the same to Krugman. The difference, I think, is that Krugman would freely admit to being a Romney hater. He thinks Romney lies and lies and lies some more, in order to provide cover for policies that are otherwise indefensible. He freely admits to being scornful of the Dark Age of Macro. I don’t think that makes his occasional incivility any more palatable, but it at least less hypocritical.

  163. Gravatar of ssumner ssumner
    20. January 2012 at 07:53

    BW, That may be good advice, but no, I didn’t start it (as you suggest.) I was initially quite polite to him in early 2009, when I started blogging. There’s lots of history there.

    I actually agree that the line you quoted is not appropriate, but I was trying to make those two see how it felt to be on the other side. They seem to think only Chicago economists make that sort of mistake. Krugman does as well. If I’d been polite, Krugman never would have learned of the mistake he made. So yes, I was trying to get his attention.

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