I take back anything bad I ever said about Paul Krugman

At a recent book signing, commenter Marcelo asked Krugman why we shouldn’t focus on monetary policy, given the difficulty of getting fiscal stimulus through Congress.  Krugman responded, and then had this to say at about the 1:05:20 mark:

There are a handful of people, someone like Scott Sumner, who I would regard as in a lot of ways as the heir to Milton Friedman . . .

I’ll take that!

I won’t respond to the meat of his argument here, as I’ve already addressed that issue ad nauseum.  Instead I’ll just remind readers that over the last three years I’ve occasionally argued that Paul Krugman is in lots of ways the heir to John Maynard Keynes.

I’m done with Krugman bashing.  I’ve finally gotten over that slight from back in March 2009.  It’s all respectful disagreement from now on.

PS.  Let’s not see any spoilsport commenters claiming that Krugman meant I’m heir to Friedman’s policy views, and not his towering intellect and seminal contributions to macroeconomics.

PPS.  The first economics book I ever purchased was Friedman and Schwartz’s Monetary History of the United States, 1867-1960.  I remember pouring over all the data as a high school student.

PPPS.  I went to Chicago in September 1977 hoping to study under Friedman.  I liked his “partial equilibrium” approach to problems.  When I arrived I discovered that he’d left a few months earlier.  If he’d stayed it’s likely that he would have been my dissertation adviser.  As it was I had to “settle” for Lucas.

PPPPS.  I just opened a copy of my Monetary History, and found this letter from Milton Friedman inside (dated May 28, 1994–the day I got married in Beijing):

Dr. Mr. Sumner:

In cleaning up a pile of answered and unread material that had accumulated, I came across your letter of July 7, 1993 and the enclosed article.  I write now simply to apologize for not having acknowledged receipt of the article or having been able to provide you with any comments on it.

Sorry that that was the case,

Sincerely yours,

Milton Friedman

Senior Research Fellow

Hoover Institution

And people wonder why I answer the comments.


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72 Responses to “I take back anything bad I ever said about Paul Krugman”

  1. Gravatar of marcus nunes marcus nunes
    5. May 2012 at 17:53

    Thumbs up to Marcelo!

  2. Gravatar of Negation of Ideology Negation of Ideology
    5. May 2012 at 18:29

    “It’s all respectful disagreement from now on.”

    I wouldn’t characterize your past disagreements with Krugman as disrespectful, but I agree with the sentiment that we all should be careful to be respectful of those we disagree.

    Krugman is a brilliant man who deserves his Nobel Prize. You can learn a lot from his writing about economics. I do believe he is way too partisan. I say that respectfully!

    How about this for a compromise? Sumner and Krugman put out a joint statement advocating the following. First, change the Fed mandate to NGDPLT with futures. Second, if the Fed buys up the entire national debt and still can’t hit the NGDP target, only then we resort to fiscal stimulus. I doubt we’ll ever get to the second, but if Krugman is right we could.

    I’ve started reading Krugman’s book, and it’s really good so far. I hope you’ll have time to review it.

  3. Gravatar of Jonathan M.F. Catalán Jonathan M.F. Catalán
    5. May 2012 at 19:01

    Respectfully, I don’t think one can claim that Paul Krugman is an heir to Keynes — in any way. There is more to Keynes than liquidity traps, fiscal policy, and expectations (remember that Victoria Chick [1983] critiqued Axel Leijonhufvud’s [1967] argument that it is these features that make someone a Keynesian). Indeed, many have argued that these concepts were not unique to Keynes.

    In fact, I think that the most important parts of The General Theory were never really integrated during the Neoclassical-Keynesian synthesis. This is something that John Hicks admitted, when he repudiated (too strong?) his IS/LM model. At the very least, Hicks understood that his 1937 and 1939 interpretations were limited — they had not integrated the dynamism of Keynes’ model.

    It may be that Krugman has some Keynes in him, but I think that he is the product of a Neoclassical-Keynesian synthesis that was never accepted as all that Keynesian. At least, Post-Keynesians, I think, would see it this way (although, all the same, I’m sure may Post-Keynesians would also suggest that Krugman is more Keynesian than other alternatives).

  4. Gravatar of Morgan Warstler Morgan Warstler
    5. May 2012 at 19:18

    Now we’ll know DeKrugman wasn’t belittling Friedman….

    IF and only IF, you adopt Friedman’s rapid anti-govt. RED MEAT to roust and lead the conservatives.

    If you do that, and DeKrugman still calls you Friedman, he was being honest.

    If he attacks you on end, without remorse, then well we’ll know he was trying to pretend Friedman’s greats gift, wasn’t much of anything.

    What made Uncle Milty wasn’t his monetary policy.

  5. Gravatar of Benjamin Cole Benjamin Cole
    5. May 2012 at 19:54

    A nice story about Friedman answering letters.

    And that was in 1994—only 18 years ago, yet the technology of writing and answering letters feels positively pre-telegraphic (in a sense, it was. Ordinary people had to write a letter on a physical product—paper—and then have it delivered).

    All hail Friedman, and the Internet!

  6. Gravatar of B B
    5. May 2012 at 20:26

    I think the professional economists in the blogosphere have challenged Krugman and made him a better blogger. Thanks in no small part to Scott. Perhaps Krugman’s message has always been clear in his own head. But the blogging format seemed to muddy his arguments in the first few years. I think he has improved and I enjoy reading his blog more.

  7. Gravatar of Jim Jim
    5. May 2012 at 20:44

    No more Krugman bashing? Say it ain’t so.

    Sorry, but Krugman is an intellectual bully and doesn’t even try to take opposing arguments seriously — has has said as much. It happens that you both agree that monetary stimulus is necessary.

  8. Gravatar of Saturos Saturos
    5. May 2012 at 20:52

    “And people wonder why I answer the comments.”

    And that is why I comment on this blog. I already knew to whom this blog was heir.

    Btw, Scott, mightn’t having worked under Lucas rather than Friedman have helped you overcome his biggest mistake (long and variable lags)?

  9. Gravatar of Saturos Saturos
    5. May 2012 at 20:53

    Anyone who takes Milton Friedman as a personal model is bound to wind up a pretty decent guy.

  10. Gravatar of ChargerCarl ChargerCarl
    5. May 2012 at 21:16

    I’ve always thought of you and krugman as being two economists on the same side of the coin. The aggregate demand warriors.

  11. Gravatar of W. Peden W. Peden
    5. May 2012 at 21:46

    Jonathan M.F. Catalán,

    Given Keynes’s response to Hicks, I tend to find that Post-Keynesians (and Leijonhuvud, for that matter) get stuck into asserting that Keynes never really understood Keynes. From a neutral perspective (a non-Keynesian one) I think that the appropriate post-war situation from the Keynesian wars between Neo-, Post- and New Keynesians is to say that all of them are expansions on the General Theory and none of them are strictly faithful, nor do they need to be.

    “never accepted as all that Keynesian”

    Here in Cambridge? Maybe not. However, these days “Keynesian” (without any other prefixes) means New Keynesian and Paul Krugman is certainly a New Keynesian.

  12. Gravatar of Full Employment Hawk Full Employment Hawk
    5. May 2012 at 22:40

    “I’ve always thought of you and krugman as being two economists on the same side of the coin. The aggregate demand warriors.”

    RIGHT ON! Both Brad and Krugman agree on the basic point, that it is lack of aggregate demand that is keeping the economy depressed and that the solution is to increase aggregate demand.
    Where they disagree on is the method that needs to be used to increase it. But even here the disagreement is only partial because Krugman does favor a more expansionary monetary policy.
    I find both of their views to be very useful.

  13. Gravatar of Full Employment Hawk Full Employment Hawk
    5. May 2012 at 22:42

    OOPS!

    Obviously I meant both Scott and Krugman. I really need to proofread my posts more carefully.

  14. Gravatar of Full Employment Hawk Full Employment Hawk
    5. May 2012 at 22:50

    “There are a handful of people, someone like Scott Sumner, who I would regard as in a lot of ways as the heir to Milton Friedman . . .”

    The main difference between Scott and Milton appears to be with respect to the role of velocity.

    Friedman believed that velocity was stable and predictable, so that a fixed rate of growth of money would generate a stable rate of growth in AD (NGDP).

    Scott and the other quasi- or market- monetarists recognize that velocity does not have this kind of stability. Therefore a stable rate of growth in AD (NGDP) requires that M x V grow at a fixed rate.

    Therefore a better term for this approach to monetarism, rather than Quasi-Monetarism or Market-Monetarism would be:

    VARIABLE VELOCITY MONETARISM.

  15. Gravatar of Peter N Peter N
    5. May 2012 at 23:06

    Flow Monetarists vs. stock monetarists?

  16. Gravatar of Peter Peter
    5. May 2012 at 23:08

    Brad DeLong said something similar in a question to Krugman in a reddit AMA.

    http://www.reddit.com/r/IAmA/comments/t1ygb/iama_nobel_prizewinning_economist_and_new_york/c4iv0sc

    See the second paragraph if you don’t have time to read it all.

    “As you know, Paul, ever since I decided to force my 700 Econ 1 students to read Milton and Rose Director Friedman’s “Free to Choose”, I have been trying to understand why those who claim to be Friedman’s intellectual disciples–especially those who hold appointments at the Becker-Friedman Institute–have not been aggressively out there condemning Bush, Bernanke, and Obama for insufficient policy activism. The natural generalization of virtually all of Friedman’s work to the current situation is that the task of the government is to Stabilize the Growth Path of Nominal GDP by Any Means Necessary–which means issuing cash and buying stuff that is not a perfect substitute for cash with it until nominal GDP is on its previous growth path.

    Yet the ranks of Friedman disciples appear to be limited to Scott Sumner and (perhaps) David Glasner.

    And in this morning’s FT I read my guru Martin Wolf writing about how for central banks “The immediate task is to manage an exit from the interventions.” He does go on to say that “A far greater danger exists of premature retrenchment than of excessive delay…” but the initial sound bit makes me wince. And his colleague the highly-intelligent and usually reliable Gideon Rachman denounces you for shrillness and warns us that “the assumption of unlimited Dutch and German creditworthiness” to support fiscal expansion “is unconvincing”.

    It seems to me that we have lost not just those professional Ph.D. economists who became addicted to DSGE and RBC models and lost touch with reality, but have also lost a good many who either want to retain contact with reality or who ought to be willing to worship Milton Friedman as their guru. And I am still not sure why, or how…”

  17. Gravatar of Saturos Saturos
    5. May 2012 at 23:19

    Might we get John Papola to organize a public face-off between Krugman (representing Keynes) and Scott (representing Friedman)? Preferably in rap-battle format. Now that would be the Battle of the (21st) Century.

    Scott, if you’ll accept, I’ll coach you. I’ll send you some Lil Wayne tracks to get you started.

  18. Gravatar of Marcelo Marcelo
    6. May 2012 at 00:06

    Scott,

    Thank you very much for the shout out! In the future, please refer to me as soon to be graduating (and as of yet still available for employment) commenter Marcelo so that I can attempt to navigate this period of low NGDP growth relatively intact.

    FWIW I agree with Paul (at least in this respect, I do wish he had actually answered my question!), and I think this blog has given me an important insight to economics beyond basic undergraduate level macro.

    Keep fighting the good fight!

  19. Gravatar of Saturos Saturos
    6. May 2012 at 00:33

    Marcelo, awesome how you just happened to be at that book signing…!

  20. Gravatar of Major_Freedom Major_Freedom
    6. May 2012 at 01:28

    There are a handful of people, someone like Scott Sumner, who I would regard as in a lot of ways as the heir to Milton Friedman . . .

    Hopefully Sumner will do in his near life what Friedman did in his later life: Call for the abolition of the Fed.

  21. Gravatar of J.V. Dubois J.V. Dubois
    6. May 2012 at 02:02

    Nice to read this comment. Honestly while I see a little jab here and there between you and Paul the good thing is that all parties seem to gain from these exchanges. Paul seems to be satisfied by FED trying to adopt NGDP level targeting and hold fiscal policy as insurance if expectations do not bring the “concerete steppes” needed for recovery. So in short, he seems to go around. And Market Monetarists … ok, maybe one party does not get from this exchanges “that much” except for promotion and occasional praise by respected incumbent Nobel price winner with large audience :) And I mean this, it seems that Paul is still open for critique and is still able to absorbe and subtly change his opinions. That is vastly more then is seen from some other famous economists.

  22. Gravatar of Peter N Peter N
    6. May 2012 at 02:24

    Another six months and we could get agreement on all the major issues in macro.

  23. Gravatar of Jim Jim
    6. May 2012 at 03:48

    As the heir to Friedman, can you explain why he wanted to freeze the monetary base? I didn’t understand that.

  24. Gravatar of ssumner ssumner
    6. May 2012 at 05:17

    Marcus, Yes, Thanks to Marcelo.

    Negation, I tried to interest Krugman in the idea back in March 2009–but he wasn’t interested.

    I was sort of half joking about being mean.

    Jonathan, I actually think IS-LM does capture the essence of the GT. But in any case, I didn’t mean to suggests that Krugman slavishly follows Keynes, if he did he’d be completely unworthy of being called the heir to Keynes. Ditto for me, I certainly don’t slavishly follow Friedman, I oppose money supply targeting, for instance.

    Morgan, I already express fairly libertarian views in this blog.

    Ben, Yeah, he was great.

    B, Good point.

    Jim, That was partly in jest.

    Saturos, Thanks, and yes, studying under Lucas probably gave me a better understanding of ratex. Indeed I credit Lucas and McCallum for making be understand what’s it’s really about.

    ChargerCarl, In that sense you are right. But I think the supply-side is more important than he does.

    W. Peden, I’d add that there is no “real Keynes.” Late in his career he moved back slightly in a quantity theory direction.

    FEH, Yes, that’s even more true of Brad and Paul!!

    And you are right that I differ from Friedman on the velocity question, also the long and variable lags question.

    Peter N. Explain.

    Peter, Good quote from DeLong, but I’d rather be “heir” than “disciple.” The first is more flattering (unfortunately the second is much more accurate.)

    Saturos, On a scale for 1 to 100, my talent for rap would be in the negative numbers.

    Marcelo, Thanks for answering the question. The audio wasn’t good so I couldn’t hear which school you went to.

    I actually think he did answer the question as he sees it, but I don’t buy his pessimism about monetary stimulus. I agree it’s unlikely, but unlike Krugman I think it’d be pretty easy if the Fed actually wanted to do it.

    MF, I’ve already called for the market to set the money supply and interest rates.

    JV, Thanks for those remarks. I don’t know if Krugman would agree that he has changed his views, but I agree with you that there has been a slight change.

    Peter N, Don’t hold your breath.

    Jim, He had several proposals, that was one of his weakest.

  25. Gravatar of Jeff Jeff
    6. May 2012 at 05:29

    @Jim,

    The idea is that since fiat money is costless to produce, a social optimum requires that it be costless to hold as well. One way to do this is to have deflation at the same rate as the real interest rate. Currency then yields the same real interest rate as T-bills.

    Most models of long-run growth end up with the equilibrium real interest rate equal to the rate of growth of the economy. If that’s true, and base velocity is constant, then freezing the base freezes nominal GDP, but since the difference between nominal and real GDP growth rates is the inflation rate, that implies deflation at the same rate as the real interest rate, and you end up with a zero nominal interest rate, i.e., the optimum quantity of money.

    At least that’s what I remember of this stuff from back in the mid-80′s when I read it.

  26. Gravatar of Max Max
    6. May 2012 at 05:33

    Jim, because he really, truly believed in the quantity theory of money. Market Monetarists believe in the quantity theory the way Catholics believe in transubstantiation – it’s part of the dogma but doesn’t have practical consequences.

  27. Gravatar of dwb dwb
    6. May 2012 at 05:41

    I’d add that there is no “real Keynes.” Late in his career he moved back slightly in a quantity theory direction.

    see, there is hope for PK, if he is the heir to Keynes.

    PK only gives respect grudgingly, so its no small feat to get it. definitely well deserved.

  28. Gravatar of W. Peden W. Peden
    6. May 2012 at 05:53

    Scott Sumner,

    “I’d add that there is no “real Keynes.” Late in his career he moved back slightly in a quantity theory direction.”

    Agreed, although I don’t know about moving in a quantity theory direction: during WWII that might have been the case, but that’s because there’s precious little difference between the GT Keynes and Milton Friedman when the economy is at full employment. IIRC, Keynes starts moving back to the quantity theory even as the GT proceeds, as he goes from the weird world of a wage theorem and wage units to a better model.

    The history of all Keynesian schools seems to be (1) propose some improvement on the GT; (2) realise that the GT isn’t as far away from the new theory as was initially thought; (3) forget the differences. So by the 1960s, most Neo-Keynesians believed that Keynes thought that “Money doesn’t matter. And in the present day, Post-Keynesians often forget that Keynes’s liquidity trap endorses the exogeneity of money and New Keynesians have got back to the Neo-Keynesian idea that the GT is all about sticky wages and the ZLB.

  29. Gravatar of Joe2 Joe2
    6. May 2012 at 06:08

    I understand this is a “be nice to Paul Krugman” thread, however I can’t help but think that he’s delusional in his last post.

    http://krugman.blogs.nytimes.com/2012/05/06/german-adjustment/

    He talks about Germany’s ‘internal devaluation’ that resulted in raising Germany’s competitiveness against the periphery who at the time were going through an inflationary boom. Without looking at this part too deeply he’s most likely right, although there’s not much evidence of higher real estate prices in Italy or France for instance. And yes I’m sticking France in the periphery as it does belong in the “Pfiig” group.

    He then says that Germany was therefore able to run a trade surplus as a result of the internal devaluation. But because Germany was able to run a surplus, it would be impossible for the rest to do so. Enter Krugman’s fiscal solution of big spending.

    However, if there ever was a place that required the adjustment through the monetary authority it would be Europe for one glaring reason and that is the European countries are basically unable to borrow money.

  30. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 06:46

    http://www.youtube.com/watch?v=RWsx1X8PV_A

  31. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 06:48

    http://www.youtube.com/watch?v=prmggcDVe6w&feature=related

  32. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 06:56

    Scott, this is what Milton Friedman did:

    http://www.youtube.com/results?search_query=Milton+Friedman&oq=Milton+Friedman&aq=f&aqi=g4&aql=&gs_l=youtube-psuggest-reduced.12..0l4.10888.10888.0.11911.1.1.0.0.0.0.95.95.1.1.0…0.0.

    This is who he was. It is THIS PERSONAE that gave him the power to win everyone’s minds.

    Note, he organized the right philosophically and then when he wanted to talk Monetary policy, they listened.

    Where’s my stack of Sumner videos poking holes in socialism and pro-govt. people?

    —–

    What’s funny is that the other MM crowd don’t encourage you in this way.

    It’s like everyone wants to pretend, you sell the steak and not the sizzle.

    BUT, let’s get Pappola! (who I was half naked with yesterday)

    So you do understand that marketing / entertainment / capturing the imagination matters, but not enough just say OUTLOUD:

    Scott, smack DeKrugman around the way Friedman would have!

    Are we unable to get a quorum together for an ad council?

  33. Gravatar of Jeff Jeff
    6. May 2012 at 06:58

    Without a central fiscal authority and much greater mobility of labor than Europe has or is ever likely to have (language barriers are not going away), the Euro is really just another fixed exchange rate regime. We’ve known since the 1950′s that these schemes can’t last. Easier money by ECB would only postpone the breakup a bit. Instead of high unemployment in the periphery, you’d get high inflation in the core. The Germans would leave first, instead of the PIIGS. But the result will be the same in any case. The Euro was doomed from the beginning.

  34. Gravatar of Major_Freedom Major_Freedom
    6. May 2012 at 07:50

    ssumner:

    “Hopefully Sumner will do in his near life what Friedman did in his later life: Call for the abolition of the Fed.”

    MF, I’ve already called for the market to set the money supply and interest rates.

    How nice, but that isn’t a call for an abolition of the Fed. That is merely pretending to appear as such, when in reality it’s not.

    You’re not calling for the market to set spending, you’re calling for the Fed to set spending, which of course means this is not a call for the abolition of the Fed at all, like Milton Friedman called for an abolition in in later life.

    Oh, and it’s not even a call for the market to set the money supply either. The Fed as monopoly issuer of currency, who “reacts” to whatever information they see in the market by inflating faster or slower, is still a case where the Fed sets the money supply, the same way that a crack dealer who “reacts” to his crack addict buyer’s behavior, by giving him more or less crack, is still the crack dealer setting the supply of crack.

    The market isn’t setting the money supply by merely reducing spending, after which the Fed reacts. No, the market would be setting the money supply when there a market setting of spending in addition to money supply and interest rates.

  35. Gravatar of JL JL
    6. May 2012 at 08:07

    My two hero’s seem to be making peace, I’m getting all fuzzy inside… :-)

    I think Steve Randy Waldman had the right idea on bringing the Krugman-camp and the Sumner-camp together.

    FWIW, I agree with both of you and I do see you as the modern-day Keynes and Friedman.

    Krugman is right: Congress can (and should) act immediately to end this depression by e.g. hiring teachers.

    But in general Sumners solution is more elegant: a better monetary policy to prevent these depressions.

  36. Gravatar of W. Peden W. Peden
    6. May 2012 at 08:31

    Since we’re talking about the later Friedman, here’s an interesting newly uploaded talk with Friedman from 2000-

    http://www.youtube.com/watch?v=zt_tKi89T-M

  37. Gravatar of Marcelo Marcelo
    6. May 2012 at 09:15

    Scott,

    I am graduating from Georgetown this month in fact :)

  38. Gravatar of Nick Rowe Nick Rowe
    6. May 2012 at 09:29

    Jim: because Friedman believed that the demand for money did not vary much, and just grew steadily. So if the Fed kept the supply of money growing steadily all would be well. His belief turned out to be wrong.

  39. Gravatar of von Pepe von Pepe
    6. May 2012 at 09:35

    Bob Perry wanted to talk about nominal GDP targeting at the time and thought that a 6% growth in nominal GDP would make sense. Inflation at 3%, real output growth at 3%, so nominal growth would be 6%. Small meeting of Fed economists; San Francisco Fed; Milton Friedman at luncheon and said: “This is all nice, Bob, but tell me what you would do if you are at your nominal target of 6% but you have 7% on prices and -1% on real?” Awkward

  40. Gravatar of Nick Rowe Nick Rowe
    6. May 2012 at 09:38

    From Friedman “The role of Monetary Policy”:

    “This is partly an empirical not theoretical judgment. In principle, “tightness” or “ease” depends on the rate of change of the quantity of money supplied compared to the rate of change of the quantity demanded excluding effects on demand from monetary policy itself. However, empirically demand is highly stable, if we exclude the effect of monetary policy, so it is generally sufficient to look at supply alone.”

    http://www.aeaweb.org/aer/top20/58.1.1-17.pdf

  41. Gravatar of Nick Rowe Nick Rowe
    6. May 2012 at 09:58

    Totally Off-topic, but well worth reading: http://esoltas.blogspot.ca/2012/05/ngdp-targeting-laymans-guide.html

  42. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 10:00

    This is DeKrugman:

    “Yes, it is. In fact, there are a couple of channels through which spending cuts could in principle lead to higher demand: by reducing interest rates and/or by leading people to expect lower future taxes.

    Here’s how the interest-rate channel would work: investors, impressed by a government’s effort to reduce its budget deficit, would revise down their expectations about future government borrowing and hence about the future level of interest rates. Because long-term interest rates today reflect expectations about future rates, this expectation of lower future borrowing could lead to lower rates right away. And these lower rates could lead to higher investment spending right away.

    Alternatively, austerity now might impress consumers: they could look at the government’s enthusiasm for cutting and conclude that future taxes wouldn’t be as high as they had been expecting. And their belief in a lower tax burden would make them feel richer and spend more, once again right away.

    The question, then, wasn’t whether it was possible for austerity to actually expand the economy through these channels; it was whether it was at all plausible to believe that favorable effects through either the interest rate or the expected tax channel would offset the direct depressing effect of lower government spending, particularly under current conditions.”

    http://www.thedailybeast.com/articles/2012/05/06/paul-krugman-austerity-is-so-wrong.html

    Ok, so as I remember it, this is his clearest admittance that Austerity can work out, but he disqualifies it this way:

    “it was whether it was at all plausible to believe that favorable effects through either the interest rate or the expected tax channel would offset the direct depressing effect of lower government spending, particularly under current conditions.”

    —–

    The POINT of austerity is not and have never been “spending less” it is “spending smarter.”

    It isn’t just future expectations, blah blah…

    It is about a majority of 22M public employees eating lower quality food, taking less vacations, having smaller homes, SO THAT….

    The Main Street SMB owners can pay less taxes.

    Ok, so back to my Guaranteed Income plan… It is in my plan that you see DeKrugman’s mistake.

    My plan ends unemployment and drives down the wages of public employees.

    There are real productive gains made out of being forced to spend less money.

    And since DeKrugman doesn’t think in terms of actually getting productivity gains out of austerity, he completely misses the mark,

    And he does it after admitting Austerity can work… he just doesn’t understand why it works.

  43. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 10:05

    Let me put it another way…

    The PROBLEM in Greece is that we are not seeing news stories of small for-profit park cleaners keeping the parks clean for less money – with zero union involvement, and generally grateful employees to even have a job.

    But in Wisconsin, we are seeing that exactly happen… school districts are HIRING more teachers, because teachers in general are GETTING PAID LESS.

    People are happy with that arrangement.

    Once again, this is a GAPING HOLE in DeKrugman’s logic.

    Austerity = hiring more people, but paying everyone less money.

    The only thing in the way or austerity working is DEKRUGMAN and the sticky wage policies he SUPPORTS.

  44. Gravatar of ssumner ssumner
    6. May 2012 at 12:52

    Joe2, Yes, the ECB is needed to fix this.

    Morgan, You are shocked that I’m not Milton Friedman?

    JL, You are right about Krugman being a modern day Keynes, but as for me being Friedman . . .

    Marcelo, Let’s hope someone has the good sense to hire you.

  45. Gravatar of JOHN R SWIFT JOHN R SWIFT
    6. May 2012 at 16:01

    50 years ago, thereabouts, I was a R.A. to an Asst. Prof and PhD Candidate who had Milton Friedman & Harry Johnson as thesis advisors and used to attend their open sessions just to see Harry Johnson whittle, before cutting up the author of some paper. In the process somehow I wrote a long letter of gibberish, I’m sure, purporting to question something Prof. Friedman had said and invited him respond by writing in longhand on the other side of my letter, which he did, very kindly, and at length, which response, in my stupidity, I’ve misplaced. But now I see that the NYT has taken to quoting you(On India, this time) so whatever you say, I’ll be sure to frame. I do enjoy your blog and refer many friends to it so that we can have an intelligent conversation about something other that the weather.

  46. Gravatar of curiouseconomist curiouseconomist
    6. May 2012 at 16:38

    Scott, here’s another clipping to add your collection of (potential) inflation targeting failures: http://www.telegraph.co.uk/finance/economics/9247987/Bank-of-England-expected-to-put-QE-plans-on-hold-as-inflation-fears-loom.html

    Despite the UK entering recession (and unemployment forecast to hit 9% by the end of the year*), the BoE is not likely to expand its QE programme according to most forecasters. Why? Because inflation was 3.5% in March.

    Note that real GDP contracted by 0.8% (annualized) in Q1, so a crude guesstimate suggests NGDP is growing at under 3%. So not even trend growth, despite the fact that, if anything, NGDP should be growing above trend to make up for the drop during the previous recession.

    The UK undoubtedly has more structural/supply-side issues than the US, but they would be a lot easier to solve if the BoE helped the demand side. The biggest supply-side issue is the size of the state and the resulting deficit, but without an accomodating BoE, fiscal austerity is going to be painful and politically unpopular.

    *http://www.bbc.co.uk/news/business-17942814

  47. Gravatar of Bill Woolsey Bill Woolsey
    6. May 2012 at 18:02

    “This is all nice, Bob, but tell me what you would do if you are at your nominal target of 6% but you have 7% on prices and -1% on real?” Awkward

    I don’t know what Bob would say, but I would say, kep nominal GDP growing 6%.

  48. Gravatar of Bonnie Bonnie
    6. May 2012 at 18:13

    “And people wonder why I answer the comments.”

    And we love you for it! It helps to understand far better where you’re coming from. I have been educated quite a bit reading your blog and most of the comments, as the ideas are debated, coming from a non-economics, political science/history background. You have given out enough information for me to become a MM evangelist, and while it may not help much in the short run, for each person who is no longer spouting “easy money” rhetoric the better off we’ll be, one mind at a time.

    Btw, did you read that the Senate blocked the last two Obama nominations to the Board of Governors? The article I read said that Republicans don’t want doves to go on the board because they will finance Obama’s profligate spending. I’m pretty sure they understand what they are saying without saying it. It has got to be one of the most disgusting and despicable political moves I’ve seen in a real long time.

  49. Gravatar of dwb dwb
    6. May 2012 at 19:02

    @Bill Woolsey

    I don’t know what Bob would say, but I would say, kep nominal GDP growing 6%.

    well, but in reality a central bank is not going to be indifferent to 3% inflation and 4% growth vs 6% inflation and -1% growth *as a long term trend.*

    they might be ok with that for a quarter or two.

    I think however:
    1. again, as a long term trend, this shows an economy in need of some serious supply side reforms that i do not think 7% ngdp targeting is going to fix (nor is any monetary policy for than matter). If this was the true structural trend it might be ok to dial back the path until reforms were undertaken and

    2. With population growth of 1% and historical productivity growth above 1%, i seriously doubt this presents a likely scenario.

    3. There is no estimate of potential output in the US that makes this worth serious consideration. when there is, see #1.

    like i said, i do not think a central bank will really be indifferent to that outcome for many reasons.

  50. Gravatar of dwb dwb
    6. May 2012 at 19:04

    ^^ my inflation/growth #s were supposed to add up. oops.

  51. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 21:52

    I’m shocked you aren’t grabbing the brass ring.

  52. Gravatar of Morgan Warstler Morgan Warstler
    6. May 2012 at 21:55

    John Swift, you are a conservative aren’t you?

  53. Gravatar of Joe2 Joe2
    6. May 2012 at 23:45

    “RIGHT ON! Both Brad and Krugman agree on the basic point, that it is lack of aggregate demand that is keeping the economy depressed and that the solution is to increase aggregate demand.”

    With one added feature that makes Scott’s analysis far, far superior. Scott mentioned one time (I read) that the US has also most likely suffered a supply shock as well. The demand shock quite clearly occurred during the financial crisis. The supply shock came later after business began to see the host of goodies the present administration and it’s supporters in the congress had in store. Let me list a few.

    1. Healthcare that was never widely supported.

    2. Dodd Frank punishing the banks.

    3. Related to Dodd Frank.. controlling the pricing in the Fed payment system

    4. Boeing taken to court for not setting up in a union state.

    5. Threats to the nations power supply by subsidizing the subsidy whores (solar and wind) to produce extremely expensive energy

    6. tTe Detroit racket of screwing the bond holders while leaving the union whole. In fact screwing the bondholders in order to make the union whole.

    7. The EPA

    8. Draconian actions like the attack on BP and making them pay billions without judicial oversight…. going to court.

    9. The EPA

    10. The refusal to build the Keystone.

    These are all serious supply side shocks and they are just but a few.

  54. Gravatar of Joe2 Joe2
    6. May 2012 at 23:46

    “RIGHT ON! Both Brad and Krugman agree on the basic point, that it is lack of aggregate demand that is keeping the economy depressed and that the solution is to increase aggregate demand.”

    With one added feature that makes Scott’s analysis far, far superior. Scott mentioned one time (I read) that the US has also most likely suffered a supply shock as well. The demand shock quite clearly occurred during the financial crisis. The supply shock came later after business began to see the host of goodies the present administration and it’s supporters in the congress had in store. Let me list a few.

    1. Healthcare that was never widely supported.

    2. Dodd Frank punishing the banks.

    3. Related to Dodd Frank.. controlling the pricing in the Fed payment system

    4. Boeing taken to court for not setting up in a union state.

    5. Threats to the nations power supply by subsidizing the subsidy whores (solar and wind) to produce extremely expensive energy

    6. The Detroit racket of screwing the bond holders while leaving the union whole. In fact screwing the bondholders in order to make the union whole.

    7. The EPA

    8. Draconian actions like the attack on BP and making them pay billions without judicial oversight…. going to court.

    9. The EPA

    10. The refusal to build the Keystone.

    These are all serious supply side shocks and they are just but a few.

  55. Gravatar of Rien Huizer Rien Huizer
    7. May 2012 at 01:05

    Scott,

    What about a New Krugman-Sumnerian Synthesis? MOdels that include the effects of NDGP targeting? Should be easy to build and accessible to lay people: NDGP= f(NDGPLT) or something to that effect…

  56. Gravatar of Mike Sax Mike Sax
    7. May 2012 at 02:44

    Scott I wonder if you have any intellectual courage at all you’ll read this

    http://diaryofarepublicanhater.blogspot.com/2012/05/should-i-take-back-every-nice-thing-i.html

    Do you think you have Freidman’s attitude towards people you say he showed? Read the link and then tell me.

  57. Gravatar of bill woolsey bill woolsey
    7. May 2012 at 03:52

    DWB:

    It may be correct that central bankers will refuse to target nominal GDP.

    But they should.

    I think a 6% growth path is too high. I favor 3%.

    But, if 6% is the target, and inflation is 7% and real GDP growth is -1%, then that is no reason to change the target.

    While there might be some kind of supply side problem where changing the rule would be better, having a rule means sticking to it. Most supply side problems have less awful consequences in the context of keeping nominal GDP growing at a slow steady rate.

    If the supply side problems can be fixed in some other way, then fix them.

    The monetary authorities response to the 7% inflation and -1% real GDP growth outcome should be that the supply side factor (whatever that was) has caused the high inflation. Usually, this will be a one time increase to a higher growth path of the price level and lower growth path of real output. If so, they should say that. Inflation will slow and real output will begin growing again.

    Other times, the supply shock is temporary, and then output will recover and the price level fall back. If that seems likely, they should say that. The high run up in prices was due to the disruption of oil supplies, (for example.) When this problem is releived, prices will come back down. We will have slower than usual (3% in this scenario) inflation for a time and real output will recover, growing faster than 3%.

    Sadly, it is possible that the supply side problems could be expected to continue to worsen. In which case, more high inflation and negative real GDP growth might be expected. That could be said as well. The environmentalists efforts to destroy the economy in order to cut back carbon production even more is likely to result in continued contraction in production and high inflation. It is becoming more and more costly to produce goods and services, and so prices will continue to rise. If this is really what the American people want, then you can see the price every time you go shopping.

    If the trend rate of real GDP growth (potential) is going to be lower (or higher) for decades, then I grant that an adjustment in the target nominal GDP growth path is appropriate, but not really that important.

    Since a contant money growth rule would have the same consequences as nominal GDP targeting, what was Friedman trying to say? Was he asking the Fed guy if he really means it? Or was Friedman arguing for slower nominal GDP growth–say 3%? In that case, the -1% real GDP growth would have 4% inflation. Was it that 7% was supposed to be shockingly high?

    I beleive that Friedman really meant it, and that if real GDP shrank 1% because of supply side factors, he would accept 4% inflation. He would neither have supported more rapid money growth to try to get real GDP growing faster or else slower money growth in order to get inflation lower.

    But perhaps Friedman had switched over to price level targeting by this time, and had decided prices and wages were perfectly flexible, etc.

  58. Gravatar of dwb dwb
    7. May 2012 at 04:54

    @Bill Woosley:
    thanks, thats helpful.

    I was not thinking about the case if they refuse to target ngdp, or of temporary supply factors – i was thinking about the case where they decide the target is X for the next decade then for whatever reason (tax policy changes, labor market changes etc) the trend rate of real GDP growth (potential) is expected to be lower (or higher) for decades.

  59. Gravatar of Ryan Ryan
    7. May 2012 at 04:59

    Krugman is so polemic that I have a hard time understanding why people read him at all. Everyone’s got an “angle” or a “twist,” but Krugman’s blog is so “angled” that he ends up saying stuff he doesn’t really even mean, just for the sake of the polemics of it all.

    I don’t know. I have no idea why anyone would want to maintain any level of respect (or any communication at all) with someone who argues so disingenuously.

    Then again Prof. Sumner is a lot classier than I am, and I’ve probably embarrassed far myself more than Paul Krugman ever has.

  60. Gravatar of OGT OGT
    7. May 2012 at 05:07

    Congratulations on the further recognition from your colleagues. It’s very interesting what a disruptive technology econo-blogging has been.

    BTW, I surfed over here this morning hoping to see if you had anything to say about the Eurozone this morning. The emerging Hollande-Merkel split is the clearest political case for adoption of an NGDP target. Mr Hollande could get his growth and Mrs. Merkel could get her ‘austerity.’

  61. Gravatar of Becky Hargrove Becky Hargrove
    7. May 2012 at 05:21

    With all the running around Krugman is doing, I bet he’d be willing to come to Bentley to debate with you and promote his book at the same time. Plus the debate would be well attended! You could agree on points beforehand so the thing would actually have some ‘flow’ unlike some of the stuff he’s had to do.

  62. Gravatar of Morgan Warstler Morgan Warstler
    7. May 2012 at 07:22

    Becky +1

  63. Gravatar of Marcelo Marcelo
    7. May 2012 at 08:13

    Scott,

    Here is some evidence that the Obama Admin is (finally and belatedly)taking your advice and Republicans (in this case in the form of David Vitter).

    http://www.reuters.com/article/2012/05/07/us-usa-fed-nominees-idUSBRE8460KD20120507

    “”I refuse to provide Chairman Bernanke with two more rubber stamps who approve of the Fed’s activist policies,” Vitter said when asked if he planned to lift his hold on the nominations.”

  64. Gravatar of Becky Hargrove Becky Hargrove
    7. May 2012 at 09:34

    …and when your book comes out he could return the favor – the events could simply be close to campuses (in easy to book spots) for a more flexible timeline. Both would undoubtedly be better than some random book events that publishers get.

  65. Gravatar of Cthorm Cthorm
    7. May 2012 at 10:23

    Scott – are you open to private speaking engagements? Pimco has regular firmwide meetings where we have speakers make a presentation and the top directors/portfolio managers debate scenarios and outlook. I’m going to suggest you be invited regardless, but it’s probably prudent to know if you’re up for it. To that point, do you have a preferred email address?

  66. Gravatar of Greg Ransom Greg Ransom
    7. May 2012 at 12:24

    Krugman’s bottom line on Friedman was simply that Friedman was a dishonest guy.

    Paul Krugman, “there were some serious questions about [Milton Friedman's] intellectual honesty when he was speaking to the mass public.”

    In other words, what Krugman has said above is that you are heir to a legacy of dishonesty.

  67. Gravatar of Major_Freedom Major_Freedom
    7. May 2012 at 15:18

    bill woolsey:

    I think a 6% growth path is too high. I favor 3%.

    Notice how NGDP targeting boils down to arbitrary subjective preferences from an individual whose preferences are to overrule the preferences of all others?

    And what was the difference between a market monetarist and a priest again, exactly?

    It’s OK, monetarism always was astrology, so you’re not introducing this, you’re just compelled to do it out of necessity.

    When the science is lacking, the only other option is arbitrary fiat decree. 3%!!! Why? Because….I favor it!

    Now give me my degree.

  68. Gravatar of ssumner ssumner
    8. May 2012 at 04:46

    Thanks John Swift.

    Curiouseconomist, Good example.

    Bill, Exactly.

    Bonnie, Yes, I have a new post.

    Joe2, I agree that those were factors on the supply-side, but I believe the 99 weeks unemployment comp was more important that all those combined.

    Rien, You can construct models to get any result you want, but I don’t see why they should be persuasive, as we have no real way to measure the social welfare effects of unemployment and output stability. It’s all guesswork.

    Mike Sax, I lack the intellectual courage to read links. If you have something to say, say it here.

    Ryan, It’s always important to try to emulate Tyler Cowen’s style, even if one’s instincts push in the opposite direction.

    OGT, Is there anyone in Europe who understands they already have a growth policy?

    Becky, I doubt he’d be interested. As he said with the Ron Paul debate, he thinks debates are bad ideas, then end up with empty cliches and unsupported facts.

    Cthorm, My address is ssumner@bentley.edu. I might be interested (but let’s not have everyone email me, as I have limited time.)

    Greg, I’ll address that soon.

  69. Gravatar of OGT OGT
    8. May 2012 at 05:11

    Scott- Maybe I misunderstand you, surely you don’t mean the current ECB policies! Unless you mean they have a slow nominal growth policy. Draghi recently endorsed a ‘growth pact,’ but implied it had nothing to with the ECB.

    Still, looser monetary policy in your sense of more nominal income growth is the only plausible way to save the Euro, in my opinion. So, I suspect it will be tried right after everything else has failed, which is fast approaching.

  70. Gravatar of Morgan Warstler Morgan Warstler
    8. May 2012 at 06:30

    “Krugman’s bottom line on Friedman was simply that Friedman was a dishonest guy.

    Paul Krugman, “there were some serious questions about [Milton Friedman's] intellectual honesty when he was speaking to the mass public.”

    In other words, what Krugman has said above is that you are heir to a legacy of dishonesty.”

    +1

  71. Gravatar of Mike Sax Mike Sax
    8. May 2012 at 09:31

    Well Scott even if you do you’re still a nice guy. Luckily for me others here have courage.

    I’ve written a new post that gives some closure to the epsisode including the very exciting news about Scott and I achieving dentente

    The beauty of this post is it doesn’t require intellectual courage-it’s for both the courageous and non-courageous equally.

    Sumner and I achieve Dentente http://diaryofarepublicanhater.blogspot.com/2012/05/sumner-and-i-achieve-dentente.html

  72. Gravatar of ssumner ssumner
    10. May 2012 at 06:26

    OGT, I meant that they had a growth policy, and the policy was “slow growth.”

    Morgan, That’s right.

    Mike, I’m glad we agree.

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