The zombies keep coming . . .
I feel like a character in Invasion of the Body Snatchers. No sooner do I knock one critic down, then here’s another. This will teach me that I have no business criticizing Paul Krugman.
Seriously, people need to lighten up. Unlike Angry Bear, DeLong is technically correct. In my follow-up I did concede that Krugman’s specific point was obviously correct, but argued that the implication of his post was incorrect. I thought Krugman’s clear implication was that Reagan’s policies failed to boost growth in real incomes relative to the no reform alternative. Maybe not. It’s up to him to spell out what he really thinks, if most of his left wing fans are misinterpreting him. All I could find was this paragraph in a follow-up post by Krugman:
Here’s what I think: inflation did have to be brought down “” and Paul Volcker, not Reagan, did what was necessary. But the rest “” slashing taxes on the rich, breaking the unions, letting inflation erode the minimum wage “” wasn’t necessary at all. We could have gone on with a more progressive tax system, a stronger labor movement, and so on.
So what do you think Brad? Again, it isn’t crystal clear, but isn’t the implication that Reagan’s policies were harmful? BTW, Volcker made a mild effort to control inflation in early 1980, but backed off in the second half, as he had no support from Carter. Reagan did support the Fed’s anti-inflation effort, which resulted in a much more effective tight money policy beginning in the second half of 1981. Of course the decline in unions began in the late 1950s, and has little to do with Reagan’s policy. (The air traffic controllers case was mostly symbolic.)
If I have fallen into a bad habit of inferring beliefs that are different from what the pundit actually wrote, I apologize. Perhaps I learned the bad habit from the person who wrote this strange non-sequitor last week:
Thinking about BP and the Gulf: in this old interview, Milton Friedman says that there’s no need for product safety regulation, because corporations know that if they do harm they’ll be sued.
Interviewer: So tort law takes care of a lot of this ..
Friedman: Absolutely, absolutely.
Meanwhile, in the real world:
In the wake of last month’s catastrophic Gulf Coast oil spill, Sen. Lisa Murkowski blocked a bill that would have raised the maximum liability for oil companies after a spill from a paltry $75 million to $10 billion. The Republican lawmaker said the bill, introduced by Sen. Robert Menendez (D-NJ), would have unfairly hurt smaller oil companies by raising the costs of oil production. The legislation is “not where we need to be right now” she said.
That’s right, Friedman was wrong in arguing that product safety is subject to tort laws, because oil drilling is not. But I don’t see DeLong asking if Krugman can read. We all draw inferences. If Krugman thinks the Reagan revolution helped the economy, then I will change the title of my post and apologize. If he doesn’t think so, then I will continue to argue that he is WRONG.
Tags:
25. May 2010 at 10:25
A digression
On environmental issues Milton Friedman was a fan of Terry Anderson of the Hoover Institute.
REVIEW: For some reason, the majority of groups who claim to be concerned about the environment are politically left-of-center, and they advocate further government regulation as a solution. What is the key idea that these groups are not understanding?
ANDERSON: First of all, I think that what most of them do is commit the “nirvana fallacy,” meaning they assume that wherever there’s a problem, government can solve it. They fail to see that many times when government attempts to solve something, we often get perverse solutions. What I try to do to combat this is to produce concrete examples of markets that work and do good for the environment.
http://www.perc.org/articles/article435.php
I don’t know that much about Mr Anderson but his book The Not So Wild, Wild West is very good.
Reading Mr Anderson should give you some insight into what Friedman really thought on how to approach such issues.
25. May 2010 at 10:44
I wonder why Krugman doesn’t consider how much of the post war growth was based on the oppression of minority workers and women? How much did their cheap labor allow for rapid growth?
You can get a big boost building in an area after a natural disaster but how much of that is improving living standards Vs rapidly rebuilding that which was destroyed.
Could an American car company get off the ground and grow in today’s regulatory environment?
Perhaps Krugman wants to attack Eisenhower.
“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the militaryindustrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.
In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.
Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.
The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present
and is gravely to be regarded.
Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientifictechnological elite.
It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system — ever aiming toward the supreme goals of our free society.
V.
Another factor in maintaining balance involves the element of time. As we peer into society’s future, we — you and I, and our government — must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.”
http://www.h-net.org/~hst306/documents/indust.html
If Eisenhower were alive today would he be equally worried about the growing concentration of power in the hands of the government.
Friedman, Stigler, and Eisenhower were of a generation that saw the dangers of centrally controlled governments and lost liberties.
25. May 2010 at 11:31
Brad DeLong writes:
“Paul Krugman writes: Scott Sumner writes: And then Paul Krugman notes: Sumner says that when he wrote “Krugman is wrong” he meant, instead, “Krugman is right”: And then he goes on: Nevertheless, he has not corrected his earlier post. His title still reads:”
Don’t abandon your powers of inference just yet, Scott! You are going to need them to decipher a point from that post. Better yet, never mind…..
25. May 2010 at 11:43
I think you are reading too much into this . My reading is that Krugman is challenging (correctly) the often hyperbolic views of conservatives that the slightest rise in marginal tax rates or the slightest increase in union power will bring about economic doom. He correctly points to examples where neither of those two policies brought economic doom, and occurred simultaneously with quite a bit of economic grow. I don’t read him as saying that very high marginal tax rates are good for the economy, I read him as arguing that to tell such a simplistic story is wrong. I think he’s largely correct that even if the marginal tax rates, the union power etc remained similar, that wouldn’t have led to doom. We could have continued. How much growth would be lower is anyone’s guess, but it’s fair to say it wouldn’t have brought us to doom and it’s fairly clear that it didn’t bring us unparalleled growth like conservatives wish to portray it as. It looks to me from his post he’s largely never said whether it brought better growth or not, he merely has undercut the claim that conservative’s preferred policies are the key to growth and opposing policies sometimes favored by liberals with bring economic ruination. Now, I think the reforms (at least some of them) were positive, but I’m not willing to believe they were necessary to save the world like Republican pundits like to think.
Also, no that quote you cited did not suggest the policies were harmful. It merely suggested that whatever effects they had they were probably smaller than most pundits and politicians suggest. While I think he’s right that pundits overestimate the impact of Reagan’s reform, but I also think he underestimates the positive effects
A few random points:
I’m actually confused about Paul’s point under Reagan concerning labor union. The sharply declining rate of union membership was basically on trend during the Reagan administration, and even slightly stagnated in his second term. See how the union membership drop is on trend basically and then even stagnates slightly in about his second term:
http://ethicalpolitics.org/images/unions.jpg
If anything, this simplistic analysis would tell you that Carter hated unions about as much as Reagan.
I also agree that I’m not sure what Paul is getting at in his Friedman post, but suffice to say though – Friedman was wrong about tort law. Try studying the U.S. legal system sometime around 1870 up until about 1920, you’ll find that tort law, at least when concerning business interest, was an utter disaster. If you were a large corporation, you basically became immune from any liability since the system was so corrupted. Absurdly simplistic laissez-faire ideology among judges coupled with powerful corporate money to either railroad the “little guy” with legal outmaneuvering and / or just outright bribes to judiciary, often enforced by help of the political machines, all assured that tort law just didn’t work. You can argue that if we had an ideal world that tort law would work great, but we don’t and it didn’t work. This is how politicians were able to create the regulatory system in the Progressive era with large popular support. Arguably politicians co-opted the movement away from the judiciary for there own benefit, as the Stigler / Posner / “public interest” camp will tell you, though looking at the historical facts you can actually contest that view for a lot of regulations (though certainty some fall into the public interest theory), but that’s besides the point. The progressive era of regulation was made possible by the popular disgust at the utterly corrupted and ineffective tort law system. Maybe you can argue that was a special time in history and that story isn’t applicable now, which might be true given the greater media exposure on trials, but let’s not pretend that tort law is obviously the best option considering its historical failure, both here and elsewhere.
25. May 2010 at 13:09
“Seriously, people need to lighten up.”
Part of the reason for the responses is that the same could be said of the barage of critical reviews that followed Krugman’s initial post without even addressing Krugman’s point.
25. May 2010 at 14:28
Scott – Take heart. I think you’ve attempted to engage in an honest debate. Sometimes others would prefer to “score points” at the expense of going a level deeper and perhaps even questioning their initial views. Seems like human nature to me and is probably amplified in blogs. Keep questioning. the debate is worthwhile for all of us.
25. May 2010 at 15:16
Scott,
I left some comments at the end of the De Long post you link to. He’ll probably delete it soon.
25. May 2010 at 16:23
I tried to comment on DeLong’s post, but either the software failed or he deleted it.
I essentially pointed out that you were perhaps technically wrong to title the post “Why Krugman is Wrong,” when a more correct title would have been “Why Krugman’s Point is Irrelevant, and What he Implies about Neoliberal Policy Reform is Wrong.” I mentioned that it seemed too long, though.
25. May 2010 at 17:28
DanC, Good points. For me the bottom line is that even countries like Italy and Russia could grow fast in the post war decades, indeed even long after WWII was over, then we shouldn’t view fast growth as an indicator of a sustainable model. Even North Korea grew fast during this period. How sustainable did that model turn out to be? We deferred a lot of consumption during the Depression and War years, and there are few easier economic tasks than churning out more and more houses, cars, appliances, etc, etc.
Rob, ??? Seriously, As soon as Krugman says Reagan’s policies worked I’ll stop saying he’s wrong. It’s really that simple. It’s all he has to do. It can’t be that hard to say. Seriously, the follow-up Krugman post makes it pretty clear that the meaning I inferred was correct. And then there are 1000 other of his posts–where he criticizes neoliberal-type policies. After all, the title didn’t say he was wrong in the particular post I linked to did it? 🙂
Ted, I’ve been over this 100 times. I realize that what Krugman said was literally true. I criticized the implication that the growth story of the 1950s and 1960s tells us something about whether high rates are a disaster. It doesn’t. North Korea grew rapidly during those decades, with a horrible economic model.
I completely agree with you about unions.
Your tort views are very interesting, and perhaps correct, but are also completely unrelated to what Friedman said. Now if Friedman also believes we had a good tort system in 1900, then you have a good criticism. I agree that there are pluses and minuses with both torts and regulation.
Daniel, Krugman’s much smarter than me, and a better blogger, but I’ll wager I have more self-deprecating humor.
MBP, Don’t worry about me–it’s a good day when Krugman calls me a damn liar and DeLong says I’m nuts. That means I’m being noticed. If I really was nuts they wouldn’t even respond.
It would worry me if my facts were wrong, but Angry Bear didn’t come up with much that I couldn’t easily address.
Thanks Mike.
Norman, I actually thought of doing that, or something even more silly. But I thought I’d rather ask him if I drew the wrong inference. If he says Reagan’s policies worked, I’ll apologize. If he doesn’t, then I’ll assume the inference I made was correct—It was an argument against the efficacy of Reaganomics, and I think even most of his supporters read it that way.
25. May 2010 at 19:46
Krugman’s post doesn’t actually make any claim, except that Reagan’s policy “wasn’t necessary” and the old system “wasn’t unworkable”. He isn’t actually saying the new policy is worse, though of course many will interpret it this way.
I read him as saying there is no equity-efficiency trade-off, we could have kept the more equitable old policies and had the same growth.
His posts on tort make the growth posts look downright sensible (being misleading beats making the opposite syllogism you intended).
The title of Delong’s post sounds like a good quote for the office door.
25. May 2010 at 21:13
I think that’s what you get for being the liberals’ go to guy for balance. Keep up the good work keeping us honest.
25. May 2010 at 22:45
Scott,
Did you read Reihan Salam’s recent comments about you and Krugman?
http://www.nationalreview.com/agenda/55992/krugmans-counterfactuals/reihan-salam
Scott,
Did you read Reihan Salam’s recent comments about you and Krugman?
http://www.nationalreview.com/agenda/55992/krugmans-counterfactuals/reihan-salam
Scott,
Did you read Reihan Salam’s recent comments about you and Krugman?
http://www.nationalreview.com/agenda/55992/krugmans-counterfactuals/reihan-salam
25. May 2010 at 22:48
sorry about screwing up the copy/paste procedure.
26. May 2010 at 09:27
@Scott
Krugman is doing a pundit trick. It’s where you make a factually correct statement, which you then leave open to be ideologically shaded by the reader. His target audience is more often than not left-leaning individuals and so he is leaving it open to be ideologically shaded in the direction that you think he implies. My guess is, he doesn’t believe they were “bad” from an economic growth perspective. My guess is he feels some of the reforms were bad because they inevitably weakened the welfare state (without high progressive taxation it’s fairly hard to have a strong welfare state, at least if you also don’t want to tax the middle class). It’s just the classic efficiency versus equality argument, which is, of course, an endless debate.
I’m getting that you are basically objecting to this use of this punditry trick since it allows the reader to infer things that may not be correct?
Anyway, I more or less agree with you. I think you are probably just more bothered by the punditry trick than I am.
Though, I don’t think I was unfair to say Friedman was wrong. Friedman said tort law resolves the problems that regulation seeks to. I pointed to historical evidence that said, no that isn’t true. I’m sure Friedman’s idealized version would work great in the real world – but the real world is not idealized and people are easily corruptible.
I don’t know if he approved of tort law in the late 19th / early 20th century, but that’s when the tort law revolution started and really the 1870-1920 period is about the only era where the U.S. had a tort law regime so if we are going to try to subject Friedman’s claim to evidence, namely that tort law can be effective, then we have to revert back to that era. Perhaps I should have been more clear with my words. Friedman might believe that tort law would be more effective today, but he doesn’t have evidence to support that so I’m not really interested in his claim. I’m sure tort law has worked somewhere in the world, but I’m hard pressed to find where. The U.S. is hardily unique in its retreat from the tort law regime. Almost every developed common law country has retreated in various degrees from pure tort because of the same problems we ran into. Somewhat tangentially, the whole point of civil law appears to be to limit the power of judges because the state feared corruption of them (in particular, France feared powerful regional feudal lords would too easily subvert justice under a common law system). I guess my point is that tort law appears to have a horrible track record and Friedman’s comment is really just based on idealized theory which seems to have been proven false.
Perhaps I’m not addressing Friedman precisely, but I’m taking on the broader claim that tort law would work when most historical evidence says it wouldn’t. Although, I am perfectly willing to submit that society is quite different today than it was back then and it could be different enough that tort law could work now, but that’s just speculation. I’m not at all convinced that if tort law was given virtual free reign once again that we wouldn’t again see widespread corruption.
My view is that snatching some power from the judiciary was necessary and a lot of good reforms did happen (and some bad ones that were mostly designed to benefit existing businesses and do favors). I think what happened was that in the post-war era the movement was taken too far. It went from a public interest / anti-corruption campaign and morphed more into the Stigler / Posner “regulatory capture / interest group” story. I think the problem is many people have forgotten just how terrible pure tort was because we’ve seen recently that tort has been more successful (arguably because of its now relatively limited power and much stricter rules) and regulation has become the domain of incompetence and favors. I think the “public good” story was initially very relevant, but then the regulatory pursuits begun to look more like the Stigler story. I think the trick is to find the right hybrid regulation-litigation system. Right now, I think we need to rely more on litigation and less on regulation – but that’s only because we pushed regulation too far, we shouldn’t revert back to a pure litigation system like Friedman’s quote seems to suggest.
Also, one fun fact that people don’t often know about. People often believe that anti-trust laws were pursued to avoid high prices and low quality as a result of monopoly power. In reality, these concerns were often secondary (or at least not the sole) concern of Progressives. Their primary concern was the grip that powerful, large businesses had over the judiciary, and more generally the political system itself.
26. May 2010 at 09:48
James; You said;
Krugman’s post doesn’t actually make any claim, except that Reagan’s policy “wasn’t necessary” and the old system “wasn’t unworkable”. He isn’t actually saying the new policy is worse, though of course many will interpret it this way.
I read him as saying there is no equity-efficiency trade-off, we could have kept the more equitable old policies and had the same growth.
I also read him that way, and I think he is wrong. But I agree that he never quite comes out and tells us what he thinks. It’s frustrating. Maybe he is actually a neoliberal.
Thanks Jason.
Thanks Tom, There is a new post with a link to the NRO article.
Ted, I agree with you about Krugman, but not this:
“Though, I don’t think I was unfair to say Friedman was wrong. Friedman said tort law resolves the problems that regulation seeks to. I pointed to historical evidence that said, no that isn’t true. I’m sure Friedman’s idealized version would work great in the real world – but the real world is not idealized and people are easily corruptible.”
That’s not what Friedman said. You may think he also would have applied it to oil drilling, but he said product safety. So Krugman is doing the same thing he accuses me of doing. If Friedman was aware of the $75 million tort cap, he might have favored some government regulation. My views are similar to his, and that’s the tack I would have taken so I don’t see any inconsistency there. Unless someone can show there are tort caps on product safety, which is what Friedman was discussing.
Your longer discussion of Friedman is interesting, and I’m not qualified to respond, but does nothing to defend Krugman’s non-sequitor.
Another interesting fact about anti-trust is that it more often protects business than consumers. The Microsoft case is a perfect example. The cases are often brought against excessively LOW prices.
26. May 2010 at 12:00
I think you made the mistake of assuming I’m defending Krugman on his comment. I think Krugman’s comment is actually nonsensical. If Friedman was a strong advocate of the use of tort law (which by all appearances he was), I highly doubt he would support any kind of government cap. He would likely call for the cap to be removed and have the company pay the damages they have imposed. Alternatively, if I remember correctly, Friedman agreed with government regulation when the cost of an action exceeded any reasonable ability to compensate those that were damaged. Whether that would include an oil spill in his mind is anyone’s guess though.
So, yes, I agree Krugman’s comments concerning Friedman don’t make a lot of sense there. I’m not defending him. I’m launching my own critique that, in general, even in the narrow realm of product safety, tort law didn’t work. Tort law failed to protect Americans from many things. This quote by Friedman is particularly amusing because it is in the context of him arguing we should abolish the FDA. The whole reason the FDA and laws like the Meat Inspection Act (1891), Pure Food and Drug Act (1906), the Federal Food, Drug, and Cosmetic Act (1938), were put into place was because of the failure of tort law to protect consumers! It’s rather ironic. People would regularly die from poisoned food and hazardous drugs, and the courts would just shrug and rule in favor of the companies. Now I have problems with the FDA for a lot of the reasons Friedman did (but I still debate whether eliminating it or reforming it would be the better route), but let’s remember why the FDA was created – because tort law failed. So in Friedman’s own very example, he is historically wrong.
In the cast of Microsoft, I think you are giving a perfect example of the goal of regulation shifting away from early public interest (perhaps I’m more correct to say it emphasized public interest, it wasn’t always purely about public interest) and more into the regulatory capture / interest group protection domain. Although, to be fair to the government, Microsoft was dangerously close (it was certainly in that murky gray area) of whether it violated the tying clause of the Sherman Act, but I would’ve probably ruled in there favor under the rule of reason standard (that issue was actually never settled because the govt settled before the court could establish whether it met the rule of reason standard). Although, to be equally fair to Microsoft, the tying clause of the Sherman Act is horribly outdated (I can think of about a dozen companies that come close to violating it now off the top of my head) and should probably be revised to reflect more modern-day commerce, although I don’t think antitrust reform is big on anyone’s legislative agenda.
26. May 2010 at 18:46
Ted, I doubt whether the Sherman act ever did more good than harm. There is little evidence that breaking up Standard Oil helped. If we simply banned price fixing, and junked the rest, I think we’d be better off.
And given our current tort system, I’d also abolish the FDA. I can’t comment on the history, as you know much more about it than I do.
Often bad things happened in the past not because of lack of regulation, but rather because life was just plain brutal by modern standards in the old days. On the other hand, it’s entirely possible that regulation helped a lot in some cases–such as the one’s you cite.