Paul Krugman and Joe Stiglitz are brilliant Nobel-prize winning economists. Both have been known to be somewhat caustic in their criticism of others. Most importantly, both are public intellectuals who often criticize the orthodox establishment from a liberal or progressive vantage point. I used to think they were sort of similar.
Until now. In the field of macro, Krugman >>>>>>>>> Stiglitz. Check this out:
NEW YORK (Reuters) – Ultra-loose monetary policies by the U.S. Federal Reserve and the European Central Bank are throwing the world into “chaos” rather than helping the global economic recovery, Nobel Prize winning economist Joseph Stiglitz said on Tuesday.
A “flood of liquidity” from the Fed and the ECB is bringing instability to global foreign exchange markets, Stiglitz told reporters after a conference at Columbia University.
“The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy,” Stiglitz said. “It’s doing nothing for the American economy, but it’s causing chaos over the rest of the world. It’s a very strange policy that they are pursuing.”
And here is Robert Reich:
Washington is actively pursuing a weak dollar as a jobs policy. (The dollar just plunged to a six-month low against the euro.)
How? The Fed is keeping long-term interest rates so low global investors are heading elsewhere for high returns, which bids the dollar down. Every time another Fed official hints the Fed will start printing even more money (“quantitative easing” in Fed speak) the dollar takes another dive.
Meanwhile, Congress is ginning up legislation to allow the President to slap tariffs on Chinese imports because China is “artificially” keeping its currency low relative to the dollar.
But using a weak dollar to create American jobs is foolish, for two reasons.
First, no other country wants to lose jobs because its currency becomes too high relative to the dollar. So a weak dollar policy invites currency wars. Everyone loses.
At least a half dozen other countries are now actively pushing down the value of their currencies. Japan recently sold some $20 billion of yen in order to keep the yen down, the biggest ever sell-off in single day.
Last week, Brazil’s Finance Minister lashed out at the US, Japan and other rich nations for letting their currencies weaken to spur jobs. Brazil’s high interest rates are attracting global investors and pushing up the value of Brazil’s currency. This is crippling Brazil’s exports and fueling unemployment.
Perhaps Krugman will have to send out another memo to Ezra Klein, as it’s hard to keep track of which side are inflation hawks and which side is pro-stimulus. No matter how often I criticize Krugman for one thing or another, at least you can sense some sort of coherent model—you understand why you disagree. It’s often a very minor point of interpretation; is monetary or fiscal stimulus more likely, or did Japan really try to escape its liquidity trap?
I have no idea where these guys are coming from. A currency war causes everyone to lose? Why is that Mr. Reich? Because it leads to high inflation? And what causes the high inflation? Rising AD? And what is the point of the fiscal stimulus you favor? Higher AD?
The name of my blog never seemed more appropriate. We’re hardwired to think disputes must be over who gets what—who’s favoring the capitalists and who favors the workers. It’s much more than that. It’s mass confusion about the nature of monetary policy. Krugman and Stiglitz are distinguished economists with impeccable progressive credentials, and they both can’t be right. The AFL-CIO opposed FDR’s dollar depreciation of 1933, even though it led to a rapid increase in production. Every day that goes by I’m reminded more and more of the intellectual climate during the 1930s. We’ve learned nothing.
HT: Liberal Roman