No, you are not entitled to an opinion

Is it just me or is there a boom in wacky new theories.  The silly season.  Recently we’ve seen a theory that monetary injections are deflationary because you need lower inflation in order for people to be willing to hold larger cash balances. Little did David Hume know that the actual answer to his thought experiment of everyone waking up with more money in their purse was that inflation would fall.

Then we have the President of the United States informing us that a huge rise in the minimum wage, hard on the heels of a previous 40% increase, will actually create new jobs.  And yet I don’t see many liberal economists accusing him of “voodoo economics.”  But that term’s passé, as even liberals now claim that deficits pay for themselves in terms of economic growth.  A belated apology to Art Laffer.

Then you have today’s NYT expressing horror that if the Portuguese don’t do something quickly they might end up looking like Germany, a country with 5.2% unemployment where the top 10% earn a scandalous 31% of the income.  I’d guess the top 10% of my earning years have produced about 31% of my lifetime income, which means that Germany is as unequal as a country containing 80 million Scott Sumner clones, all at different stages of their life.  I guess liberals have finally realized that they have no answers to high unemployment, so they’ll focus instead on “inequality.”

And then there is the ECB, assuring folks like Ambrose Evans-Pritchard not to worry, they have a 2% inflation target and intend to meet that target (despite the fact that they are falling ever further behind):

Draghi reiterated the bank’s readiness to act if necessary but gave no indication it was about to use such policy tools.

“The level of preparedness is pretty high on all (policy options),” he said, before later adding: “Which instruments would we deploy against which contingency? We haven’t really done any reflection on that.”

Please take your time before “reflecting” on solutions; there is no hurry.  It’s not as though the eurozone has been in depression for 6 years.

Commenter Mattias sent me perhaps the silliest of all, unfortunately no link:

Scott,

I think the sad truth is that pop Austrian ideas are very popular throughout Europe. See for instance (a short version of) a column in Sweden’s biggest financial paper (DI) the other day, that I translated with help from Google, written by their leading commentator on monetary policy:

“Time to lower the inflation target!

The Riksbank should lower its inflation target. The interest rate can not be zero only because inflation is falling all around the world.

Critics claim that the Riksbank has abandoned the inflation target to prevent debt build-up. That is of course not the case. The Riksbank steers the economy using its inflation forecast, but must also take into account other parts of the economy.

However, there is every reason for the Riksbank to clarify that the conditions have changed, which also raises the question whether it should redefine the numerical target of a 2 per cent inflation target, because that target is likely to have had its day.

Inflation rates fall all over the world when millions of people are seeking gainful employment and that’s what’s driving down wages and prices.

If GDP grows over time, it is reasonable that the interest rate is higher than zero, regardless of whether we are importing cheaper and flatter televisions. The more interest rate deviates from reality, the greater the risk that we may be pricing everything wrong, except what is included in the consumer price index.

Today, the low interest rate leads to higher valuations of shares and property, as well as art and wine.

The ‘masters of simple solutions’ is now pressuring Stefan Ingves to cut rates. But to combat international price falls by pouring petrol on the Swedish fire is foolish and dangerous.” (emphasis added)

Update:  There is a link.

So that’s what’s driving down prices!  And all this time I thought it was tight money.  I believe the acronym used today is ROFL.

And don’t say that “everyone is entitled to an opinion,” or that the bubble thing is a valid perspective.  No, as Paul Krugman pointed out in Pop Internationalism, if you don’t understand the theory of comparative advantage you are not entitled to an opinion that protection makes sense today because comparative advantage doesn’t apply to the modern world for blah blah blah reasons.  And I would say that people who don’t understand basic AS/AD are not entitled to an opinion that unconventional monetary policies that focus on “art and wine” markets are needed.  First you have to show you understand conventional policies. And everywhere we look we see fewer and fewer people on both the left and the right that understand even economics 101. People who don’t are not entitled to an opinion.  People who do, but still reject econ101, are entitled to an opinion.

PS.  Off topic, does anyone know how to find a quote of Krugman saying fiscal policy is not appropriate when not at the zero bound?  He said this in 2009, how do I find?


Tags:

 
 
 

42 Responses to “No, you are not entitled to an opinion”

  1. Gravatar of Jon Jon
    5. December 2013 at 12:22

    This?

    http://krugman.blogs.nytimes.com/2009/01/19/getting-fiscal/?_r=0

  2. Gravatar of Mike Mike
    5. December 2013 at 12:25

    http://krugman.blogs.nytimes.com/2009/01/19/getting-fiscal/?_r=0 ??

  3. Gravatar of Mattias Mattias
    5. December 2013 at 12:48

    Well I thought you would be appalled by that column. The link is

    http://www.di.se/artiklar/2013/12/4/dags-sanka-inflationsmalet/

    but the google translation got a bit strange so I just put in the translation. If you think this doesn’t make any sense, you should see the some of the comments.

  4. Gravatar of igoru igoru
    5. December 2013 at 12:51

    I think you are looking for this:

    “Just to be clear, we’re talking about fiscal stimulus in a liquidity trap “” that is, under conditions in which conventional monetary policy has lost traction, in which the Fed would set interest rates much lower if it could. Under more normal conditions the conventional view of stimulus is more or less right.”

    http://krugman.blogs.nytimes.com/2009/09/29/the-true-fiscal-cost-of-stimulus/?_r=0

    And here is description of conventional, textbook view of stimulus effects:

    “The textbook answer identifies two reasons “” two ways in which budget deficits now make us worse off in the future. They are:

    (1) The fiscal burden: deficits now mean higher debt later, which will have to be serviced, and that means higher taxes and/or less spending on other, presumably desirable things

    (2) Crowding out: when it runs deficits, the government competes with the private sector for funds, so deficits crowd out private investment, which reduces potential growth

    All this makes sense under normal conditions.”

    http://krugman.blogs.nytimes.com/2009/09/28/crowding-in/

  5. Gravatar of Andrew Andrew
    5. December 2013 at 12:54

    Looks like Jon beat me to it.

    “And the reason we’re all turning to fiscal policy is that the standard rule, which is that monetary policy plus automatic stabilizers should do the work of smoothing the business cycle, can’t be applied when we’re hard up against the zero lower bound.”

  6. Gravatar of Adam Adam
    5. December 2013 at 12:55

    I’ve definitely read him saying that on his blog on multiple occasions, although it’s easier to find the inverse statement (that because of the ZLB, fiscal policy is appropriate). There’s the one John linked to, and here are some more:

    http://krugman.blogs.nytimes.com/2013/08/20/coalmines-and-aliens-again/
    http://krugman.blogs.nytimes.com/2013/06/26/karicature-keynesianism/
    http://krugman.blogs.nytimes.com/2011/03/25/deficits-and-the-printing-press-somewhat-wonkish/ (not exactly on point)

    Or just search for “zero” or some variation on his blog page and look at the entries from 2009: http://krugman.blogs.nytimes.com/page/25/?s=zero

  7. Gravatar of Mark A. Sadowski Mark A. Sadowski
    5. December 2013 at 12:55

    “PS. Off topic, does anyone know how to find a quote of Krugman saying fiscal policy is not appropriate when not at the zero bound? He said this in 2009, how do I find?”

    This was written by Krugman in response to Edmund Phelps in November 2009:

    “…The position held by Keynesians “” by the way, if Keynesian economics has been “nearly forgotten inside the macro field”, someone should tell Greg Mankiw that he’s an unperson “” is that fiscal stimulus is necessary only under certain special conditions. Namely, when you’re up against the zero lower bound, and conventional monetary policy is useless, fiscal stimulus may be your best option.

    And we are at the zero lower bound right now, for the first time in 70 years. That’s why fiscal stimulus is on the agenda “” not because Keynesians believe that deficit spending is always and everywhere the best policy…”

    http://www.krugman.blogs.nytimes.com/2009/11/03/on-not-listening/

  8. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    5. December 2013 at 13:08

    This is suggestive;

    http://www.nytimes.com/2009/07/10/opinion/10krugman.html

    ——-quote——
    …consider what happens in normal times.

    When there’s an ordinary, garden-variety recession, the job of fighting that recession is assigned to the Federal Reserve. The Fed responds by cutting interest rates in an incremental fashion. Reducing rates a bit at a time, it keeps cutting until the economy turns around. At times it pauses to assess the effects of its work; if the economy is still weak, the cutting resumes.
    ———endquote———

  9. Gravatar of Lorenzo from Oz Lorenzo from Oz
    5. December 2013 at 13:11

    Scott, you’re commenters are awesome :)

  10. Gravatar of Matt McOsker Matt McOsker
    5. December 2013 at 13:11

    Google has the ability to search in a specific time range – select search tools and select custom range. Search tools appears after your initial search. Not sure the best keywords to use.

  11. Gravatar of SG SG
    5. December 2013 at 13:15

    Looks like I’ve gotten beaten by everyone else… I found the quote igoru referred to:

    “Under more normal conditions the conventional view of stimulus is more or less right.”

    http://krugman.blogs.nytimes.com/2009/09/29/the-true-fiscal-cost-of-stimulus/?_r=0

    It’s remarkable though. Going through Krugman’s blog from late 2008/early 2009 is remarkable, because he saw-clearly-what the issue was. He just sincerely believed that a big stimulus bill could help.

    Here’s a counterfactual: if Krugman had been fed chair during the financial crisis, would he have capitulated to the Fed Borg and gone to congress to advocate for fiscal stimulus (a la Ben Bernanke), or would he have summoned some Rooseveltian Resolve and advocated for meaningful Fed action?

  12. Gravatar of SG SG
    5. December 2013 at 13:17

    I feel like the best way to get a comprehensive overview of Krugman’s positions from the last five years is to read themoneyillusion.com

  13. Gravatar of honeyoak honeyoak
    5. December 2013 at 13:26

    Scott, I laughed very hard after reading the second sentence, Keep the comedy coming.

  14. Gravatar of Steven Kopits Steven Kopits
    5. December 2013 at 13:34

    I thought it was funny, too.

    For an economist, you actually do funny pretty well.

  15. Gravatar of jknarr jknarr
    5. December 2013 at 13:38

    Crisis has epistemological consequences: the old order and once-safe assumptions are revealed as critically flawed; and a number of wacky new ideas rush into the void. There are always wild new prophets wandering the marketplace, the point is that they are being listened to, and evaluated.

    There are some that would say that NGDP targeting falls under the same flowering of wackiness. (I think that they are wacky in turn, because clearly you know what you are talking about!) Have faith that the wheat will be winnowed.

    The US is in a generational crisis, the epistemological landscape is trying to adapt. Encourage the competition! Things will move in a very slow and gridlocked (even wacky)fashion, and then very fast.

    http://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory

  16. Gravatar of Mark A. Sadowski Mark A. Sadowski
    5. December 2013 at 13:43

    “Is it just me or is there a boom in wacky new theories…”

    Yes, I’ve noticed the same phenomenon, there’s been a huge uptick in everything including the kitchen sink being hurled in the vain hope that something, anything, will stick. I don’t know what it’s about.

    “…And I would say that people who don’t understand basic AS/AD are not entitled to an opinion that unconventional monetary policies that focus on “art and wine” markets are needed. First you have to show you understand conventional policies. And everywhere we look we see fewer and fewer people on both the left and the right that understand even economics 101. People who don’t are not entitled to an opinion. People who do, but still reject econ101, are entitled to an opinion.”

    Oddly, after debating a Dutch deflationist for two years, I finally told him to buckle down and learn some basic Econ 102 (particularly the AD-AS Model) instead of cooking up 101 variations on “deflation is good because people can buy more stuff” supported with citations of various UK tabloids.

    The problem isn’t that we don’t know what the problem is. The problem is economic policy in the Euro Area is being run by total idiots.

    P.S. Yves Smith evidently now has a weekly feature where she inserts “QE” into the title of the post but then you search in vain for an argument for how the economic or social problem discussed by the post was caused, or even made worse, by QE.

    It reminds me of that scene in “The Birdcage”:

    “Albert Goldman: Whatever I am, he made me! I was adorable once, young and full of hope. And now look at me! I’m this short, fat, insecure, middle-aged THING!

    Armand: I made you short?”

  17. Gravatar of ssumner ssumner
    5. December 2013 at 13:49

    Thanks everyone, what would I do without my commenters!!

  18. Gravatar of ssumner ssumner
    5. December 2013 at 13:52

    jknarr, Just to be clear, wacky is fine. As long as you understand the mainstream view you are going against. And I do.

    Mark, Good one.

  19. Gravatar of Robert Robert
    5. December 2013 at 14:11

    http://www.pkarchive.org/cranks/vulgar.html

    “Consider, for example, the “paradox of thrift.” Suppose that for some reason the savings rate–the fraction of income not spent–goes up. According to the early Keynesian models, this will actually lead to a decline in total savings and investment. Why? Because higher desired savings will lead to an economic slump, which will reduce income and also reduce investment demand; since in the end savings and investment are always equal, the total volume of savings must actually fall!
    Or consider the “widow’s cruse” theory of wages and employment (named after an old folk tale). You might think that raising wages would reduce the demand for labor; but some early Keynesians argued that redistributing income from profits to wages would raise consumption demand, because workers save less than capitalists (actually they don’t, but that’s another story), and therefore increase output and employment.

    Such paradoxes are still fun to contemplate; they still appear in some freshman textbooks. Nonetheless, few economists take them seriously these days. There are a number of reasons, but the most important can be stated in two words: Alan Greenspan. “

  20. Gravatar of Benoit Essiambre Benoit Essiambre
    5. December 2013 at 14:13

    So much economic pain for nothing. WTF ECB!

  21. Gravatar of jknarr jknarr
    5. December 2013 at 14:50

    Benoit, you might need to adjust your model’s assumptions: the ECB is a tool of european unification, not european economic utility.

    This means that economic pain is a means to unification: getting young spaniards to move to Munich, and old germans to move to Spain on the demographic front; and softening up populations to transfer fiscal authoritiy to the European Parliament, ultimately.

    They can’t destroy the nation-state without causing economic pain.

  22. Gravatar of Catherine Catherine
    5. December 2013 at 15:15

    From Krugman’s textbook, Macroeconomics, 2nd edition (2009):

    “The Modern Consensus

    [snip]

    As we’ve already seen, views about the effectiveness of fiscal policy have gone back and forth, from rejection by classical macroeconomists, to a positive view by Keynesian economists, to a negative view once again by monetarists. Today most macro-economists believe that tax cuts and spending increases are at least somewhat effective in increasing aggregate demand.

    Many, but not all, macroeconomists, however, believe that discretionary fiscal policy is usually counterproductive, for the reasons discussed in Chapter 13: the lags in adjusting fiscal policy mean that, all too often, policies intended to fight a slump end up intensifying a boom.

    As a result, the macroeconomic consensus gives monetary policy the lead role in economic stabilization. Discretionary fiscal policy plays the leading role only in special circumstances when monetary policy is ineffective, such as those facing Japan during the 1990s when interest rates were at or near the zero bound and the economy was in a liquidity trap. As this book went to press, the United States similarly found itself at the zero bound, and most macroeconomists supported a large discretionary fiscal expansion.”

    ALSO:

    “A political business cycle results when politicians use macroeconomic policy to serve political ends.

    [snip]

    An often-cited example is the combination of expansionary fiscal and monetary policy that led to rapid growth in the U.S. economy just before the 1972 election and a sharp acceleration in inflation after the election. Kenneth Rogoff, a respected macroeconomist who served as chief economist at the International Monetary Fund, has proclaimed Richard Nixon “the all-time hero of political business cycles.”

    As we learned in Chapter 14, one way to avoid a political business cycle is to place monetary policy in the hands of an independent central bank, insulated from political pressure. The political business cycle is also a reason to limit the use of discretionary fiscal policy to extreme circumstances.”

  23. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    5. December 2013 at 15:20

    The NYT article reminds me of the schizophrenia that left-wing articles in the PIGS often exhibit when they write about Germany. They typically argue that Germany is a hell-hole of poverty that needs to share some of its wealth and bail them out.

    “I guess liberals have finally realized that they have no answers to high unemployment.”

    High unemployment is caused by austerity, Scott. More public spending would solve it. Have you learned nothing from the last 5 years?

    Just look at Britain which consistently ran some of the largest deficits in the world and, therefore, never had the mass unemployment of the PIGS. They are now growing again on the strength of this public spending and their deficits will cure themselves!

  24. Gravatar of Dan W. Dan W.
    5. December 2013 at 15:33

    “As we learned in Chapter 14, one way to avoid a political business cycle is to place monetary policy in the hands of an independent central bank, insulated from political pressure.”

    This sentence perfectly captures the deficiency of macroeconomics as a science. The author presents as a matter of practice an unobtainable ideal. Reality is quite different. Central bankers are never fully independent and they are never insulated from political pressure. Yet the statement that they are is simply put forward and left unchallenged.

    If you disagree I have a simple question to ask: Present to me a hypothesis that could prove the independence of a central bank. If it can never be proven whether the central bank is independent and politically insulated on what basis can it be ever assumed that it is?

  25. Gravatar of Geoff Geoff
    5. December 2013 at 16:28

    “And don’t say that “everyone is entitled to an opinion,” or that the bubble thing is a valid perspective.

    That’s just your opinion. After all, “the bubble thing” is indeed a valid perspective. EMH is fundamentally flawed. NGDPLT will cause problems that, if continually imposed, will eventually result in a rejection of the currency as volatility increases to such high levels that the demand for cash holding will rise to such a degree that the central bank will lose control of NGDP. Sumner is wrong about almost everything he says. This blog is political advocacy, not economics. Micro economics explains everything. Did I mention Sumner is wrong about almost everything?

  26. Gravatar of TravisV TravisV
    5. December 2013 at 16:52

    Prof. Sumner,

    Don’t you agree with Yglesias that our small banks are the problem? He’s getting a lot of grief from tons of people for making that argument……..

    http://blogs.reuters.com/felix-salmon/2013/12/05/three-cheers-for-small-banks

  27. Gravatar of ThomasL ThomasL
    5. December 2013 at 16:53

    “He said this in 2009, how do I find?”

    Ask Bob Murphy.

  28. Gravatar of Benjamin Cole Benjamin Cole
    5. December 2013 at 21:17

    Re: modern day economists and central bankers:

    Casey Stengel, in 1968, Mets manager, said “Can’t anybody here play this game?”

    Are central bankers the equivalent of the 1968 Mets?

  29. Gravatar of Benjamin Cole Benjamin Cole
    5. December 2013 at 21:35

    Correx: 1962 Mets and who could forget?

    Marv Throneberry had nothing on Draghi…

  30. Gravatar of Joe C Joe C
    5. December 2013 at 22:33

    “Inflation rates fall all over the world when millions of people are seeking gainful employment and that’s what’s driving down wages and prices.”

    Should I be asking for a pay decrease at my next review?

    http://www.youtube.com/watch?v=nZADH7RNODA

  31. Gravatar of Jason Jason
    6. December 2013 at 01:04

    “Then we have the President of the United States informing us that a huge rise in the minimum wage, hard on the heels of a previous 40% increase, will actually create new jobs.”

    Scott, I’d LOVE for you to do an in depth evaluation of the “new” minimum wage literature, not just Card and Krueger (which has already been done) but Reich as well and the most recent studies that progressives quote

  32. Gravatar of Jon Jon
    6. December 2013 at 03:59

    Scott, a question – I’m not an economist, so forgive me if I’m naive for asking, but here goes:
    The Danish Central Bank lowered its interest rates into negative nominal territory, and it felt that doing so worked quite well. Why couldn’t the ECB/Fed/BOJ do the same? I looked at the Krugman column you were referencing, and he showed a graph suggesting that standard Taylor Rule interest rate policy would dictate a deeply negative nominal rate (something akin to -6%). Are we just worried that the banks would pull all their money out of the Fed and lock it up in a vault where it would do nothing? Unless I’m mistaken, that’s not really any different to what happens when the money is simply on deposit with the Fed.

  33. Gravatar of Brian Donohue Brian Donohue
    6. December 2013 at 05:24

    Once again, you have the zeitgeist by the throat!

    I despair of progress. Despite your best efforts, the economics profession continues to be one size fits all ideologies. Oh well.

  34. Gravatar of ssumner ssumner
    6. December 2013 at 05:25

    Thanks Robert, great quote.

    Catherine, Thanks for the link.

    Luis, Oh yeah, I forgot.

    Travis, Yes, I agree, didn’t see that post.

    Jason, I’m afraid I don’t have the time. I’ve done lots of research on minimum wages in the 1930s, which is why I am convinced that they reduce employment. I do follow what others like Bryan Caplan say about the modern literature. Maybe when I’m retired.

    Jon, Yes they could do that, but worry about the money market funds. I agree they should cut rates, but it’s also important to note that the Fed can easily do stimulus without cutting the IOR.

  35. Gravatar of ssumner ssumner
    6. December 2013 at 05:29

    Geoff, You said;

    “After all, “the bubble thing” is indeed a valid perspective. ”

    You really are a moron, O never said it’s not a valid perspective. I think it is a valid perspective. I said “don’t say” because that perspective doesn’t excuse the author of not understanding basic AS/AD.

    Please take a course in reading comprehension.

    Thanks Brian.

  36. Gravatar of Magnus Magnus
    6. December 2013 at 05:31

    The Riksbank is getting a lot of flak in the blogosphere lately. Pretty broad agreement that they do not know what they are doing, from Krugman to yourself. Surprisingly little debate in the press in Sweden though. Lars Svensson is pretty much alone in arguing forcefully for a much looser policy. The main labour union umbrella organisation (LO) are making some noise, but so far in a very low key way. Their pals over at the Social Democrats are meanwhile busy accusing the government of breaching the budget balancing law with the modest deficit (1.2%) we have going for 2013.

    So yes, there seems to be an austerian and maybe even Austrian mindset dominating the domestic debate. My explanation is that the current generation of policy makers and decision makers have been shaped by the early-90s crisis.

    I am not entitled to have an opinion – but yes, money is way too tight right now. Deflation is everywhere…

    And still, we seem to have a structural problem.

    During the past 15 years of sub 4% policy rate the housing prices have increased at about twice the rate compared with disposable income. Looking at the past 25 years, housing prices have outpaced disposable income except for crisis years in the first half of the 90s and 2008-2009, plus the “Riksbank emergency brake” years 2011-2012.

    Viewed from my armchair it looks like a difficult dilemma. This post http://fistfulofeuros.net/afoe/in-search-of-requisite-variety-central-banks-and-property-bubbles/ claims it means monetary policy has lost control.

  37. Gravatar of C C
    6. December 2013 at 07:08

    Krugman also kind of touches on the zero-lower- bound- as grounds- for fiscal- stimulus here. Hope it helps.

    http://www.nytimes.com/2008/12/01/opinion/01iht-edkrugman.1.18293731.html?_r=1&

  38. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    6. December 2013 at 11:52

    Kevin Erdmann has a series of detailed posts on the minimum wage and employment. One of them;

    http://idiosyncraticwhisk.blogspot.com/2013/12/minimum-wage-and-labor-crises.html

    ‘If the MW is increased by an amount equal to 10% of average wages, it is associated with about a 2% drop in employment in the preceding 6 months and the following 4 six-month periods. Among the most affected group, 16-19 year olds, the drop in employment is about 5% in each of the periods before and after the hike, with the effect diminishing over the next few periods.’

  39. Gravatar of Gordon Gordon
    6. December 2013 at 17:13

    Scott, you really don’t need to respond when you-know-who makes outrageous claims and statements. He’s basically an internet troll. He doesn’t value trying to objectively weigh ideas and learn things. He values trying to get a reaction out of others. Whenever a troll appears in the online world, the best course of action is for everyone to starve him.

  40. Gravatar of Mike Sax Mike Sax
    6. December 2013 at 21:44

    “And here is description of conventional, textbook view of stimulus effects:

    “The textbook answer identifies two reasons “” two ways in which budget deficits now make us worse off in the future. They are:

    (1) The fiscal burden: deficits now mean higher debt later, which will have to be serviced, and that means higher taxes and/or less spending on other, presumably desirable things

    (2) Crowding out: when it runs deficits, the government competes with the private sector for funds, so deficits crowd out private investment, which reduces potential growth

    “All this makes sense under normal conditions.”

    I have a few reactions to this.

    1. By what Scott said here:

    “First you have to show you understand conventional policies. And everywhere we look we see fewer and fewer people on both the left and the right that understand even economics 101. People who don’t are not entitled to an opinion. People who do, but still reject econ101, are entitled to an opinion.”

    http://www.themoneyillusion.com/?p=25159

    Applying that same logic to this case many Keynesians-call them ‘Old Keynesians’ if you like-have every right to criticize this New Keynesian line as they certainly understand it.

    Secondly, what is undeniable is that Krugman is clear that during a deep recession the government certainly wont have to raise taxes one for one in the future to pay for government spending today. He completely demolished this view in 2009 when Lucas and Cochrane started pushing it.

    Actually Davvid Glasner probably had the best takedown of this crude version of Ricardian Equivalence when he pointed out that even by Lucas and friends own words anything like full RE would only hold true in a healthy, normal functioning economy.

    If the economy is depressed then there certainly wont need to later be future tax hikes equal to the fiscal spending as a large portion if not all of it will be paid for it on the revenue side with the recovered economy’s faster growth.

    http://diaryofarepublicanhater.blogspot.com/2013/10/scott-sumner-vs-david-glasner-on-fiscal.html

  41. Gravatar of ssumner ssumner
    7. December 2013 at 07:13

    Gordon, Sometime sit’s fun.

    Everyone, thanks for the links.

  42. Gravatar of ssumner ssumner
    7. December 2013 at 07:15

    Magnus, Thanks for the info. House prices should rise faster than other prices during a period where real interest rates shift to a permanently lower trend line.

Leave a Reply