Please stop telling me “Krugman agrees with you.”
Here’s Paul Krugman:
That said, as Neil Irwin points out in the linked article, it’s not clear how much difference it would have made if the Fed had grasped the scale of the danger back in 2007. The big errors came later, after the depth of the crisis was apparent to all, and they came mainly in fiscal and housing policy, not monetary policy.
I think the Fed could have and should have prevented the big fall in AD. Krugman doesn’t agree. I’m looking at you Bob and Kevin.
In case it’s still not clear, obviously if the Fed could have and should have prevented the big fall in AD, then not doing so was a very, very, very “big error.”
HT: Steve.
Tags:
19. January 2013 at 13:26
It is amazing Krugman (can’t really call them DeKrugman anymore) doesn’t just admit housing policy is completely run by the Fed.
19. January 2013 at 13:32
Yes, if only the Fed lowered the rates and did some QE the AD wouldn’t drop by one dollar.
19. January 2013 at 13:39
It is amazing the Olympic level mental gymnastics Krugman is capable of to say things that even he knows are 100% false. Krugman knows that monetary policy can work even at the lower bound and has even admitted as much recently; however, here he denies that completely going back to his old beliefs about fiscal policy and to claiming monetary policy impotence once again. Given the fiscal fetishism of so many New Keynesians I have to wonder if Old Keynesians really died out or if they just went into hiding waiting for another Great Depression.
19. January 2013 at 13:42
RonT, Are you nuts, no one would ever make that claim!
19. January 2013 at 15:24
Hey, i just agreed with your claim above that the Fed could have prevented the drop in AD.
So how much would AD drop if the Fed acted optimally?
Why would AD drop at all? (= what was the cause of the crisis if it wasn’t the Fed?)
19. January 2013 at 16:09
Krugman is just blaming spending, not inflation, because he has to advertise the belief that spending works in theory…when there is enough of it (which means if economic problems persist, then there wasn’t enough of it).
It’s virtually identical to monetarists blaming the Fed, not the Treasury, because they have to advertise the belief that inflation works in theory…when there is enough of it (which means if economic problems persist, then there wasn’t enough of it).
Printing new money or spending existing money…which can take us to the promised land of innovation, technology, capital accumulation, and progress?
19. January 2013 at 17:21
I agree, the Fed should have acted, but that still leaves the question of exactly how.
Even if you rely on an expectations channel, you have to decide what you need people to expect and what you can convincingly announce to achieve it, particularly given the various political constraints under which the Fed in practice, operates.
In retrospect it looks like the big problem was with the CDOs (the tranche system mostly worked for even subprime primary securities, but the risk model for these second order CDOs was hopelessly broken). If so, then a useful intervention was clearly possible, but there’s a huge moral hazard problem.
19. January 2013 at 19:45
Scott,
Not sure if you threw up your hands in the other thread, but I actually backed off a bit.
And I have always been in your corner on the US vis-a-vis monetary policy: You alone recommended the absurd position that Bernanke was being too tight.
All I have ever argued in this respect, was that it sounded weird for you to use Japan as a test case of why you were right and Keynesians were wrong, since Krugman’s views on Japan were so well-known.
20. January 2013 at 07:13
RonT, Please tell me you know how to read. I’d hate to think I have illiterate people commenting over here. Reread my post 100 times, or until you understand it.
Peter, It’s very simple–you announce 5% NGDPLT, and you can achieve 5% NGDPLT.
Bob, Thanks, but I don’t think Krugman’s views are well known at all, partly because he makes it so hard to figure out what his views are. When I talk to economists who read Krugman casually exactly 100% of them believe that Krugman is arguing we need fiscal stimulus because we are in a liquidity trap. Now it may be the case that Krugman doesn’t believe we are in a liquidity trap–but if 100% of highly educated casual readers believe that’s what he’s saying, then he might want to rethink his communications strategy.
20. January 2013 at 14:41
SSumner,
You failed to answer my questions:
So how much would AD drop if the Fed acted optimally?
Why would AD drop at all? (= what was the cause of the crisis if it wasn’t the Fed?)
Talk about having reading comprehension problems…
20. January 2013 at 14:41
SSumner,
You failed to answer my questions:
So how much would AD drop if the Fed acted optimally?
Why would AD drop at all? (= what was the cause of the crisis if it wasn’t the Fed?)
Talk about having reading comprehension problems…
21. January 2013 at 07:07
RonT, Let me try to explain it in terms you can understand. When someone says
“prevent the big fall in NGDP”
and the commenter responds that I believe
“AD wouldn’t drop by one dollar.”
They are either a moron or a jerk. Which one are you?
BTW, I have a policy of ignoring both morons and jerks.