I get a lot of criticism from both liberals and conservatives.  The right complains I’m an inflationist, even though I’m actually an inflation hawk.  The left complains about my seemingly irrational crusade against fiscal stimulus.  “After all they are our allies, and doesn’t every bit help?  Surely you don’t think Mr. Bernanke would sabotage additional fiscal stimulus, after all, he is asking for it.”

That’s what they say.  And my response is yes I do think the Fed would sabotage additional stimulus, and so does the press:

Concerns that the U.S. Federal Reserve could start unwinding its massive monetary stimulus program later this year sent equity markets into a tailspin last week, with the heightened volatility extending into a new week as Asian markets opened lower on Monday. . . .

So the fact that the outlook for the global economy is better than it was six months, albeit not stellar, means the outlook for equities overall remains positive, analysts said.

In fact, it’s some signs of improvement in the U.S. economy and recent comments from Fed officials that have sparked talk of an early end to quantitative easing.

Despite the current round of austerity, growth this year (partly due to QE3) is so strong that the Fed is considering tightening monetary policy.  Now let me emphasize that I don’t think growth is very strong this year, and I oppose tightening monetary policy.  But it doesn’t matter what I think, and I’m not even sure it matters what Bernanke thinks.  It matters what the Fed thinks.  And if they are strongly considering tightening monetary policy under current conditions, just imagine what they’d be doing if Congress was actually doing fiscal stimulus right now!

As I’ve said on numerous occasions, I support sensible fiscal stimulus that works through supply-side channels, such as Christina Romer’s proposal for an employer-side payroll tax cut, or cuts in taxes on investment income.

The Fed is steering the economy.  All this debate over austerity takes pressure off the Fed, leading the public to believe that one side or the other of the squabbling VSPs in Washington are to blame for our weak economy.  In fact, neither side is to blame; the Fed is.  If my views were widely accepted, any move by the Fed to scale back QE would face a torrent of criticism.  Instead, it will happen (when it does) almost unnoticed.  And it will further slow the recovery.

First of all let’s get one thing out of the way—mea culpa.  I’ve done appeals to authority, and I’ve attacked authority.  However I don’t recall doing both at the same time, on two closely related points.  Here’s Paul Krugman explaining the anti-Keynesian bias in economics:

I’m told by younger colleagues, in particular, that anything bearing on the business cycle that has even a vaguely Keynesian feel can be counted on to encounter a very hostile reception; this creates some big problems of relevance for proper journal publication under current circumstances.

I understand that Krugman is frustrated by the anti-stimulus bias of the VSPs who dominate the media, government, and academia.  I am too (albeit on monetary policy, not fiscal policy.)  Indeed I’m sympathetic to the pro-blogger message of his entire post.  So don’t take what I am going to do next in the wrong way—it’s OK to be in the minority.

Now let’s look at how Krugman describes the consensus, when he’s attacking conservatives:

There are, however, a lot of largely empirical questions whose answers need not, in principle, be associated with one’s position on this left-right divide but, in practice, are. A partial list:

1.The existence of anthropogenic climate change
2.The effects of fiscal stimulus/austerity
3.The effects of monetary expansion, and the risks of inflation
4.The revenue effects of tax cuts
5.The workability of universal health care

I’ve deliberately chosen a list here where the evidence is, in each case, pretty much overwhelming. There is a real scientific consensus on 1; the evidence of the past few years has been very strong on 2 and 3; there are no serious studies supporting the view that we’re on the wrong side of the Laffer curve; one form or another of UHC operates all across the advanced world, with lower costs than the US system.

Now Krugman does not say exactly what the consensus is on fiscal stimulus/austerity, monetary expansion, inflation, revenue effects of tax cuts.  But I’m going to go out on a limb and assume that Krugman believes, and more importantly that Krugman’s readers are led to believe, that the modern consensus on these issues is basically Keynesian, and not Austrian, monetarist, RBC, new classical, supply-sider, Marxist, etc.

Perhaps there is no direct contradiction.  I suppose one could argue that the consensus is Keynesian on policy but anti-Keynesian on modeling techniques.  But even so it raises questions as to the reliability of appeals to authority.  If we are to reject conservatives out of hand because they don’t accept the consensus view of modern macro, what are we to make of those young Keynesians that can’t get published?

Take global warming, where I agree with Krugman.  Even the strongest supporter of the consensus on global warming would have to agree that climate science has some similarities to macro. Both deal with highly complex systems where it is difficult to do controlled experiments.

Even though I support a carbon tax, I don’t have a high degree of confidence that my preferred policy is superior to waiting 25 years and hoping for a breakthrough technology, or else doing geoengineering if we don’t get it.  (BTW, that’s the policy the world has actually decided to do, in case anyone is interested.  But I’d still sleep better at night with a carbon tax.)

I don’t expect Krugman to agree with all the conservatives mentioned in the posts he links to.  But it would be nice if he took enough time to sympathetically look at their arguments so that he wasn’t just dismissing them out of hand, as if they were a bunch of GOP lackeys.  I’ve read most of them, and they are very bright and thoughtful intellectuals.  Instead he writes posts bragging that he tries to avoid reading conservatives because they have nothing useful to say.  Krugman’s an incredibly skilled blogger in certain respects, but would be even better if he could become as open-minded as some of the other elite bloggers.

Update:  I’d encourage people to look at David Warsh’s post, and also Jim Hamilton’s.  The Warsh post is from an admirer of Krugman, and is especially interesting.  (HT:  Tyler Cowen and Marcus Nunes.)

I used to think that Ken Rogoff’s 2002 letter to Joe Stiglitz was the most devastating demolition of the arguments of an esteemed (but rude) economist that I’d ever read.  But now we have a new open letter to Paul Krugman:

We admire your past scholarly work, which influences us to this day.  So it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks.  You have attacked us in very personal terms, virtually non-stop, in your New York Times column and blog posts.  Now you have doubled down in the New York Review of Books, adding the accusation we didn’t share our data.  Your characterization of our work and of our policy impact is selective and shallow.  It is deeply misleading about where we stand on the issues.  And we would respectfully submit, your logic and evidence on the policy substance is not nearly as compelling as you imply.

.  .  .

The accusation in the New York Review of Books is a sloppy neglect on your part to check the facts before charging us with a serious academic ethical infraction.  You had already implicitly endorsed this from your perch at the New York Times by posting a link to a program that treated the misstatement as fact.

Fortunately, the “Wayback Machine” crawls the Internet and periodically makes wholesale copies of web pages. The debt/GDP database was first archived in October 2010 from Carmen’s University of Maryland webpage.  The data migrated to ReinhartandRogoff.com in March 2011.  There it sits with our other data, on inflation, crises dates, and exchange rates.  These data are regularly sought and found for those doing research who care to look. The greater disclosure of debt data from official institutions is testament to this.  The IMF began to construct historical public debt data only after we had provided a roadmap in the list of our detailed references in a 2009 book (and before that in a 2008 working paper) that explained how we had unearthed the data.

Our interaction with scholars and practitioners working on real world questions in our field is ongoing, and our doors remain open. So to accuse us of not sharing our data is an unfounded attack on our academic and personal integrity.

Ouch!

HT:  Greg Mankiw

I recently spent 3 days in the SF Bay area of California.  Great place to live!  My wife and I visited some friends in a San Francisco suburb call Millbrae.  Just your ordinary 2 bedroom ranch, with a kitchen out of the 1950s and no back yard.  You know, the kind that sells for $1,000,000 (even more to the south, in Burlingame or Palo Alto.)  And that’s after the bubble burst—prices are rising fast again.  It turns out the bubble-mongers were wrong–Bay area housing really is very valuable.  Later we were walking around San Francisco and I saw a sign in a barbershop window: “haircuts for $6.”  That’s strange; I thought San Francisco was an expensive city.

Then it hit me.  Houses and haircuts—the examples I always use for China.  Chinese houses seem ridiculously expensive, relative to Chinese incomes.  And haircuts are incredibly cheap, even in cities like Beijing (about $4.)  And guess what, our friends told us that the Millbrae school system is 50% Chinese.  And that $6 haircut?  Yup, right in Chinatown.  Then I recalled all those ultra-cheap meals in great Chinese restaurants in Boston.  Or those $15 Fung Wah bus rides from Boston to NYC.

The obvious schlock theory is that the Chinese bring their economy with them when they move to the US.  Stuff that’s cheap in China stays cheap in the US, and vice versa.  But I have bigger fish to fry.

People often tell me that the Chinese housing market is a giant “bubble,” because it’s somehow controlled or distorted by government policy.  The construction bubble is fed by easy credit, and the housing price bubble is caused by a lack of alternative outlets for those high-saving Chinese.  The Chinese stock market is full of lousy SOEs, and they can’t freely invest outside of China (although some money does leak out.)

But then what about Singapore, Hong Kong, Vancouver, Sydney, and Millbrae, where ethnic Chinese are free to buy alternative investments?  Why are those housing markets so expensive relative to incomes?

Some will read this post as a claim that the “Chinese housing bubble will never burst.”  That’s not right at all.  I’m claiming that there is no bubble, but what people think is a bubble will eventually appear to burst, but not really.  When that happens, the bubble-mongers will claim they were right all along, but they will have been wrong.  Just as they were wrong in 2007-09, when falling Millbrae house prices caused them to say; “I told you so.”  Yes, you told us so, and now in 2013 we know you were wrong.  Prices are back up to peak levels.

Here’s my prediction.  Any place in the world with large numbers of ethnic Chinese and sharp limits on new construction will see housing markets rise to seemingly “unaffordable” levels.  That’s “unaffordable” relative to incomes.

My dad was a real estate broker, and when I was young told me a story of going to the bank with a client who was seeking a large mortgage.  The banker asked the client a serious of questions about income in recent years, and the client kept reporting trivial numbers.  My dad kept smiling while the banker looked more and more frustrated.  Finally my dad said:

OK, now ask him about his stock holdings.

Actually I am making that up, or perhaps it’s the implication I drew from one of Paul Krugman’s mindless rants against conservatism:

Start with the proposition that there is a legitimate left-right divide in U.S. politics, built around a real issue: how extensive should be make our social safety net, and (hence) how much do we need to raise in taxes? This is ultimately a values issue, with no right answer.

There are, however, a lot of largely empirical questions whose answers need not, in principle, be associated with one’s position on this left-right divide but, in practice, are. A partial list:

1.The existence of anthropogenic climate change

2.The effects of fiscal stimulus/austerity

3.The effects of monetary expansion, and the risks of inflation

4.The revenue effects of tax cuts

5.The workability of universal health care

1.  I believe in anthropogenic climate change, as do many of the conservatives I know.  I also favor carbon taxes, while many conservatives (not all) are skeptical.

2.  I believe fiscal stimulus raises NGDP unless offset with monetary policy.  Many conservatives agree.  I believe that’s Krugman’s view as well.  Didn’t President Bush implement fiscal stimulus in 2008?

3.  I believe that monetary stimulus is needed, and that the risk of inflation/high interest rates is overrated.  Isn’t that Krugman’s view?  Krugman’s right that most conservatives oppose monetary stimulus, but lots of conservatives support it.  My pieces have been published at Cato, the Adam Smith Institute, The American, National Affairs, and other conservative outlets.  I did a panel at the AEI.  I’ll speak at the Cato money conference in the fall.  How many liberal outlets host pro-austerity papers?

4.  I believe tax cuts usually cost revenue.  Most conservatives I know believe the same.  Isn’t that Krugman’s view?

5.  I believe the Canadian health care system is “workable.”  As far as I know all conservatives agree (although many prefer the US system.)  I favor universal coverage, along the lines of the Singapore system.

On the other hand I seem to recall Brad DeLong suggesting that fiscal stimulus might actually reduce the budget deficit.  That sounds awfully close to Laffer-curve voodoo.  So maybe he should be exiled from the liberal tent.

BTW,  I don’t agree that the size of government is a “values issue,” and even if I did I wouldn’t regard it as something with “no right answer.” (I guess he’s not a Rorty fan.) The policy disagreements are mostly on technical issues. Both sides think aggregate happiness would be higher if their preferred plan was adopted.  As far as I know I have roughly the same (utilitarian) values as most liberals, and yet I think we would do better with a much smaller government.  However I would shrink the government mostly by reducing complexity and regulatory reach; less so on the spending side.

And how about all the conservatives signing that petition for immigration reform? That would help the poor more than all the “liberal programs” combined.

Krugman links to pieces by Jonathan Chait and also Mike Konczal.  While I share many of their reservations about the modern GOP, it struck me how little soul-searching there is during what must by any standard be viewed as a disastrous 6 month period for modern liberalism:

1.  The left predicts fiscal austerity will slow the recovery, and yet both GDP and jobs are actually a bit ahead of the 2012 pace so far this year.  In a widely ridiculed column Konczal actually points to the speed up in GDP growth during 2013 Q1 as evidence against the conservative view on austerity.  Confirmation bias.

2.  The popular left-wing view that monetary policy is ineffective at the zero bound gets blown right out of the water as the BOJ succeeds in sharply depreciating the yen. Even Krugman has admitted that if a country is truly stuck in a liquidity trap it would not be able to depreciate its currency.

3.  An Oregon study designed to overcome the identification problem shows virtually no health benefits from Medicaid coverage.  Yes, there are other good arguments for health insurance, and I favor universal health care, but for years the left has been bludgeoning the right with accusations that their mean-spirited policies would kill people.

4.  Another study shows that giving computers to poor students doesn’t improve education outcomes.  Yet the left constantly complains that we don’t spend enough educating poor students.  When it’s pointed out that spending more doesn’t seem to help in cities like Washington DC, they switch gears and say; “Well you can’t blame the education system, it’s the home environment.  But we still need to spend more.”

5.  Internal Revenue Service

6.  When Obama’s policies lead to the worst recovery since the Depression, the left adopts the Herbert Hoover defense. Hoover insisted (in the 1932 campaign) that the Depression would have been even worse without his steady hand at the tiller. Here’s Konczal:

They also understand that the Great Recession destroyed the previous consensus that we had solved the question of the business cycle. It’s tougher to argue that we should have a radically smaller federal government when it looks like the size of the government and automatic stabilizers helped keep the Great Recession from becoming a Great Depression-like collapse.

I wonder if Konczal realizes that even Krugman doesn’t go that far.  Indeed Krugman recently argued we could avoid liquidity traps with a higher inflation target.  There’s absolutely no benefit to big government if you are trying to avoid “depressions.”  Last time I looked most of the “depressions” were located in Western Europe, which (coincidentally) has the largest governments in the developed world.

In contrast, Australia has one of the smallest, and had no recession.  And Hong Kong has a rigid dollar peg, which exposed it to huge demand shocks in 1997 and 2001, and yet it avoided “depressions” despite having the smallest government sector in the entire developed world.  Maybe it was those flexible labor markets that the liberals insist will only make a depression worse.  But they’d reply that it’s better to have inflexible labor markets, like Greece and Spain.

I better stop now or even Bob Murphy will start agreeing with me.  Got to keep my street cred with those fashionable liberals.

PS.  And don’t tell me that Australia did fiscal stimulus; Konczal’s claim was that big government is needed going in, not just fiscal stimulus.  However I probably sounded more anti-Konczal than I really am.  I think his column described modern conservatism considerably more accurately than Krugman’s column.  But not accurately enough to stop me from going off on my own mindless rant.

PPS.  All I am saying is . . . people are complicated.  Liberals, moderates, and conservatives like Yglesias/Avent/Cowen/Tabarrok get that.  And other equally bright people never will.