A future extended footnote kicks an economic giant
Paul Krugman admits he doesn’t know much about the history of economic thought, and then goes on to prove it. If only he’d read some of Brad DeLong’s writings on Milton Friedman he might change his mind.
To summarize, back in the good old days:
Milton Friedman said interest rates are not a good indicator of the stance of monetary policy. Keynesian said they were.
Milton Friedman said inflation was caused by expansionary monetary policy, Keynesians said it was caused by unions and droughts.
Milton Friedman said ultra-low interest rates were a sign that money had been tight. Keynesians disagreed.
Milton Friedman said the Fed could control inflation if it wanted to. Keynesians said it could not.
Milton Friedman said there was no long run tradeoff between inflation and unemployment. Keynesians said there was.
Milton Friedman said the BOJ could raise Japan’s inflation rate. Keynesians said it could not.
Milton Friedman said IS-LM was misleading, Keynesians say it’s useful.
Milton Friedman said tight money caused the Great Depression. Keynesians said money was easy.
But Paul Krugman insists that Friedman was mostly a Keynesian, and that all these fundamental differences were merely disputes over “empirical propositions“—they used the same basic model. If that’s so, I’d hate to see what a different model looks like!
Krugman’s new post on Friedman is full of more errors:
Yes, he [Friedman] in effect admitted, we do need stabilization policy “” but we can minimize the government’s role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.
At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro?
Paul Krugman is quite brilliant but has one glaring weakness, an inability to put himself in the shoes of his intellectual opponents, and to try to see the world as they see the world. Milton Friedman did not favor an activist monetary policy; he favored a steady growth in the money supply, in order to “do no harm.” He opposed policy activism. Even his opponents concede that. Late in his career Friedman conceded that a money rule might not be best, and suggested targeting inflation by pegging TIPS spreads. That’s using the markets. I suppose Krugman would consider that “activism” too.
Friedman did not believe that markets caused the Great Depression; he believed that tight money caused it. Now Milton Friedman might be wrong, but Krugman should at least try to accurately characterize his argument. And there is nothing intellectually inconsistent with the view that markets work well with sound monetary policy, but less well when the value of the medium of account is highly unstable. Markets also work less well when billion ton asteroids smash into Earth. Friedman was a pragmatic libertarian, not a libertarian ideologue who opposed all government policies.
Update: Nick Rowe makes the same point much more effectively. Indeed his “it’s a stupid question” approach is actually better than my “Friedman was not an activist” claim.
His newest post is even more far-fetched:
Are liberals just the same? Actually, no “” not now, anyway. Conservatives were quick to claim that liberals were just looking for an excuse to spend more “” remember Robert Lucas accusing Christy Romer of “shlock economics”, of making up an analysis to justify Obama’s lust for spending? But liberals aren’t the mirror image of conservatives; they don’t seek big government as an end in itself. And in this crisis, liberals have just been sticking with the textbook, while conservatives are desperately seeking ways to ignore what we know.
Textbook?!?!?!?!? The textbooks say low interest rates don’t mean money is easy. The number one monetary textbook in 2009 said monetary policy is still “highly effective” at the zero bound. Nobody was following the textbooks in 2009. And how about all those calls from Keynesians for deep tax cuts? Oh wait; they favored tax increases in late 2012. For some odd reason all their calls for fiscal stimulus seemed to be in the form of bigger government (more G) not smaller government (less T.) Indeed they tacitly admit their bias when they claim conservatives oppose fiscal stimulus because it implies bigger government. No it doesn’t!! Didn’t the Romers (well-respected Keynesians) find that tax cuts have a fairly large multiplier effect?
And in the wake of being wrong about the US, wrong about Japan, wrong about Switzerland, etc, Krugman continues to peddle now-discredited liquidity trap arguments.
In the wake of the 2008 crisis, this looks wrong from soup to nuts: the Fed can’t even control broad money, because it can add to bank reserves and they just sit there; and money in turn bears little relationship to GDP. And in retrospect the same was true in the 1930s, so that Friedman’s claim that the Fed could easily have prevented the Great Depression now looks highly dubious.
I know that Krugman’s defenders will say it’s not about the money supply; it’s about expectations. So if there is a permanent 10% rise in the monetary base, inflation doesn’t happen because the base increased today, but rather because the increase is expected to be permanent. All one can say is “duh.”
I will agree on one point. It’s not clear the Fed could have prevented the Depression. I think they could have, but gold standard constraints allow for a respectable counterargument. But (outside the eurozone) we don’t have those constraints today. The claim that a fiat money central bank might be unable to inflate now seems laughable, but these views were taken quite seriously in the Keynesian community just a few years ago. And BTW, I am doubtful that Japan will get much inflation, I expect just a little. But if they did 10 times as much yen depreciation as they recently did, say 200 yen to the dollar, I guarantee they’d get a lot of inflation. Of course Krugman might argue that the BOJ would find it hard to depreciate the yen. Indeed he once did make this argument.
Krugman continues:
But never mind. What I think is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back, even if that fact drives some economists crazy; Hayek is back in some sense, even if one has the suspicion that many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil “” a deeply anti-Friedmanian position. But Friedman is pretty much absent.
I’d say there is some truth in this, but it’s becoming less true every day, as more and more conservatives jump on the market monetarist bandwagon. (Larry Kudlow is one of the recent converts, but there are many others.) I see enormous interest in MM, growing almost every day. Just yesterday W. Peden left this comment:
George Kerevan, economics correspondent for the Scotsman newspaper, comes out in favour of NGDP targeting-
http://www.scotsman.com/news/george-kerevan-central-bankers-and-politics-1-3037233
“I distrust Carney’s new unemployment target, which I think plays to a political agenda. I’d prefer the Bank to target nominal GDP (ie growth uncorrected for the rate of inflation). If nominal GDP growth is faster than average it indicates inflation, so you raise interest rates. If nominal GDP is slower than average it indicates recession, so you cut rates. That way you combine a sensible growth target with keeping tabs on inflation.”
It wasn’t so long ago that he was (a) calling for tighter monetary policy to reduce inflation and (b) looser fiscal policy to boost growth. I like to think that my letter at least got him thinking about why that way of thinking is mistaken. I could have never expected that he’d come around to NGDP targeting so quickly; now the challenge is to get the rest of journalistic opinion in Britain on side…
I started blogging partly out of frustration that the whole world seemed to talk as if monetary policy controls inflation and fiscal policy controls real growth. Slowly but surely the MM community has gotten people to think in terms of NGDP. And not just journalists, but elite macroeconomists, central bankers, etc. It will take a long time, but eventually Milton Friedman will be seen as the forerunner of 21st century macro. When countries like Japan have AD problems it’s simply because money is too tight. That was his message in the late 1990s, and he was 100% right.
PS. Here’s another example of Krugman’s inability to put himself in the shoes of his opponents. When people like Lucas, Cochrane, Barro heard about the revival of interest in public works projects to cure the recession, they were incredulous. They’d say “the money had to come from somewhere.” Krugman took this as indicating that they didn’t understand the Keynesian model. Actually their skepticism had more to do with monetary stimulus and aggregate supply. They took it as a given that if too little NGDP was the problem you’d do monetary stimulus (or perhaps tax cuts in Cochrane’s case.) For any given NGDP, more spending on bridges really does mean less spending elsewhere. But Krugman completely missed this point, assuming the worst. And he repeats the attack over and over again, although by now he must surely be aware that it’s incorrect. I have first hand knowledge from my days at Chicago that Lucas has an excellent understanding of the old Keynesian model.
PPS. This gets my vote for the most silly thing Krugman has ever said:
So Friedman has vanished from the policy scene “” so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.
PPPS. Tom wins “commenter of the week” for pointing out that the title could (and in my view probably should) be read as me kicking Krugman. 🙂
HT: Marcus Nunes
Tags:
9. August 2013 at 08:41
Bravo!
9. August 2013 at 08:48
“So Friedman has vanished from the policy scene “” so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.”
This is politics, not economics.
9. August 2013 at 08:48
Oh, and I like this comment that dsquared left on Brad DeLong’s blog in reference to this Krugman post:
“Friedman himself is a bit absent, but sometimes people disappear simply because their victory has been so total that it’s not necessary to argue for it any more.”
So true.
Keynsians (Krugman in particular) need to answer two questions:
1. Can the central bank target inflation at the ZLB?
2. Does the US experience post 2008 provide any helpful guidance on this question?
9. August 2013 at 08:51
Scott, I was surprised by the contents of this piece! I assumed from the title that this was going to be about you criticizing Krugman!
Relax relax! I’m joking! 😉
9. August 2013 at 09:01
I’d say Friedman’s legacy will be more that of a cultural/political figure, who influenced and educated policymakers and the public at large about the value of free markets and free market solutions to many of the most vexing social and economic problems of his day, many of which were at risk of being permanently “socialized.” Really, he was more of a counterweight to JK Galbraith than to Marx or even to Keynes. Free to Choose has already had a more lasting influence than any of his academic economic works will ever have. So Krugman is wrong about him being relegated to a footnote, at least in the broader, historical context.
9. August 2013 at 09:05
Your first PS is pretty revisionist. Lucas in 2009:
http://www.cfr.org/world/why-second-look-matters/p18996
“But, if we do build the bridge by taking tax money away from somebody else, and using that to pay the bridge builder — the guys who work on the bridge — then it’s just a wash. It has no first-starter effect. There’s no reason to expect any stimulation. And, in some sense, there’s nothing to apply a multiplier to. (Laughs.) You apply a multiplier to the bridge builders, then you’ve got to apply the same multiplier with a minus sign to the people you taxed to build the bridge. And then taxing them later isn’t going to help, we know that.”
Sure, he goes on to talk about the importance of monetary stimulus, but that’s a far cry from the idea that his claim about money coming “from somewhere” was in fact about monetary offset. The fact that some conservatives are coming around to your view now doesn’t mean you can travel back in time and pretend as if there weren’t some really stupid and ideologically-driven criticisms of stimulus by prominent conservatives.
Lucas goes on to say:
“I mean, Schumpeter and Keynes are two economists I’ve always had trouble understanding.”
9. August 2013 at 09:14
Yep. My take on that same bit you quoted from Paul Krugman: http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/08/is-the-macroeconomy-self-equilibrating-is-a-stupid-question.html
9. August 2013 at 09:16
Thanks SG.
Tom, Touche!!
Maynard, He’ll have a huge legacy in monetary economics as well.
Waffles, I took macro from Lucas and I can assure you that he understood the old Keynesian model. Now the GT is another thing, many people have trouble reading it–it is confusing.
Both Barro and Cochrane made comments that clearly indicated they were holding NGDP constant. Something to the effect “if falling V is the problem, then why not just raise M? Why bridges to nowhere?” Lucas did not, but I think given his other comments that was implied. Lucas is one of the brightest people I’ve ever met.
9. August 2013 at 09:30
‘”So Friedman has vanished from the policy scene “” so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.”
‘This is politics, not economics.’
It’s also projection. It’s what Krugman fears is in store for him.
9. August 2013 at 09:32
I find both sides of the debate often have trouble understanding the other and often talk past each other. (Except Mankiw who just kinda weasels around doesn’t like to be boxed into a position).
This is why I have become disenchanted with Krugman even though I think he has something more relevant than Cochrane or Lucas most of the time. His demonization of others or outright dismissal without engagement is infuriating.
Amongst my more friends the preference of G over -T is often confusing and false as you see when everyone was up in arms that the payroll tax cut wasn’t extended.
Infrastructure spending has to be evaluated in a cost/benefit way to determine whether it is worthwhile no matter what the economy is like. I think they just see the cost as being insignificant when people are begging to lend the US money.
Ultimately I would always prefer that the primary counter-cyclical fiscal policy to be a Payroll tax cut and a subsidization of state budgets.
I still believe fiscal policy is a more politically acceptable method of producing monetary policy. It is much easier for the FED to “do nothing” and let the money supply expand than to expand QE.
9. August 2013 at 09:33
I’m not saying Lucas isn’t smart; very smart people can make dumb mistakes because of ideology (isn’t that your essential view on Krugman?). The idea that there’s no “first-starter” effect because of taxes paying for stimulus is a pretty clear mistake; if you disagree, defend what he’s saying with his own words, not handwaving about what he “implied”.
If what you’re saying is what Lucas meant, why the talk about taxes and multipliers at all? If his criticism of bridge-building is really about monetary offset, then he’s either really bad at explaining things or he’s being misleading. But I don’t think either of those things, I think he’s just a smart man who made a mistake. Smart people make mistakes, especially when those mistakes support an ideological view. “Lucas is one of the brightest people I’ve ever met” is basically an ad hominem defense.
If there’s a good intellectual defense of his taxes and multipliers comment, I’d love to hear it because I don’t like being uninformed. But I haven’t seen one.
9. August 2013 at 09:37
We’ve know all along it would come to this….
Eventually “More G” guys will figure out what NGDPLT does to them and create an entirely new reality to defend against it.
BEAT HIM INTO THE GROUND.
I will not be surprised to see Krugman eventually argue Monetary Stimulus is bad and should be stopped, BECAUSE it keeps the Fiscal Stimulus from happening.
9. August 2013 at 09:43
Still work to be done:
Looks like Market Monetarists are perpetuating the “philosophical rot” at the heart of global markets/economics.
http://www.realclearmarkets.com/articles/2013/08/09/theres_a_philosophical_rot_in_the_modern_economy_100537.html
Article isn’t worth reading but I copied the last 2 paragraphs.
“The current government monopoly on money through the quasi-private business of the Federal Reserve is the opposite, since monetary policy seeks to foster the appearance of “stability”, using abuse (interventions) as its tools also in the name of public interest. Markets tried to put Wall Street out of business, or at least scale back their operations to the point of more reasonable influence and risk, but were fully rebuffed by the money monopoly (armed with Monopoly money).
This goes way beyond simple conflicts of interest, it gets at a philosophical rot in the modern system; namely that stability is the entrenchment of powerful interests, to be guarded above all else.”
9. August 2013 at 09:47
I will say, as a long time fan of Krugman but also a long time reader of your blog for some healthy alternative discourse, I do like seeing your posts occasionally causing a Krugman “clarification” post, like with the Yellen/Summers debate.
Krugman looking like he’s responding to your post without naming he-who-must-not-be-named:
http://krugman.blogs.nytimes.com/2013/08/09/more-on-the-disappearance-of-milton-friedman/
I would be classy of Krugman to mention you by name more often.
9. August 2013 at 09:50
“The number one monetary textbook in 2009 said monetary policy is still “highly effective” at the zero bound.”
Which one? Walsh? Recommendation for the interested reader?
9. August 2013 at 10:10
Prof. Sumner,
I think it makes sense to characterize downward nominal wage rigidity as a “market failure” that government intervention (targeting long-run average inflation of 2% rather than 0%) is very good at ameliorating.
9. August 2013 at 10:23
Scott,
When you say “So if there is a permanent 10% rise in the monetary base, inflation doesn’t happen because the base increased today, but rather because the increase is expected to be permanent. All one can say is “duh.””
I want to make sure I understand you. The transmission mechanism is not as Friedman argued in the sense that the CB increase M and suddenly people have too much and they spend it. Instead, they only spend the new money if they believe it will be permanent.
Also, would I be correct in assuming that people already holding M from previous years will ALSO start spending it, in addition to the people who have the newly acquired M?
9. August 2013 at 10:24
Gotta love PK’s response. Backing off all without mentioning a certain rival who is too dangerous politically and economically to link to. Isn’t it easy when your go to conservative straw man is Paul Ryan and there ‘are no honest conservative economists’?
Keep doing what your doing, you won’t be ignored forever.
9. August 2013 at 10:41
“PPPS. Tom wins “commenter of the week” for pointing out that the title could (and in my view probably should) be read as me kicking Krugman. :)”
Thanks Scott! I’m honored. 🙂
One thing you can say about Scott Sumner: the man knows how to take a joke! (we’ll try to squeeze that in your extended footnote!)
9. August 2013 at 10:54
Morgan Warstler
“Eventually “More G” guys will figure out what NGDPLT does to them and create an entirely new reality to defend against it.”
I agree. These guys are the immediate intellectual(and sometimes familial) descendants of folks who exaggerated Soviet economic performance for decades (another topic on which “Footnote” Friedman beat them). Whether or not it’s a conscious decision, these guys know where their interests lay and defend them. They rightly see NGDPLT as a game-changing blow to Statism.
9. August 2013 at 11:04
Robert,
I’m almost certain Scott is referring to Mishkin. I’ve been reading from it for a course and must say it is well written.
9. August 2013 at 11:04
In the vein of Tom, I actually thought, “Scott’s getting a big head if he thinks his footnote will be extended.” 😉
Then I figured it out.
9. August 2013 at 11:10
Yikes!
“Larry Summers’ Chairman Odds Soar To 66.6%, Double Yellen’s”
http://www.zerohedge.com/news/2013-08-09/larry-summers-chairman-odds-soar-666-double-yellens
9. August 2013 at 11:23
Adam, ouch! Haha!
9. August 2013 at 11:26
Waffles, You said;
“isn’t that your essential view on Krugman?”
Not at all.
Regarding Lucas, let’s start with the fact that he was speaking off the cuff. I often say misleading things speaking off the cuff, less so when I have time to write it down? But we know that Cochrane said something quite similar (and equally misleading), but we also know with 100% certainty that my interpretation of Lucas did fit Cochran’es statement, because it appears later in the very same paper. Do you disagree? If not, why not give Lucas the benefit of the doubt.
Barro also spelled out monetary offset in his WSJ piece dismissing fiscal stimulus. If people want to play gotcha that’s fine, but it seems pretty silly to me.
Robert, Mishkin.
Travis, I don’t see 2% inflation as any more interventionist than 0% inflation. To me they are equal.
JoeMac. Suppose you said to Friedman the Fed will double the money supply, but announce the increase is temporary and that it will be pulled out of circulation 6 weeks later. Would Friedman predict that house prices will double, and then fall back to normal after 6 weeks? What do you think?
I don’t think the old monetarists paid enough attention to expectations, but they were certainly aware of them.
Thanks JJ.
Tom, I added it to the end of the post.
Thanks Brendan.
Travis, Just shoot me.
9. August 2013 at 12:47
Scott, yes, I got that. Thanks!!
9. August 2013 at 13:01
I could accept that it was just an off-the-cuff mistake if it looked like a bad explanation of the right idea, but to me it’s just looks like a pretty straightforward explanation of the wrong idea (that there are high multipliers, but that multiplier effects due to taxation cancel out stimulus). I don’t have a PhD in economics though, so if there’s a connection I’m not seeing between raising taxes and monetary offset, I’d love to be better informed about the topic.
It’s not very classy of you to dismiss my argument as “gotcha” politics. The conversation we should have been having in 2009 would have been the role of the central bank action (or the lack thereof) in causing higher or lower multipliers, and in my view a lot of conservatives put too much focus on the role of taxes for ideological reasons, which contributed to a dysfunctional economic conversation.
9. August 2013 at 13:30
Oh, and I like this comment that dsquared left on Brad DeLong’s blog in reference to this Krugman post:
“Friedman himself is a bit absent, but sometimes people disappear simply because their victory has been so total that it’s not necessary to argue for it any more.”
Of course this comment has been deleted from Brad DeLong’s website- I am *shocked* to see that Brad DeLong is deleting comments from people who do not share his world view!?!?!
9. August 2013 at 16:41
steve v, it is still there, comment #1 http://delong.typepad.com/sdj/2013/08/paul-krugman-milton-friedman-as-a-minor-post-hicksian-noted-for-august-9-2013.html#comments
9. August 2013 at 16:48
Waffles. Krugman is extremely unpopular among academic economists for his style. Regular economists tend to react to what Lucas writes in his papers, not an off the cuff comment to reporters. So that’s the perspective I’m coming from. They see Krugman as trying to find some slip of the tongue or statement taken out of context and twist it all out of proportion. On the other hand as far as I can see Krugman doesn’t even acknowledge that there are strong arguments against the idea of a Keynesian multiplier. People like Cochrane are right when they say that multiplier analysis was not even taken seriously at the highest levels of macro before the crisis. It wasn’t even on the radar screen. And suddenly people who don’t accept it are treated like buffoons.
I actually criticized the Chicago people myself for these statements, but for being sloppy, not for being a moron. And believe me, in upper level macro anyone who doesn’t understand the simple Keynesian model is a moron. I’d wager that if you asked Lucas if my interpretation of what he meant is actually what he meant, he say yes.
And BTW, he doesn’t just do this to conservatives, look at how he portrayed Rogoff. Readers who knew nothing about Rogoff would think he’s a bad economist, or an ideologue, if they relied on what they read in Krugman’s post.
Steve, They both do it. DeLong deletes my comments sometimes. On the other hand I don’t. I try to treat my commenters with respect.
9. August 2013 at 17:31
“Late in his career Friedman conceded that a money rule might not be best, and suggested targeting inflation by pegging TIPS spreads. That’s using the markets.”
Actually, late in his career, Friedman said this:
https://www.youtube.com/watch?v=m6fkdagNrjI#t=0m14s
“I’ve long been in favor of abolishing it.”
If you’re going to cite Friedman, why are you completely ignoring his “ideologue” mentality? Inquiring minds want to know.
9. August 2013 at 17:44
“It may be that these mistakes were excusable on the basis of the knowledge available to men at the time — though I happen to think not. But that is really beside the point. Any system which gives so much power and so much discretion to a few men that mistakes — excusable or not — can have such far-reaching effects is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic — this is the key political argument against an “independent” central bank. But it is a bad system even to those who set security higher than freedom. Mistakes, excusable or not, cannot be avoided in a system which disperses responsibility yet gives a few men great power, and which thereby makes important policy actions highly dependent on accidents of personality. This is the key technical argument against an “independent” bank. To paraphrase Clemenceau, money is much too serious a matter to be left to the Central Bankers.” – Milton Friedman, Capitalism and Freedom, Chapter III.
9. August 2013 at 17:46
“Friedman was a pragmatic libertarian, not a libertarian ideologue…”
Ha!
9. August 2013 at 19:12
I think academic economists need to treat remarks they make to reporters and politicians as more important than they currently do, in terms of how they evaluate their colleagues. I also think it’s too charitable not to ascribe any political motives whatsoever to such “sloppiness”. As you said, these people aren’t morons. Economists are regular people in the sense that they make mistakes, but they are also regular people in the sense that they often act with political intent in positions of influence. I don’t know if Lucas talking about taxes instead of monetary offset is an example of this kind of intentional sloppiness, but I think it’s important to recognize broadly that political agendas often distort interactions between economists and the outside world.
Krugman went too far in accusing R&R of hiding their data from other economists. That was a pretty baseless criticism. But I think there’s validity to his criticism that R&R intentionally played into politicians’ ignorance by letting them believe that their research implied a hard 90% debt threshold. I’ve worked behind the scenes on congressional testimony for a lobbying organization, and I can tell you that there’s little said in those hearings that doesn’t have an implicit political purpose. In an academic setting, it might be distasteful or counterproductive to question the political motives of others in how they present their analysis. However, in public discourse I think it’s necessary to address the possibility openly, because it happens all the time. Some, but not all, of the animosity between Krugman and academic economists has to do with the fact that they operate in very different arenas which require different approaches.
9. August 2013 at 23:00
[…] Source […]
10. August 2013 at 04:23
“I’d say there is some truth in this, but it’s becoming less true every day, as more and more conservatives jump on the market monetarist bandwagon. (Larry Kudlow is one of the recent converts, but there are many others.)”
It depends what conservatives you have in mind. I think what Krugman is thiking about is more the conservatives in Congress than conservative economists. I mean just recently Paul Ryan advocated that we go on a gold coins currency and we have all those Republicans demanding that the Fed stop its wild ‘money printing.’
It does seem that MM has somewhat penetrated into the National Review-but certainly not the Wall Street Journal’s editorial pages-which is where Republicans take their marching orders from directly.
Now maybe you don’t think when you say ‘conservatives’ that what matters are conservative Republican politicians but conservative economists. But I think that may be the difference between what you’re saying and what Krugman’s saying.
When the WSJ starts calling for NGDP level targeting rather than immediate tapering to restore the soundness of our dollar then the victory would be complete.
10. August 2013 at 05:17
“Milton Friedman said IS-LM was misleading, Keynesians say it’s useful.”
He may have criticized it, yet did he actually have any meaningful alternative to it? Many argue that he simply repackaged and piggybacked it while saying it was ‘misleading.’ Your arguments Scott are the ones Friedman used in answering Pantikin years ago. He claimed that he didn’t use Keynes’ theory of a demand for money by inventing a species of the Quantity Theory of Money which never existed.
“So what is the evidence that Friedman provides to counter the scandalous accusation by Patinkin and Johnson that Friedman invented a Chicago oral tradition of the quantity theory? (And don’t forget: the quantity theory is a theory of the demand for money) Well, it’s that, at the London School of Economics, there were a bunch of guys who had crazy views about just allowing the Great Depression to run its course, and those guys were quantity theorists, which is why Keynes had to start a revolution to get rid of them all, but at Chicago, they didn’t allow any of those guys to spout their crazy ideas in the first place, so we didn’t need any damn Keynesian revolution.”
“Good grief! Is there a single word that makes sense? To begin with those detestable guys at LSE were Austrians, as Friedman acknowledges. What he didn’t say, or didn’t know, is that Austrians, either by self-description or by any reasonable definition of the term, are not quantity theorists. So the idea that there was anything special about the Chicago quantity theory as opposed to any other species of the quantity theory is total humbug.”
“But hold on, it only gets worse. Friedman holds up Jacob Viner as an exemplar of the Chicago quantity theory oral tradition. Jacob Viner was a superb economist, a magnificent scholar, and a legendary teacher for whom I have the utmost admiration, and I am sure that Friedman learned a lot from him at Chicago, But isn’t it strange that Friedman writes: “as I have read Viner’s talk for purposes of this paper, I have myself been amazed to discover how precisely it foreshadows the main thesis of our Monetary History for the depression period, and have been embarrassed that we made no reference to it in our account.” OMG! This is the oral tradition that exerted such a powerful influence on Friedman and his fellow students? Viner explains how to get out of the depression in 1933, and in 1971 Friedman is “amazed to discover” how precisely Viner’s talk foreshadowed the main thesis of his explanation of the Great Depression? That sounds more like a subliminal tradition than an oral tradition.”
http://uneasymoney.com/2013/08/05/second-thoughts-on-friedman/
As Glasner says, this ‘Chicago oral tradition’ that Friedman evoked to deny the claim that he was a closet Keynesian says was ‘wholly fanciful.’
10. August 2013 at 05:22
Waffles, You said:
“I think academic economists need to treat remarks they make to reporters and politicians as more important than they currently do, in terms of how they evaluate their colleagues.”
God I wish Krugman would read that. Lucas is a saint compared to Krugman in that regard.
BTW, Lucas is certainly not a conservative ideologue. He often votes for Democrats for President. I’m pretty sure he voted for Obama.
My complaint about Krugman is much more than the claim he misrepresented whether R&R hid data, he also completely misrepresented what they were like. My commenters who relied on Krugman thought these two were conservative hacks who opposed stimulus, whereas they actually support far more stimulus than we are currently getting, and are not particularly conservative. I think Krugman knows what he is doing when he draws these misleading cartoon images of scholars. Also see my reply to Mike Sax
The sorts of mistakes that R&R made are extremely common among even the best researchers, but Krugman gave the impression they were rather incompetent. He also gave the impression that is was a simple question of error, open and shut, whereas the biggest dispute was over methodology, and R&R’s was a very defensible procedure.
Mike, As soon as the GOP takes office the WSJ will be 100% for NGDP targeting. Count on it.
And Paul Ryan does not advocate a return to the gold standard. But I guess that’s what happens when liberals rely on Paul Krugman for their information.
10. August 2013 at 05:26
Krugman tries to qualify his Friedman bashing and ends up implying that Paul Ryan is a bona fides Keynesian!
http://thefaintofheart.wordpress.com/2013/08/10/paul-ryan-is-a-keynesian/
10. August 2013 at 06:03
Scott you may well be right. However, what we’re saying is the Mitch McConnell Rules-‘as Republicans all we care about is destroying Obama the economy be damned; indeed, if the economy is damned we stand a better shot of destroying him’-will have worked.
Believe it or not I don’t get all my news solely from Krugman. I do read conservatives as well-like you for instance
It wasn’t only him talking about Ryan’s desire for a gold coins standard-more stringent than gold. I’m not sure what you mean in saying Ryan doesn’t support this. Maybe you have something like this in mind
Paul Krugman writes:
Dave Weigel made a great catch the other day: he notes that Paul Ryan has said that his views on monetary policy are based on Francisco d’Anconia’s speech in Atlas Shrugged.
Aside from revealing just how much of a Rand fanboy Ryan is “” urban legend, my foot “” this is interesting because that 23 paragraph speech isn’t just a call for the gold standard; it’s a call for eliminating paper money and going back to gold coins.
The problem with this is that Krugman (and Weigel) are working under the assumption that Ryan understands the d’Anconia speech and that he is pushing to go in that direction. They are making the same mistake the gold-hater Joe Weisenthal made.
As I have pointed out, once you go back and look at what Ryan has actually said about monetary policy, it’s clear Ryan’s a Fed man all the way. Krugman is just getting caught up in Ryan’s razzle dazzle act.
http://www.economicpolicyjournal.com/2012/08/krugman-konfusion-paul-ryan-edition.html
This writer-who really is a gold bug-thinks that Ryan doesn’t really want the gold standard or even a basket of commodities but his ‘razzle dazzle’ tricked many into thinking that’s what he wants.
Why he did this I don’t know-maybe kicks?
There’s no question Ryan wants an end to the dual mandate.
“But if we really want to do something about inflation, Congress should repeal the Humphrey-Hawkins Full Employment Act of 1978, which dangerously diverted the Fed from its most important job: price stability. When the Fed was created in 1913, its principal role was to maintain a sound currency with stable prices. But Humphrey-Hawkins changed the Fed’s mandate, directing it to focus on long-term price stability and short-term economic growth.”
http://online.wsj.com/article/SB120960283271557999.html
10. August 2013 at 06:04
I forgot to use quotes starting with ‘Paul Krugman writes’. Those aren’t my words
10. August 2013 at 07:29
Sumner, Krugman, and Glasner on whether Friemdan was a Keynesian
http://diaryofarepublicanhater.blogspot.com/2013/08/was-milton-friedman-closet-keynesian.html
10. August 2013 at 08:31
We’ll be sure to include this in Krugman’s footnote;
http://www.nytimes.com/2013/08/09/opinion/krugman-phony-fear-factor.html?ref=paulkrugman
‘Correction: In my column on Monday, I somehow misstated the Republican plan on food stamps, which was for a doubling of planned cuts “” a significant cut but not, as I said, a halving of benefits.’
Here’s what he somehow managed to misstate;
‘Then House leaders announced plans to hold a vote cutting spending on food stamps in half — a demand that is likely to sink the already struggling effort to agree with the Senate on a farm bill.’
10. August 2013 at 10:06
“[I]t is widely acknowledged, based on serious research, that when public debt levels rise about 90% they tend to have a negative economic dynamism, which translates into low growth for many years.” “” Olli Rehn, European Commissioner
“Economists who have studied sovereign debt tell us that letting total debt rise above 90 percent of GDP creates a drag on economic growth and intensifies the risk of a debt-fueled economic crisis.” “” Paul Ryan, House Budget Committee Chairman
“[W]e would soon get to a situation in which a debt-to-GDP ratio would be 100%. As economists such as Reinhart and Rogoff have argued, that is the level at which the overall stock of debt becomes dangerous for the long-term growth of an economy.” “” Led Lamont, adviser to George Osborne
“The canonical work of Carmen Reinhart and Kenneth Rogoff and its successors carry a clear message: countries that have gross government debt in excess of 90% of Gross Domestic Product (GDP) are in the debt danger zone. Entering the zone means slower economic growth.” “” Doug Holtz-Eakin
“If it is not risky to hit the 90 percent threshold, we would expect a higher incidence.” “” Carmnen Reinhart, in a meeting with members of Congress
I think we should recognize that 1) R&R’s study did not identify a real 90% debt threshold 2) The conclusion policymakers were drawing from their study was that there was in fact a 90% threshold, and this was widely known, and 3) R&R at the very least failed to prevent, and at the very worst actively contributed to this misinterpretation of their research, which had real policy implications. Unless you want to dispute one of the above points, you either have to conclude that R&R were willfully misusing their academic work in a policy setting, or you have to conclude that they were guilty of gross political incompetence.
I know you support austerity, but even the wrong arguments for the right ideas harm our economic discourse. It’s not enough for R&R to want more stimulus in their heart of hearts; their research was a central pillar of the argument to abandon stimulus in 2010 and beyond and they allowed it to happen. They should have been shouting from the rooftops that their research was being misused, and offered to testify in front of Congress that there was no actual threshold. I think you’re way too willing to ignore this (and other instances of gaps between academic and political economic discourse) on account of the fact that this mistake benefited your policy position.
10. August 2013 at 13:21
Krugman writes:
“Yes, he [Friedman] in effect admitted, we do need stabilization policy “” but we can minimize the government’s role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.” and later,
“At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro?”
Notice how Krugman accepts the far right argument that monetary policy is activist. It is not. Once it is granted that the government issues money, then it is not activist to issue money intelligently.
Imagine if the federal government let the federal highway system fall into disrepair and that hurt the economy. If a free market economist suggested repairing the federally owned roads would Krugman ask “How can you be a free-market true believer except for repairing federally-owned roads?”
Imagine there was a crime wave and a free market economist advocated hiring more police would Krugman ask “How can you be a free-market true believer believe in the free market except for preventing crime?”
Krugman accepts the false assumption that there is such a thing as a free market monetary policy. There is not, never has been, and never will be. It is a logical contradiction.
10. August 2013 at 14:01
My last reply was probably gratuitous, and I know how annoying and unproductive it can be to go down the rabbit hole with commenters who can always find smaller and smaller parts of your argument to disagree with. I really enjoyed this conversation, and it is of course a pleasure to become better informed by engaging with you.
10. August 2013 at 16:42
Prof. Sumner,
(this comment is about k-thug vs. R&R, so please delete and ignore if you are tired of this stuff)
As a liberal who reads Krugman, the impression I got from him was that R&R were very good economists who put out a sub-par working paper that got elevated in stature because it supported a certain narrative. R&R’s primary sin was not being vocal when their paper was being misused, particularly with regards to correlation and causation. The impression I got from much of the rest of the liberal blogosphere was that R&R were right-wing hacks and that Krugman was suspect for only criticizing the methodology and not proclaiming that R&R were history’s greatest monsters. I don’t think Krugman covered himself in glory with the whole affair, but I got the feeling that that R&R are good economists who “unfortunately became famous for their worst work.”
10. August 2013 at 18:14
Who are these Keynesians of which you speak? Solow? Samuelson? Tobin? Krugman? News to me. If you are not battling straw men than name your opponents. Although I do respect the fact that you maintain open comments, unlike some of the more prominent conservative economist — Taylor, Mankew, I am looking at you.
11. August 2013 at 00:55
Here’s a situation where Keynes disagreed with the Keynesians yet again.
http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html
11. August 2013 at 03:06
Suvy,
I recommend checking out Tim Congdon’s “Keynes, the Keynesians and Monetarism”. Among other things, Congdon makes a good case that, on many issues like cost-push inflation and the importance of monetary policy, Keynes was more of a monetarist than a traditional Keynesian.
11. August 2013 at 06:35
Marcus, I thought he was a gold bug. He’s making my head spin.
Mike, Yes, Ryan favored a single mandate–inflation target.
Waffles, Krugman fails to dissuade people from misusing his research just about every day of the week. How often do people cite Krugman when claiming the Fed is out of ammo and hence we need to use fiscal stimulus. That misinterpretation of Krugman has caused 10 times as much damage as anything R&R are alleged to have done. And I don’t agree with your first point in any case. R&R made an honest mistake, which according to James Hamilton had only a very small effect on their results. R&R did not intentionally distort anything. They stuck up for their findings as long as they believed their findings.
Negation, I agree.
Waffles, Thanks for your second comment. You are a formidable debater.
rbl, Maybe, but I suppose the thing that bugged me the most was Krugman’s clear suggestion that R&R were austerians, or anti-stimulus, which is not true.
Jammer, I’m not describing the current views of Keynesians, but rather their views back in the 1960s and early 1970s. Some of the points are backed up in a recent paper by Romer and Romer, if you are interested in supporting evidence written by well-respected modern Keynesians.
I don’t know how old you are, but you’d be shocked by some of the views of Samuelson back in the 1960s.
11. August 2013 at 09:55
W. Peden,
I agree 100%.
11. August 2013 at 10:43
[…] 3: More links. Money Illusion, Money illusion, Nick Rowe, Tyler Cowen, Romer and […]
11. August 2013 at 15:21
I am willing to learn. Can you provide me with some citations for “the views of Samuelson in the 1960s” that would shock me? Or for that matter Solow and Tobin, who we writing in the 1960s and 1970s and are usually not considered contemporary Keysians.
11. August 2013 at 15:22
I am willing to learn. Can you provide me with some citations for “the views of Samuelson in the 1960s” that would shock me? Or for that matter Robert Solow and Paul Tobin, who we writing in the 1960s and 1970s and are usually not considered contemporary Keysians.
11. August 2013 at 15:31
I am willing to learn. That’s why I read an assortment of economic blogs, not just Krugman and DeLong, but Beckworth, Cowen, you, and others.
Can you provide me with some citations for “the views of Samuelson in the 1960s” that would shock me?
Or for that matter citations that would support your characterization, for works by Robert Solow and Paul Tobin, or other prominent economist who we writing in the 1960s and 1970s and are usually not considered “contemporary Keysians.”
11. August 2013 at 15:34
I am willing to learn. That’s why I read an assortment of economic blogs, not just Krugman and DeLong, but Beckworth, Cowen, you, and others.
Can you provide me with a citations for the views in the 1960s of any of the economist that I mentioned or of any prominent economist who were generally considered to be Keysians that would shock me?
11. August 2013 at 15:35
I am willing to learn. That’s why I read an assortment of economic blogs, not just Krugman and DeLong, but Beckworth, Cowen, you, and others. Please provide me with citatations.
11. August 2013 at 15:39
I am eager to learn. That is hy I read a range of economic blogs, not just Krugman and Delong, but Beckworth, Cowen, you and others. Can you please provide citations to the views of prominent economist that I mentioned or others in the 1960s and 1970s that would shock me.
Thanks
11. August 2013 at 15:44
I apologize for all the duplicates. I misunderstood the the duplicate message from your site.
12. August 2013 at 07:32
Lucas did vote for Obama in 2008, but it appears to have been a one-off and he usually votes GOP.
This does remind me of a few years back when Krugman dismissed Friedman’s claim that the Fed “caused” the Great Depression as just a distraction for conservatives from Friedman’s view that the Fed should have done more. But if you check out the section from “Free to Choose” that David Henderson cites here Friedman states explicitly that the replacement of the National Banking system with the Federal Reserve removed responses that would have prevented the depression.
13. August 2013 at 05:50
Jammer, Sorry, no time. Maybe someone else can.
Wonks, Really, What is your source? He also voted for Cater over Reagan in 1980. Was that just another “one off?”
13. August 2013 at 06:31
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