Please Mr Krugman, don’t sink to the level of your opponents

Paul Krugman must feel a need to churn out blog posts at a very fast rate (I know the feeling.)  Most are excellent.  But his newest post is just appallingly bad.  It starts off on solid ground, criticizing Martin Feldstein’s views on monetary policy. Krugman’s right that Feldstein has been too concerned about inflation, and that his recent comments on IOR are in conflict with the conservative position that QE makes inflation a big risk.  But then Krugman goes completely off the rails:

Even if this were right, wouldn’t it suggest that the Fed’s expansion poses no inflationary risk? I mean, if all that alleged pressure can be completely contained with a 1/4 percent interest rate, how big a problem can it be?

But it’s not right, as Noah shows logically; and of course the example of Japan, which did massive QE without paying interest on reserves, and saw nothing happen, reinforces the point.

I can forgive a young academic like Smith for making a bonehead argument that IOR can’t matter much because it only raises nominal borrowing costs by 1/4% (as if the impact on inflation and NGDP expectations don’t matter) but Nobel Prize-winning Paul Krugman?  There are very few things in monetary economics that can be shown “logically,” and Smith did not produce one of them.

But since Krugman brought up logic, let’s apply some logic to the rest of his post:

And let me admit that I’m especially exasperated “” actually, about the fiscal as well as monetary arguments “” because I went over all this ground fifteen years ago.

Look, please, at my Brookings Paper on the liquidity trap (pdf), especially pp. 155-159. (Those are pages in the volume “” the paper isn’t that long). You’ll find me explaining that once you’re up against the zero lower bound:

1. Changes in government spending are still effective, with a multiplier of 1, even with full Ricardian equivalence.

The problem with these multiplier estimates is that they assume that monetary policy is ineffective at the zero bound, and hence no monetary offset will occur.  Inflation targeting central banks will no longer target inflation.  But if that’s true THEN WHY THE HECK IS KRUGMAN COMPLAINING ABOUT TAPERING?

I’m sure that his defenders will dig up excuses.  “He said QE itself doesn’t matter, but perhaps is a signal of future policy actions that do matter.”  OK, I’ll buy that (although I think QE does matter directly to at least a small extent.)  That still leaves us with the question of why he’s so opposed to tapering.  If he’s really opposed to the signal, then he must think that signals matter.  In that case why not assume that central banks keep targeting inflation at 2%, even at the zero bound, albeit using signals instead of current changes in the base or fed funds target.  If the Fed is tapering, then aren’t they pleased with the likely future path of inflation?  Krugman and I agree they are wrong, but it’s what they think that drives policy.

For 5 years Krugman’s tried to have it both ways.  He needs to make up his mind.  Does money matter, or doesn’t it?  Why does Krugman suggest that Summers is OK on monetary policy, when Krugman thinks money is too tight and Summers doesn’t?  And while he’s at it, please explain why the severe austerity in 2013 led to a speed up of job growth to over 200,000/month, instead of the sharp slowdown predicted by the multiplier models.  Monetary offset?  Did the US do better than the eurozone because Bernanke’s so-so Fed is better than the appalling inept ECB?  I’d say so.

Debating the conservative inflationistas is like shooting ducks in a barrel for a brilliant economist like Krugman.  He can do better.  It’s time for a serious discussion of monetary offset.

PS.  Yes, the title is a weird sort of joke.  I hope at least Ken Rogoff finds it funny.

HT:  Travis V



26 Responses to “Please Mr Krugman, don’t sink to the level of your opponents”

  1. Gravatar of marcus nunes marcus nunes
    25. July 2013 at 05:27

    And a little earlier he dismissed Friedman on money and inflation:

  2. Gravatar of brendan brendan
    25. July 2013 at 05:31

    “Why does Krugman suggest that Summers is OK on monetary policy, when Krugman thinks money is too tight and Summers doesn’t?”

    Because Summers is a “good guy”. Just like Noah. (wink)

    Was it Morgan that said the WSJ needed to hire Scott as their Krugman? How can we make this happen!?

  3. Gravatar of Tom Tom
    25. July 2013 at 05:58


    The WSJ is John Taylor’s forum these days (or so it seems; I feel like every time I pick a copy up he’s got an op-ed in there), so they’ve already found “their” Krugman me thinks…

  4. Gravatar of ssumner ssumner
    25. July 2013 at 06:20

    Marcus, I saw that too.

    Tom, That’s the problem . . .

    Taylor’s just not very persuasive on monetary policy right now. If the problem we faced was high inflation he’d be great.

  5. Gravatar of brendan brendan
    25. July 2013 at 06:45

    Krugman is pathetic. Of any non-government actor, no one has more power than him to influence who is the next Fed chair. And no event is more worth influencing then the Chairman selection process. If he mounted an assault on Summers, or a campaign for some other preferred candidate, he’d alter their relative probabilities of being chosen. Summers views are blatantly NOT Krugman’s on Money, so Krugman’s refusal to criticize is making clear, for anyone who hasn’t noticed yet, that when party solidarity conflicts with public interest, Krugman chooses tribe.

    There’s no point in being polite in criticizing him. Politeness doesn’t get you links on his blog. Being a “good guy” (team player) does. I’m not qualified to recommend anything to Scott on any topic, but man sometimes I wish you’d switch to pure ridicule.

  6. Gravatar of Doug M Doug M
    25. July 2013 at 07:25

    You are going to make me defend Krugman… I hate you..

    What exactly is off the rails about in the first statement you quoted?

    Krugman says inflation couldn’t be a problem, if it can be so easily contained with a 25bps increase in borrowing costs. Sumner says inflation isn’t a problem, because it just isn’t a problem.

    Then Krugman says that the BoJ undertook QE with no inflationary consequences.

    What is the disagreement or logical fallacy? Where is your counter argument. You cant just say Krugman is off the rails without showing us where he went wrong.

  7. Gravatar of Mike Tolbert Mike Tolbert
    25. July 2013 at 07:33


    I wish you could deal with the substance of Krugman’s paper a little more directly. I found it an illuminating read, in light of all your objections about Kenysianism. There are several fine lines about the weaknesses of early Kenysian thoughts especially about money. That surprised me. Also, that, even if the multiplier is 1, you still get a stimulus effect from increases in fiscal spending. That surprised me, since the analysis always seemed to come down to proving a larger multiplier. Krugman explicitly says no.

    Krugman makes several convincing arguments to be as why monetary policy is ineffective at the zero bound. You make several convincing arguments that the zero bound is not an absolute barrier and monetary policy can still be effective. A lot of us “Yglesians” are like, gosh I don’t know whose right, and in the middle of all this, who cares? Can’t we try both? Yet the real-world situation that played out is, there are real political constraints on both approaches.

    Krugman spends too much time debating economists whose theories and arguments leave much to be desired and not enough time on people like you who have well-thought out theories. I wish you guys could engage directly. That would be great for economics in general!

  8. Gravatar of J J
    25. July 2013 at 08:02

    Doug M,

    In the first statement, Krugman is saying that inflation isn’t contained by the 25bps increase in borrowing costs. He is saying that the 25bps increase in borrowing costs isn’t relevant because inflation was also contained in Japan where they have 0% IOR.

  9. Gravatar of Saturos Saturos
    25. July 2013 at 08:07

    I thought this one was good:

  10. Gravatar of D D
    25. July 2013 at 08:08

    Scott, can you do an update (since I now you’ve addressed this before) on why you think tight money is still a problem. Or are you more concerned with future policy when the next shock comes?

  11. Gravatar of JP Koning JP Koning
    25. July 2013 at 08:12

    I don’t understand the series of smart bloggers who have said IOR cuts are neutral. Reduce the promised return on any asset, say a bond, and its price will immediately fall to some lower price so that subsequent investors are sufficiently rewarded for holding it. If the asset suffering a decline in its expected return happens to be the unit of account, or central bank reserves, then the entire price level must rise (ie the value of the unit of account must fall) so as to coax investors to hold reserves again. Now maybe a 0.25% cut in reserve yields won’t cause a lot of inflation, but it’ll cause at least some. What am I missing?

  12. Gravatar of Saturos Saturos
    25. July 2013 at 08:16

    Carney’s speech on the British ten pound note (the portrait will change from Charles Darwin to Jane Austen):

  13. Gravatar of ssumner ssumner
    25. July 2013 at 08:17

    Brendan, Actually there is a point in being polite, even to impolite people.

    Doug, The mistake was to call Noah’s critique “logical”. The critique said that IOR can’t be having a big effect because it only raised borrowing costs by 0.25%. Does that seem like a logical argument to you? Then why is Krugman praising it?

    Mike, This post in no way addressed or criticized anything in the paper. I have addressed his ideas in a serious way in many, many posts. I’ve addressed that specific paper in other posts. But that paper was not the topic of this post. All I said was that the comments in that paper quoted in his blog post were not “logically” consistent with his current policy views. That does not mean the paper is wrong.

    I agree with your last two sentences.

    D, Both. NGDP growth is still too low, and that’s why unemployment is so slow in returning to a rate where we no longer have “emergency” unemployment comp payments.

    And I am worried about the next zero bound.

  14. Gravatar of Saturos Saturos
    25. July 2013 at 08:24


    That’s it in a nutshell. (Strangely, I can’t get the AHETPI series on FRED data anymore, can anyone tell me what’s going on?)

  15. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    25. July 2013 at 08:44

    Barack Obama has finally done it; become so ridiculous that even Brad DeLong can’t take it any longer;

    Obama turns neo-Austrian:

    “Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.”

    This analysis is, you will not be surprised to see, in my view simply wrong.

    We have had three things go wrong:

    A thirty-year failure of economic growth to be equitable growth.
    A six-year macroeconomic disaster caused by a shortage of aggregate demand that was driven by a collapse of the credit channel.
    An economy that in the mid-2000s spent too much of its energy building houses and transferring financial assets.

    Of these, the first is by far the biggest, the second is also huge, and the third is relatively minor.

    But there is no sense in which the level of employment or of GDP that we had in the mid-2000s was unsustainable, or the result of any artificial juicing of an economy. We know what an economy that is artificially juiced beyond its sustainable productive potential looks like: it has rising inflation. That is not what the economy of the mid-2000s looked like….

  16. Gravatar of Andy Harless Andy Harless
    25. July 2013 at 09:13


    I think you’re still missing a couple of critical points about Krugman’s view: (1) for a given fiscal policy, not all NGDP paths are feasible, even with perfect central bank credibility, because some paths cannot be made consistent with time/risk preferences given the shape of the SRAS curve (e.g., if the short-run natural risk-free real interest rate is -3%, then any path that involves an inflation rate less than 3% will be infeasible) and (2) central bank credibility is imperfect, so commitment to a feasible path may not be possible. The thing is, we don’t know whether commitment to a feasible path is possible, so Krugman thinks about things both ways: if (as may be the case) commitment to a feasible path is impossible, then fiscal policy will be effective, but since commitment to a feasible path may be possible, we should try to get it if we can. So I don’t see it as inconsistent to advocate both fiscal stimulus and easier money: given our imperfect information, we want to try both.

    IOW, when you say Krugman “needs to make up his mind,” I say, “No, he doesn’t.” Indeed, he shouldn’t, if he doesn’t think he has the answer. It’s quite internally consistent for him to think that there’s a chance that money matters but a chance that it doesn’t. And it’s also not unreasonable, given such a belief, to talk in terms of a model of the latter case much of the time.

    I don’t however, think that Krugman believes QE is effective only as a signal. He just thinks that the efficacy of it as a direct stimulus is quite weak (and you might agree). I’m willing to imagine a central bank willing to do as much as it takes, but realistically the Fed is not going to buy an unlimited quantity of assets (the entire national debt + the entire agency debt + whatever) in a finite amount of time. So it’s not inconsistent to say, “Let’s have as much QE as we can get. It will help a little. But it won’t be nearly enough.”

  17. Gravatar of ssumner ssumner
    25. July 2013 at 10:09

    JP, Good question.

    Thanks Patrick.

    Andy, If Krugman made the sort of arguments you made I wouldn’t be so mad at him all the time. I think you are projecting a set of views that Krugman does not in fact hold. Let’s start with this:

    “IOW, when you say Krugman “needs to make up his mind,” I say, “No, he doesn’t.” Indeed, he shouldn’t, if he doesn’t think he has the answer.”

    I think he’s 100% convinced he does have the answer. Krugman doesn’t say austerity might have slowed growth in Europe, unless there was ECB offset. He says austerity slowed growth in Europe. Period, end of story. He doesn’t say the eurozone might have done worse due to austerity, and it might have done worse than the US due to a tighter monetary policy. He says it’s austerity, ,period, end of story. I just don’t see the nuance that you see.

    I do see the nuance in his academic work, and once and a while when he is discussing purely theoretical topics in his blog. But then he goes back to calling people morons who deny that austerity slows growth, EVEN THOUGH HE WAS 100% WRONG IN HIS ASSUMPTION THAT AUSTERITY IN THE US WOULD SLOW GROWTH in 2013. Yes, he should be very uncertain about all this, as you seem to think he is. But I see exactly the opposite. I see him simply ridiculing those he disagrees with. He seems overconfident to me.

    As you know I strongly disagree with the no feasible NGDP path argument. Just peg the NGDP futures contracts where you want it, and you’ll have the appropriate real interest rate.

    And central banks don’t need to buy up lots of assets to hit their targets. The Fed could get expected NGDP growth up to 5% or 6% with a much smaller base.

  18. Gravatar of Paul Paul
    25. July 2013 at 10:22

    Summers supporter? Eh? He gave Janet Yellen his vote in the WSJ yesterday:

    What They’re Saying About Larry Summers and Janet Yellen

    Princeton’s Paul Krugman
    “Appointing Yellen “” the first woman Fed chair, and one with utterly unquestioned credentials “” would be an evidently historic act. If it’s Summers, you know what everyone will bring up: his pro-deregulation stance of the 1990s.”

  19. Gravatar of ssumner ssumner
    25. July 2013 at 10:43

    Paul, I’d suggest a course in reading comprehension. I never even implied he supported Summers for chair.

  20. Gravatar of jknarr jknarr
    25. July 2013 at 11:59

    Scott, given that we are moving into an important policy juncture with the Fed, it might be a good time for some empirical NGDP targeting frameworks — addressing the mechanisms and effectiveness of monetary policy at the zero rate bound, and the benefits of targeting long run NGDP.

    It is patently obvious that any central bank can inflate at any price level — just buy assets from the public for cash. Krugman defines this ability away via his “liquidity trap/irresponsibility” (tautological) framework — so he, by implication, is abetting immense damage to the US economy.

    (My own view is that ignoring monetary policy is no mistake: there is an immense vested interest in tight money at Wall Street and DC. Understand that, and all else follows.)

    Some empirical- and mechanical- NGDP targeting frameworks would come in handy for forcing the issue with Krugman, and for judging the effectiveness of any future Fed chair’s policies.

  21. Gravatar of jknarr jknarr
    25. July 2013 at 12:59

    PS Scott — think about crowdsourcing a prove-and-build-the-NGDP-targeting-regime project. You have a lot of smart guys reading and contributing, you can arbitrate and keep it on track: the development of a new monetary model in real time! It would be a really fascinating development (and could attract influential traffic). You’re in a unique position to pull it off.

  22. Gravatar of Jared Jared
    25. July 2013 at 13:19


    You wrote, in all caps, nonetheless, “EVEN THOUGH HE WAS 100% WRONG IN HIS ASSUMPTION THAT AUSTERITY IN THE US WOULD SLOW GROWTH in 2013.” How can you claim he was 100% wrong? Hasn’t growth indeed slowed? Q1 growth was a measly 1.8%, and now early estimates for Q2 are below 1%. If Q2 growth turns out that low, it could be the slowest growth for the first two quarters of the year since 2009.

  23. Gravatar of ssumner ssumner
    25. July 2013 at 13:58

    jknarr, I don’t know what you mean by empirical NGDP targeting frameworks. Can you be more specific.

    I’m not a fan of structural macro models.

    Jared, You can cherry pick data, but here are the facts.

    1. RGDP growth in 2012 was 1.8%. The consensus view for 2013 is 1.9%.
    2. Jobs numbers are more reliable than RGDP in the short run, and job growth this year is at a faster pace that 2012. Keynesian models predicted a huge slowdown in jobs growth.

  24. Gravatar of jknarr jknarr
    25. July 2013 at 14:45

    Scott, I’d really like to see some discussion of just how below trend US NGDP and RGDP has become, and what it has been over time. We can then begin discussing past changes in the monetary base and how it helped shift GDP metrics back to the long run average. Of if you prefer per capita metrics, can we have a common focus for discussion. From there we could begin to have productive discussions of what effective monetary policy has been at the zero bound, and what would be effective now — the US has emerged from near-zero rates before.

    Less than a structural model (I’m not a fan also), more of a move toward empirical and verifiable observations and common reference points to move the MM thesis forward. Perhaps then someone smarter than I can make a more formal declarations, or round out exactly how the monetary plumbing would operate — but the point is to get charts together that root these discussions to empirical data rather than theoreticals.

    You’d probably spend less time on ignorant comments and reaction-to-the-latest-pundit, and more time on productive investigation of what a MM Fed look like. The end product, in my mind, would be a “shadow MM Fed” that would call for XX balance sheet expansion at YY interest rates and IOR. An ambitious destination, but the fun is in the journey.

    This is MMs path to the big leagues, IMHO, and the data is out there. Make them come to you.

  25. Gravatar of ssumner ssumner
    26. July 2013 at 12:59

    jknarr, There are lots of young economists who are much smarter than me who should do this. And I’m sure they will.

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