I will say this in Sumner's favor. He writes a lot. He's engaged. Now you may think he's wrong or don't like him-I know many Keynesians including a number of my readers don't .However, you got to give him that. He's also nothing if he's not shrewd. He's very interested that the right lessons be learned from this crisis.
It's been my sense that Krugman has been writing less lately-he has been every since last Summer. I don't know what the reason for that is-I've wondered if his wife, Robin Wells has anything to do with it-'Paul there is more to life than blogging'-but I don't know that. Actually she's an economist too and they write textbooks together so who knows? The conservatives have a theory that she's made him more liberal; they account for him being considerably more liberal today than in the 90s with Ms. Wells. Blaming the wife is a old game going back to Lennon.
No doubt Krugman is more liberal now-in the 90s as Larry Summner said he criticised the more conservative Clinton Administration from the Right while criticizing Obama from the Left. If she is responsible for him being a more 'partisan liberal Democrat' then she has my gratitude. However, not so if she is responsible for him blogging less. He often lately has written things like 'sorry I won't be blogging much in the next few days, real life is intruding.' Yet, what is 'real life' to the future of the nation's economy and society! What right does he have to a life?! Ok, I'm joking.
Still, this is a war and a big part of it is writing the textbooks. Krugman and his wife do write the textbooks, which is good. However, what are the history books going to say about this crisis. It seems to me that Sumner has thought a lot about this. I have seen some hints that Krugman gets that the needs to fight back directly with Sumner's Market Monetarists and I applaud this.
http://diaryofarepublicanhater.blogspot.com/2013/06/some-differences-between-krugman-and.html
Today, Sumner is now turning his sights on a gloss of the MMTer-that a big weakness if not the biggest of 'modern macro'-post-Lucas macro-is that it keeps out finance. Sumner makes the point that to his mind this is a very good thing.
"I saw this in the Journal of Economic Perspectives, under recommended reading:
It's been my sense that Krugman has been writing less lately-he has been every since last Summer. I don't know what the reason for that is-I've wondered if his wife, Robin Wells has anything to do with it-'Paul there is more to life than blogging'-but I don't know that. Actually she's an economist too and they write textbooks together so who knows? The conservatives have a theory that she's made him more liberal; they account for him being considerably more liberal today than in the 90s with Ms. Wells. Blaming the wife is a old game going back to Lennon.
No doubt Krugman is more liberal now-in the 90s as Larry Summner said he criticised the more conservative Clinton Administration from the Right while criticizing Obama from the Left. If she is responsible for him being a more 'partisan liberal Democrat' then she has my gratitude. However, not so if she is responsible for him blogging less. He often lately has written things like 'sorry I won't be blogging much in the next few days, real life is intruding.' Yet, what is 'real life' to the future of the nation's economy and society! What right does he have to a life?! Ok, I'm joking.
Still, this is a war and a big part of it is writing the textbooks. Krugman and his wife do write the textbooks, which is good. However, what are the history books going to say about this crisis. It seems to me that Sumner has thought a lot about this. I have seen some hints that Krugman gets that the needs to fight back directly with Sumner's Market Monetarists and I applaud this.
http://diaryofarepublicanhater.blogspot.com/2013/06/some-differences-between-krugman-and.html
Today, Sumner is now turning his sights on a gloss of the MMTer-that a big weakness if not the biggest of 'modern macro'-post-Lucas macro-is that it keeps out finance. Sumner makes the point that to his mind this is a very good thing.
"I saw this in the Journal of Economic Perspectives, under recommended reading:
Claudio Borio asks “The Financial Cycle and Macroeconomics: What Have We Learnt?” “The financial crisis that engulfed mature economies in the late 2000s has Learnt?” “The financial crisis that engulfed mature economies in the late 2000s has prompted much soul searching. Economists are now trying hard to incorporate financial factors into standard macroeconomic models. However, the prevailing, in fact almost exclusive, strategy is a conservative one. It is to graft additional so-called financial “frictions” on otherwise fully well behaved equilibrium macroeconomic models . . . The main thesis is that macroeconomics without the financial cycle is like Hamlet without the Prince. In the environment that has prevailed for at least three decades now, just as in the one that prevailed in the pre-WW2 years, it is simply not possible to understand business fluctuations and their policy challenges without understanding the financial cycle.” Bank of International Setttlements, Working Paper #395, December 2012. At http://www.bis.org/publ/work395.pdf.
"First a bit of history. In the 1920s the standard view among elite macroeconomists was that the business cycle was a “dance of the dollar,” to use Irving Fisher’s metaphor. Then came the 1930s, and monetary policy got pushed to the sidelines. This oversight eventually led to a series of mistakes which culminated in the Great Inflation. Only then was money rediscovered, and AD brought back under control."
See how he's always very sensitive to any new econ trends that he doesn't like? This is a preemptive strike against finance coming back into finance. His history is also interesting in what it doesn't say. He believes that they were right in the 20s, that the business cycle is 'the dance of the dollar.' The dance of the dollar is not discredited because of 1929 according to him anymore than it is discredited for 2008.
Still what we can say is that the two biggest crises in our history came on the heels of errors where the business cycle was explained by the dance of the dollar.
Krugman has had his differences wit the MMTers. Yesterday I wrote a post where I argue that Randal Wrey was a little too optimistic of where Krugman stands on MMT.
On the other hand Krugman does follow the MMT point that the flaw in the macro models is their omission of finance. Steve Keen wrote a very dismissive piece to a paper Krugman wrote with Gauti Egertsson back in 2010 but at least he acknowledges that finance should be in future models. Sumner knowing this, and knowing Krugman's clout, is trying to kill the baby in the crib so to speak.
For Keen's rough critique see here
Sumner is on a mission-a quixotic mission at that:
I’m begging the economics profession to avoid another long and fruitless detour into non-monetary theories of the business cycle, although even as I type these words I know I will fail. The average reader will be far more impressed by Brad DeLong’s long and thoughtful post, than this puny post.
There is nothing in the slightest way mysterious about the current recession. If in 2007 you told the world’s elite macroeconomists what the path of NGDP would look like over the next 6 years, most of them would have predicted a deep recession and slow recovery in the US, and a deep recession, slow recovery, and then double-dip recession in the eurozone. And that’s exactly what happened. Adding finance won’t improve that story one iota.
He argues as he always does that 'there's no record of a CB trying to inflate and failing.' What he never really tells you is how many times have CBs actually tried to inflate and succeeded? The usual examples are the Wiemar Republic's hyperinflation, FDR's gold devaluation and Zimbabwe.
Yet, MMT also disputes that 'hyperinflation' is simply the result of CB that wanted high inflation and 'went too far.'
If you look at these three examples they are all highly unusual and scarcely repeatable events. What led to Germany's post WWI hyperinflation wasn't the design of the CB but rather of the huge World War I debt that Keynes had warned about.
What happened in 1933 is barely repeatable either. Obama isn't going to devalue the dollar-there'd be no reason for that, this was done as a way to deal with the harm the gold standard was inflicting, to get around the cross of gold.
The MMT idea that money printing doesn't cause hyperinflation but is rather a dependent effect of it then has something to recommend it. Sumner believes that explaining the business cycle as anything but the dance of dollars has been discredited by the Great Inflation. If this is true, why isn't the dance of dollars theory doubly discredited thanks to the Great Depression and today's Lesser Depression?
Ill tell ya, the more Sumner talks the more ignorant he looks. Sometimes you have to know when to be quiet.
ReplyDeleteSo lets just ignore finance, which accounted for about 40% of nominal GDP during the Bush years . In this instance it might be appropriate to use the term "nominal GDP" because finance produces nothing real and its profits are pure skimming off real activity and middle man finagling.
Essentially Sumner doesnt want to do the work to understand banking (or knows that truly understanding it would undermine all his models!) and finance so he says "Just ignore it!!" He SHOULD be an embarrassment to the econ profession. Willful ignorance is not something a university should reward in its professors.
This;
" If in 2007 you told the world’s elite macroeconomists what the path of NGDP would look like over the next 6 years, most of them would have predicted a deep recession and slow recovery in the US, and a deep recession, slow recovery, and then double-dip recession in the eurozone. And that’s exactly what happened"
is priceless!! He's essentially saying " If they would have seen that GDP was going on a downward trend in the future, they would have predicted a recession!!" Well duh a downward trend in GDP IS a recession..... by definition.
See, the economists who were predicting a recession, or worse, (NO they didnt pick the day and the month, they simply described the conditions accurately) were using metrics like debt/income ratios and housing prices reaching record highs (meaning mortgages were eating up more and more of monthly income), this was happening at a time when wages had been relatively stagnant for decades. Credit card debt was also out of control and student loans were rising. Present consumption, which is 70% of what GDP is, had to fall off as peple dedicated more and more of income to pay off OLD debts. GDP growth requires taking on new debt not paying off old.
If Krugman cant show what an intellectual midget Sumner is by using his very own words, he aint tryin' hard enough.
Not sure where to put this Mike, but thought you might like to know that Nick Rowe dropped in for a rare visit at pragcap:
ReplyDeletehttp://pragcap.com/theres-no-conspiracy-against-post-keynesians/comment-page-1#comment-146928
Also an interesting response to Sumner in another post:
http://pragcap.com/the-broad-money-supply-is-always-endogenous
Very cool! Thanks as always for the great links Tom
ReplyDelete