Don't get me wrong I don't for one minute believe that Krugman learnt everything he knows by stealing from Roger Farmer and not telling anyone as Farmer rather ludicrously has claimed.
"I enjoy reading your column in the New York Times, although I do feel that you might be a little more balanced from time to time. Politeness and respect for those who disagree with our positions are underrated virtues."
"Until now I have been content to keep my intellectual disagreements with you private. We have much in common. However, your most recent attempt to distance yourself from your own heritage, the neoclassical synthesis, without reference to my recent NBER paper, here, is a step too far."
http://diaryofarepublicanhater.blogspot.com/2013/08/roger-farmer-someone-has-very-elevated.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Still, I tend to think that this was all just a red herring. The brilliant part of Farmer's move is that he has gotten a lot of notice. Incidentally, the reason I say that Farmer's claim is ludicrous is party the reasoning-is it really true that no one could every come to the idea of criticizing the Neoclassical Synthesis without reading Farmer first? If he has anything tangible that Krugman has taken anything from him he sure didn't divulge it in this 'Open Letter.' Just how brilliant his move was occurred to me as I was reading his articles and essays.
I notice that Morgan Warstler also seems very taken with Farmer and thinks that Sumner should be as well but Sumner is not at all interested in anything Farmer has to say. So what exactly could impress Sumner about Farmer? I think it might be suggested in this piece here.
http://www.voxeu.org/article/does-fiscal-policy-matter-there-better-way-reduce-unemployment
Farmer makes some rather paradoxical claims here. On the one hand he says that fiscal spending ended the GD but that it would be less successful for the GR.
"We find that Farmer’s model can account not only for the increase in unemployment during the Depression, but also for the recovery during WWII. But we offer a word of caution to those who advocate additional fiscal expansion as a solution to the current recession."
"I enjoy reading your column in the New York Times, although I do feel that you might be a little more balanced from time to time. Politeness and respect for those who disagree with our positions are underrated virtues."
"Until now I have been content to keep my intellectual disagreements with you private. We have much in common. However, your most recent attempt to distance yourself from your own heritage, the neoclassical synthesis, without reference to my recent NBER paper, here, is a step too far."
http://diaryofarepublicanhater.blogspot.com/2013/08/roger-farmer-someone-has-very-elevated.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29
Still, I tend to think that this was all just a red herring. The brilliant part of Farmer's move is that he has gotten a lot of notice. Incidentally, the reason I say that Farmer's claim is ludicrous is party the reasoning-is it really true that no one could every come to the idea of criticizing the Neoclassical Synthesis without reading Farmer first? If he has anything tangible that Krugman has taken anything from him he sure didn't divulge it in this 'Open Letter.' Just how brilliant his move was occurred to me as I was reading his articles and essays.
I notice that Morgan Warstler also seems very taken with Farmer and thinks that Sumner should be as well but Sumner is not at all interested in anything Farmer has to say. So what exactly could impress Sumner about Farmer? I think it might be suggested in this piece here.
http://www.voxeu.org/article/does-fiscal-policy-matter-there-better-way-reduce-unemployment
Farmer makes some rather paradoxical claims here. On the one hand he says that fiscal spending ended the GD but that it would be less successful for the GR.
"We find that Farmer’s model can account not only for the increase in unemployment during the Depression, but also for the recovery during WWII. But we offer a word of caution to those who advocate additional fiscal expansion as a solution to the current recession."
- The fact that a temporary fiscal stimulus increased employment during WWII does not necessarily imply that it is the right policy in the current crisis.
- In our model, welfare would decline in response to a fiscal expansion, even as unemployment falls, unless the government purchases goods that have significant social value.
"This was clearly the case during WWII – but we do not advocate solving the unemployment problem today by increasing the size of the army. A clear case would need to be made that increased expenditures have social value, for example, by building new bridges or otherwise improving the public infrastructure."
The part that Morgan likes and presumes Sumner would go for is where Farmer suggests that rather than do fiscal policy, the Fed should put money into the stock market.
"In our 2011 paper, it is critical to increase the value of confidence in the value of private wealth in order to restore jobs permanently. In the face of continued pessimistic beliefs about asset values, no amount of fiscal stimulus would be capable of restoring full employment. In our world, increased public spending can cause a reduction in private spending (economists call this crowding out) even when the economy is in the midst of a depression. For this reason, we believe that a better policy to reduce unemployment would be an asset market intervention of the kind suggested in Farmer (2009a, 2011b). Increasing business and consumer confidence by stabilizing the value of private wealth is an essential component of any recovery plan."
Sumner doesn't favor the Fed buying up stocks, or certainly not as a First Best policy as he told Morgan in the comments section.
On the other hand what about if the only choices were buying up stocks or fiscal stimulus? Morgan is operating under the assumption that for Sumner nothing is less preferable than fiscal stimulus under any circumstances-or at least most circumstances. Based on Sumner's body of work, Morgan's assumption is not unreasonable.
Farmer's model is very interesting-particularly in its paradox. In it, fiscal spending only works if its unanticipated and there is danger of 'crowding out' with government purchases even in a major slump where you'd presume there's lots slack in the economy. I'm not sure where the idea that fiscal stimulus only has an impact if its unanticipated comes from either. Why is that in his model?
In the anti-Keynesian counterrevolution of the 70s it became fashionable-pace Friedman and Lucas- to argue that only unanticipated changes in monetary policy have any effect. Today even Bob Lucas concedes that's totally false-no truth in it at all. To the contrary, monetary stimulus has a larger impact if is in fact anticipated:
Now Farmer is channeling this error for fiscal policy? So what is is that make anticipated monetary changes more effective than unanticipated but yet unanticipated fiscal changes more effective than anticipated ones?
All of this is pretty curious as a 'Keynesian' model-he claims that Keynes would agree with this model as it sees recessions as starting do to changes in business confidence.
P.S. I see the commentator Greg-both here at Diary of a Republican Hater and at Cullen Roche-has a pretty interesting explanation on the differences between monetary and fiscal stimulus.
Basically he argues that only FS can raise people's income-whereas MS essentially just reduces their debt but doesn't actually give them more income
"If everyone is maxed out, using monetary policy for refinancing doesn't really add to GDP. You are still paying off the consumption from the past you are just getting better terms. What we want to see is NEW output, not just refinancing of old output. Most of our recent housing market activity is just reshuffling the already existing stock, not producing more stock. So I think they are a bad gauge of how much new production one will get."
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