That piece SW wrote on 'liquidity premia' continues to generate a good deal of heat. Sumner has now chimed in with his own piece. He evidently agrees with the criticisms of Krugman, Delong, and Nick Rowe and tries to translate it into Monetarist language:
"As readers know I’m not very good at mathematical economics. Actually that’s not quite right, I’m pretty good at that part of math called “geometry,” but not so good at that part of math called “algebra.” Unfortunately most economists don’t consider geometry to be math. So most people will want to skip this post, where I try to translate Paul Krugman’s geometric critique of Steve Williamson into monetarist language. There’s about an 85% chance I am wrong, but I’m hopeful that my smarter commenters can tell me why."
"Now we finally get to the Krugman thought experiment. The liquidity premium for government bonds increases. That reduces the yield on government bonds relative to other assets. That then reduces the hot potato effect, as the gap between the yield on government bonds and base money declines. Less HPE is just another way of saying the demand for base money increases at any given level of NGDP. This means the U-shaped graph shifts vertically upward. At the equilibrium on the right side (the “normal” case) the equilibrium point shifts to the left. Next year’s NGDP declines, just as you’d expect. But the equilibrium on the left side moves to the right, suggesting that more demand for base money is expansionary. That’s the case where Krugman criticized Williamson, translated into monetarism."
http://www.themoneyillusion.com/?p=25034#comments
I don't know that he'd agree that Ralph Musgrave is one of his smarter commentators but here's Ralph:
"I suggest you’re making general assumptions about the relationship between base and nominal growth based on just two or three atypical countries. For example the Japanese are famous for being keen savers, so they aren’t typical. And it’s Japan that gives rise to your U-shape. As to Zimbabwe, that country is very atypical."
"As readers know I’m not very good at mathematical economics. Actually that’s not quite right, I’m pretty good at that part of math called “geometry,” but not so good at that part of math called “algebra.” Unfortunately most economists don’t consider geometry to be math. So most people will want to skip this post, where I try to translate Paul Krugman’s geometric critique of Steve Williamson into monetarist language. There’s about an 85% chance I am wrong, but I’m hopeful that my smarter commenters can tell me why."
"Now we finally get to the Krugman thought experiment. The liquidity premium for government bonds increases. That reduces the yield on government bonds relative to other assets. That then reduces the hot potato effect, as the gap between the yield on government bonds and base money declines. Less HPE is just another way of saying the demand for base money increases at any given level of NGDP. This means the U-shaped graph shifts vertically upward. At the equilibrium on the right side (the “normal” case) the equilibrium point shifts to the left. Next year’s NGDP declines, just as you’d expect. But the equilibrium on the left side moves to the right, suggesting that more demand for base money is expansionary. That’s the case where Krugman criticized Williamson, translated into monetarism."
http://www.themoneyillusion.com/?p=25034#comments
I don't know that he'd agree that Ralph Musgrave is one of his smarter commentators but here's Ralph:
"I suggest you’re making general assumptions about the relationship between base and nominal growth based on just two or three atypical countries. For example the Japanese are famous for being keen savers, so they aren’t typical. And it’s Japan that gives rise to your U-shape. As to Zimbabwe, that country is very atypical."
"As to the US since 2008, that again is an economy that has not been typical: it has been badly skewed by the fact that Congress has refused to allow adequate fiscal stimulus, so the Fed has tried to counter that with an asset purchase scheme (i.e. monetary base creation scheme) of record proportions. But that hasn’t worked too well because (in the words of J.K.Galbraith) “firms borrow when they can make money and not because interest rates are low”.
"I’m quite happy with the simple relationship that MMT advocates, which would be a continuously upward sloping line. Or perhaps an initially horizontal line which then slopes upwards, reflecting the fact that as the base rises (all else equal), employment rises with inflation remaining about constant. While excessive base increases lead to excess inflation."
I also had a fun exchange with SW over at his blog. SW thinks that the saltwater-freshwater divide is a useless distinction and should be done away with. I proposed that maybe we do just that in exchange for him taking a moratorium on Krugman bashing. Here was his answer:
"What's wrong with Krugman bashing? Sometimes the man needs a good bash."
Over at Nick Rowe's blog, I mentioned all the razzing that SW has given Krugman over the last few years. Andolfatto's answer is basically that Krugman started it:
"I've been following their exchanges from the beginning and believe me, the first low blow was not fired by Steve."
Yet I suspect Kevin Donoghue is right:
"AFAIK the beginning was April 2010, when Stephen Williamson was writing this sort of thing:
On his New York Times Magazine piece, "How Did Economists Get it so Wrong?. "There was no personal invective in what I wrote. I never insulted anybody's personality. It was always at the level of ideas." Sure. In that piece, Krugman essentially argued that all of macroeconomic research since 1970 was a waste of time, and we should go back to IS-LM. A reading of the piece makes it clear that Krugman is essentially ignorant of macro post-1978, so it's remarkably conceited of him to think he can stick his neck out and make such bold statements. The economists I see most often have spent most or all of their careers trying to contribute to advancing macroeconomic thought, and it should not be hard to understand that they might be unhappy, indeed insulted, by Krugman. To have some ignoramus with a Nobel Prize telling the world you are an idiot doesn't go down well.
"I'll be surprised if anyone can link to a Krugman attack on Williamson which predates that delightful offering."
I think what it really comes down to is that SW felt Krugman insulted 'macroeconomic research since 1978.' He seems to confuse Krugman using personal invective and those who felt implicated by what he wrote taking it personally. It also may well be that SW suffers from some professional jealousy and also realizes that becoming (in)famous for Krugman bashing is a very good way to get famous.
Anyway, like I said I enjoy these catfights inside mainstream macro as well as those between the MS and heterodox econ.
P.S. In calling Krugman-SW a feud takes some license as it's totally one-sided. Krugman very seldom bothers to respond to SW-this is one of the rare times he has.
P.S. In calling Krugman-SW a feud takes some license as it's totally one-sided. Krugman very seldom bothers to respond to SW-this is one of the rare times he has.
No comments:
Post a Comment