Stephen Williamson vs. Paul Krugman on the Phillips Curve

      The title is a bit of a trick. Ok-SW razzes Krugman on the use of the Phillips Curve. He claims he has data that shows it doesn't explain the relationship between inflation and unemployment well at all. 

      "Some journalists are able to get inside what is going on in a technical subject, and explain it well for lay people. But this post by Paul Krugman left me puzzled. He says:

At this point, however, there is wide acceptance of the idea that for a variety of reasons, but especially downward nominal wage rigidity, the Phillips curve is not vertical at low inflation.

     "What Krugman seems to mean is that, in the long run, there is a tradeoff between unemployment and inflation at low rates of inflation. The claim is that this is "widely accepted."

     "So, first, I have no idea who "accepts" this idea. I haven't heard about it, except in Krugman's blog posts. And why do the accepting people find it so acceptable? Is there a theory? Krugman says its wage rigidity that explains this. Has he written down a theory? Has someone else written down a theory? Has that theory been confronted with the data?"

     http://newmonetarism.blogspot.com/2013/12/finger-on-pulse.html

    My guess is maybe SW's being a little willfully obtuse-he's probably aware that the PC is widely used in many places. If they don't do it in his neck of the woods-Minnesota I'm guessing-well, what's so important about that? Yet here is the real point. I questioned him tonight whether or not he is supporting the idea of increasing public debt as a way to get out of this problem-his answer is clearly yes. Here is me:

    Mr. Williamson let me just be straightforward: are you suggesting that higher public debt by the U.S. government would now be stimulative?

So is the best thing the U.S. Congress can do is pass the President's jobs bill?

     http://newmonetarism.blogspot.com/2013/12/phillips-curves-and-fisher-relations.html?showComment=1387251439727#c8798440694625959953

     Here is his reply"

      "Those are two different questions.Yes, I think part of our problem is insufficient government debt. There of course many ways to get more government debt. You can have a temporary tax cut. That's straightforward. But I haven't studied the jobs bill, and have no idea what's in it."

       Ok, then. Check please. I mean in that case who cares whether Krugman and SW agree about the PC?  Who cares even if SW seems to be saying we should raise interest rates to increase the FF rate to get us higher inflation? (He does say first the Fed should do unlimited QE and raise rates only after). They are right on policy. I pointed this out to him. 

      "Then I have nothing bad to say about you. See you and Krugman don't agree on the Phillips Curve-what its shape is, whether it's useful or not."

      "My feeling about it is-who cares? You both agree there's a liquidity trap-ok you seem to differ with him on why there's one-and you both agree that what we need right now is an increase in public debt-again for maybe very different reasons."

       "I agree, As far as I'm concerned that's good enough for me. So I'm a Krugman fan and a Stephen Williamson fan."

      "Its not that as a layperson I don't have respect for theoretical disputes-I'm aware they are often very important and fertile ground for furthering our economic knowledge-one of the most important things in the world for human society."

      "Still I'm also a pragmatist. If we do fiscal stimulus for the right or wrong reason doesn't matter to me. If policymakers do it with the wrong understanding of the phillips curve it will help just as much."

      Listen I'd rather be right for all the wrong reasons than just plain wrong which is what Sumner and friends is, and what the GOP Congress is.