He seems to think that all Keynesians can do now is fall prostrate on the ground and admit that Market Monetarism has been 100% vindicated. He's castigating Krugman again:
"Back in April 2013, Paul Krugman agreed with Konczal:
"Back in April 2013, Paul Krugman agreed with Konczal:
Mike Konczal points out, we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens.And the results aren't looking good for the monetarists: despite the Fed's fairly dramatic changes in both policy and policy announcements, austerity seems to be taking its toll.
"Now the results are in and they show that market monetarism easily passed the test, as growth in 2013 is exceeding the pace of 2012. We know how Mike Konczal reacted, but what about Krugman? Today we got an answer:
One way to look at the US economy in 2013 is that it was, in effect, trying to begin a strong recovery, but was held back by terrible federal fiscal policy. Housing was making a comeback, state and local austerity was, if not going into reverse, at least not getting more intense, household spending was starting to revive as debt levels came down. But the feds were raising the payroll tax, slashing spending via the sequester, and more.
Incidentally, these other factors are why I don't take seriously the claims of market monetarists that the failure of growth to collapse in 2013 somehow showed that fiscal policy doesn't matter. US austerity, although a really bad thing, wasn't nearly as intense as what happened in southern Europe; it was small enough that it could be, and I'd argue was, more or less offset by other stuff over the course of a single year.
"Where do I begin? Yes, growth did not "collapse" as the Keynesian model predicted. It increased. So say so! There was a dramatic reduction in the cyclically adjusted budget deficit, by any measure. I'm tempted to point out that a reduction in the cyclically-adjusted budget deficit (including the exact same 2% boost in the payroll tax) is what the Keynesians claim caused the severe 1937-38 depression. And yet growth accelerated in 2013. Or I could point out that the fiscal austerity in the US was just as intense as in the eurozone, whereas the unemployment rate in the US has fallen sharply since 2010, while the rate in the eurozone has risen sharply. The key difference was monetary policy, which was much tighter in the eurozone."
What I don't get is where Krugman Konczal or anyone else predicted that growth would collapse. Sumner's 'increase' though is a bit of an overstatement. Basically NGDP grew by .2% more than last year. As Krugman points out, it's still a very sluggish recovery looked at from the lense of 5 years since the recession officially ended. Unless you want to argue that what we''ve had has been optimum then how can you plausibly argue it would not have been better with less contractionary austerity?
Sumner seems to think the test is simply whether or not we did worse in 2013 than 2012 and since the answer is no-it was about the same-this is vindication for Market Monetarism. Yet, the 2012 numbers were mediocre to being with and the hope was to actually do better this year. That there was no meaningful improvement means there was definitely scope for more stimulus.
Unless you want to argue that 5 years and still not back to the 2007 highs is a great victory and the optimum path you want to be on, I don't see how actual policy over these last 5 years is vindicated.
Krugman also agrees with the optimistic forecasts for the economy in 2014 but not because we somehow gained something from fiscal austerity but rather because fiscal drag is actually on track to decrease this year-we have a cutback in the sequester among other things.
P.S. Not sure where Sumner's claim about the EU having the same level of austerity comes from though he keeps repeating it.
"Not sure where Sumner's claim about the EU having the same level of austerity comes from though he keeps repeating it."
ReplyDeleteFirst of all Sumner is talking about the Euro Area, not the EU. Secondly it comes from reality.
Paul Krugman
“…Incidentally, these other factors are why I don’t take seriously the claims of market monetarists that the failure of growth to collapse in 2013 somehow showed that fiscal policy doesn’t matter. US austerity, although a really bad thing, wasn’t nearly as intense as what happened in southern Europe; it was small enough that it could be, and I’d argue was, more or less offset by other stuff over the course of a single year…”
This is a testable claim. I will assume by “southern Europe” he means the GIPS. By “intense” I will assume he means the amount of fiscal austerity in any given year.
Using one of Krugman’s favorite measures of fiscal austerity, the change in the cyclically adjusted primary balance (CAPB) from the October 2013 IMF Fiscal Monitor, the CAPB increased by the following percent of potential GDP in the US, the Euro Area, the GIPS as a whole (weighted by potential GDP using IMF estimates of potential GDP), Greece, Italy, Portugal and Spain in 2010 through 2013:
Entity—-2010–2011–2012–2013
US——-(-0.2)–1.0—1.1–2.3
Euro-Area(-0.2)–1.5—1.1–1.1
GIPS——-1.1—1.6—2.3–0.9
Greece—–6.4—4.9—3.3–2.2
Italy——0.1—0.9—2.1–0.5
Portugal-(-0.2)–7.1-(-0.9)-1.4
Spain——1.7—1.0—3.0–1.2
Note that Greece, Italy and Spain started fiscal austerity in calendar year 2010 and the US, the Euro Area as a whole and Portugal started a year later. Note also that US fiscal policy was only less austere than the Euro Area as a whole in 2011. And finally note that 2013 was the first year that US fiscal policy was more austere than the GIPS, but that the intensity of its austerity in 2013 was as great as the fiscal austerity in the GIPS in 2012 which was the peak year for fiscal austerity for those nations as a group.
Looking at the individual GIPS nations we see that the level of fiscal austerity in the US in 2013 was less than that in Greece in three out of four years, was greater than the worst year of fiscal austerity in Italy which was 2012, was greatly exceeded by Portugal only once in its one truly horrendous year of fiscal austerity which was 2010, and was slightly exceeded by Spain’s worst year of fiscal austerity which was 2012.
I am gratified that Krugman seemingly acknowledges that the US fiscal austerity of 2013 was greater than anything that the Euro Area has ever experienced as a whole. However, I think by objective measures, measures Krugman himself uses, the intensity of fiscal austerity that the US experienced in 2013 is also as intense as the worst year of fiscal austerity experienced in southern Europe as a whole.