Krugman Gives Aid and Comfort to Scott Sumner

     Hostilities with Sumner have maybe decelerated a little from tthe more or less otal nuclear blog warfare we saw last weekend.

      http://diaryofarepublicanhater.blogspot.com/2015/06/scott-sumner-mark-sadowski-jason-smith.html

     I compimented him on a somewhat imrpoved tone-which no doubt didn't please him all that much.

     http://diaryofarepublicanhater.blogspot.com/2015/06/scott-sumner-takes-it-down-notch.html

     He corrected me that his views haven't changed but his framing has.

     http://diaryofarepublicanhater.blogspot.com/2015/06/sumner-hasnt-changed-his-mind-but-has.html

     Which is fine. Framing effects are very important. It seems if nothing else there may be some perhaps small thawing where maybe he's trying to have a conversation with Keynesians rather than gloat about dancing on their graves.

    That's a modest development at best and let's not get too optimistic that even this has happened. But I can accept that even if it is neither he nor I have suddenly undergone a lobotomy and are divested of all our beliefs and principles.

   That being the case he continues to give the Keynesians grief. Here Krugman gave him that rear thing that I wish he hadn't. Even when there is nothing to go on Sumner can make some pretty heave weather but now Krugman seems to have given some plausibility to Sumner somehow having 'won a bet' against him in 2013.

   To say this with Sumner is just throwing red meat in front of a bear and I wish Krugman could have at least organized his own thoughts more before he said it:

   "Keynesians certainly did argue that the sequester would be a drag on the US recovery, and the economy did in fact continue to recover despite this drag. But in considering the events of 2013 you need to bear in mind two important things."

   "First, in Keynesian models the economy’s rate of growth depends, other things equal, on the change in fiscal policy. The sequester certainly imposed fiscal tightening; but was it more or less than the fiscal tightening that took place over the previous couple of years, as the ARRA faded out and state governments continued to retrench?"

    "According to the IMF’s estimates (which are similar to other estimates), there was indeed fiscal tightening in 2013 – but the pace of that tightening was no faster than it had been in 2012 or 2011. So there is no reason we should have seen a sharp growth slowdown, and the fact that growth persisted is in no sense a refutation of Keynesian economics."

    "I know what the response will be: “But you said blah blah blah!” So what? Even if I did, and even if my remarks aren’t being taken out of context, I am not the Oracle of Keynes, and my fallibility says nothing about how the economy works. If gotcha is all you’ve got, then you’ve got nothing."

    http://krugman.blogs.nytimes.com/2015/06/22/2013-and-all-that/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

       However, the damage is done. Sumner seizes on this. Krugman here is mistaken: Sumner usually has nothing but this gives him something:

    " Recently I see some positive signs of consensus.  Back in 2012 there seemed to be a huge split between the “deficit scolds” who insisted that we shrink the budget deficit, and Keynesians who suggested that it was a nutty idea.  At the time, I was under the misapprehension that many Keynesians thought a massive and sudden reduction in the federal budget deficit would constitute “austerity” and hence would slow growth.  Now that the dust has settled, we can calmly look at the data:

Calendar 2012:  Budget deficit = $1061 billion

Calendar 2013:  Budget deficit = $561 billion

     "A reduction of $500 billion in one year.  I used to be under the impression that Keynesians thought this would be a disastrous policy that sharply slowed growth. I’m now happy to report that I was wrong. (Who says I never admit I was wrong?) The new, new, new Keynesian consensus seems to be that the deficit reduction shown above does not constitute the sort of austerity that would be expected to slow growth."

    "I was under the impression that massive tax increases and cuts in transfer spending were contractionary.  Now I’m happy to report than only cuts in government consumption seem to count.  (Has Christina Romer been informed yet?)

     http://www.themoneyillusion.com/?p=29788

     Again, it's framing effects. 

     "So we have a new consensus, which spans the ideological spectrum.  Yes, Federal government officials, go ahead and slash the budget deficit by $500 billion in a single year by raising taxes and cutting spending.  Just don’t touch government consumption.  It’s OK, it won’t slow growth.  Who says economists can never agree on anything?"

     Sumner is framing it in a way to take some license. Of course, he's putting words in the mouth of Keynesians that they wouldn't agree with. Sumner is being categorical here but in a previous post he for once showed more context. 

     "In 2001 President Bush said we needed to cut taxes to give the economy a boost.  Paul Krugman opposed the tax cut.  At the time I supported it for supply-side reasons, although in retrospect it was probably a mistake.  What can we infer from all this?"

     "Fiscal stimulus need not involve any increase in the size of government.  Indeed it can lead to smaller government.  In the long run if the government collects less revenue it will have to spend less (yes, “starve the beast” is true as a long run proposition.)  From my perspective, what I now think made Bush’s tax cut a mistake was that it was a missed opportunity to do tax reform, and also he boosted spending sharply, running up substantial deficits during the boom years (when the government should run surpluses.)"

     http://www.themoneyillusion.com/?paged=2

     The policy that Keynesians really opposed in 2013 was the federal sequester that hit both domestic and military spending. As many Keynesians are also liberals they were somewhat torn on the $250 million dollars in military spending but most thought the way the cuts were done was too fast and done in a stupid across the board way that was harmful. 

     As for the tax hikes no Keynesian model I'm aware of believes that the expiration of the Bush tax cuts for the top 2 brackets would have much negative effect on growth. 

     Overall, to me Sumner and the anti Keynesians are the ones making the heavy weather so the burden of proof is on them. They have to show in a counterfactual way that:

     If we hadn't had austerity in 2013 the economy would have grown no more quickly than it did so. If they can't then as Krugman says they truly do have nothing. 

     P.S. What Sumner is doing is presuming that there is either full monetary offset or none at all. But why can't it be that QE3 say offset austerity 65% of the way or 35%, etc. 

    P.S.S. Jason Smith argues that the deficit reduction that Sumner shows all came via payments the government recovered from Fannie and Freddie. 

     http://informationtransfereconomics.blogspot.com/2015/06/always-look-at-data-keynesian-economics.html?showComment=1435439469066#c3135100028962797058

     That confuses me a little as you can show that the $500 million deficit is the exact same number as the sequester.