Scott Sumner complains that NK has disappeared when Krugman had said it's just taking a hiatus.
"In 2009, economists like Paul Krugman assured us that the abandonment of NK orthodoxy was temporary, that “everything’s different” at the zero bound. Fiscal policy can be effective when the Fed is out of ammo."
"You might complain that it’s unfair to tie Keynesians to the 1990s version of their model. Things change, and new hypotheses are dreamed up. Maybe there are mysterious “hysteresis effects” that allow demand stimulus to boost long-term growth. It didn’t work in Brazil, but hey, maybe it could work here. So shall we treat Krugman’s recent musings as an interesting new hypothesis, something to study and discuss? I’d be happy to, but Krugman himself won’t allow it. In a mind-boggling tone-deaf post he trashes Timothy Taylor (a moderate who supports fiscal stimulus during recessions). "Here’s Taylor’s response:
"Paul Krugman was “quite unhappy” with a paragraph in my blog post last Monday concerning “Secular Stagnation: An Update.” In his characteristic high-decibel mode, Paul manages in a single post to use the phrases “both wrong and, to some extent, cowardly,” “change the subject,” “actually engaged in an act of evasion,” “refusing to take sides is a dereliction of responsibility,” and more.
"If that’s how he reacts to Taylor, I sure hope he never reads my posts. Unlike Taylor, I don’t even think that what Taylor calls the “2009-2012” fiscal stimulus helped, and can’t help noticing that GDP growth accelerated slightly immediately after it ended."
http://www.themoneyillusion.com/?p=31394#comments
I'd love to see him read Sumner myself in that case. In all seriousness, I often wish Krugman would occasionally respond to Sumner just to keep him, uh, honest.
If NK with it's preference for monetary over fiscal stimulus is over-I'm not so confident-then all the better. A feature not a bug.
Ok, as long as Sumner is taking Timothy Taylor's side let's look at what he's saying. First Taylor says that the secular stagnation theory is not just about demand but the famous 'structural issues.'
On 2009-2012 fiscal policy, he says this:
"On the topic of fiscal stimulus, Krugman writes: "First of all, we did not, repeat not, have massive stimulus." As evidence, he offers a chart on the budgetary effect of one piece of legislation: the American Recovery and Reinvestment Act of 2009. Paul concludes that because this one law had an effect of 2% of GDP, total fiscal stimulus was 2% of GDP. But as I assume Paul knows perfectly well, one law doesn't summarize fiscal policy. Here's a graph showing budget deficits since the 1930s as a share of GDP. The deficits for the four years from 2009 to 2012 (9.8%, 8.7%, 8.5%, and 6.8% of GDP, respectively) are the four largest annual deficits since 1930, barring only the deficits of the World War II years. (And yes, if you would prefer to look at cyclically adjusted deficits, CBO estimates still say that 2009-2012 were the four largest annual deficits since World War II.)"
http://conversableeconomist.blogspot.com/2015/12/response-to-krugman-more-on-secular.html
Right, but this doesn't tell you how much of the deficit was structural vs. cyclical.
"As I've written on this blog a number of times, I think those very large budget deficits from 2009-2012 were overall a worthwhile and useful policy (although like most people I would have had some personal preferences in how to tweak the details). Overall, the ratio of US debt held by the public to GDP rose from about 36% in early 2008 to a debt/GDP ratio of 72% by early 2013-- a rise of 36 percentage points. As I've written before in this blog"
"For comparison, the sizable Reagan budget deficits of the 1980s increased the debt/GDP ratio from 25.8% in 1981 to 41% by 1988—a rise of about 15 percentage points over seven years. During the George W. Bush years, the debt-GDP ratio went from 32.5% in 2001 to 40.5% in 2008—a rise of 8 percentage points in eight years. Going back to the Great Depression, the debt/GDP ratio rose from 18% of GDP in 1930 to about 44% in 1940 – a rise of 26 percentage points over 10 years. The only comparable U.S. episodes of running up this kind of debt happened during major wars. For example, the federal debt/GDP ratio went from 42.3% in 1941 to 106.2% in 1945—a rise of 54 percentage points in four years. From this perspective, the fiscal stimulus from 2008 to 2012, as measured by the rise in the debt/GDP ratio, has been about about two-thirds of the size of World War II spending."
"In 2009, economists like Paul Krugman assured us that the abandonment of NK orthodoxy was temporary, that “everything’s different” at the zero bound. Fiscal policy can be effective when the Fed is out of ammo."
"You might complain that it’s unfair to tie Keynesians to the 1990s version of their model. Things change, and new hypotheses are dreamed up. Maybe there are mysterious “hysteresis effects” that allow demand stimulus to boost long-term growth. It didn’t work in Brazil, but hey, maybe it could work here. So shall we treat Krugman’s recent musings as an interesting new hypothesis, something to study and discuss? I’d be happy to, but Krugman himself won’t allow it. In a mind-boggling tone-deaf post he trashes Timothy Taylor (a moderate who supports fiscal stimulus during recessions). "Here’s Taylor’s response:
"Paul Krugman was “quite unhappy” with a paragraph in my blog post last Monday concerning “Secular Stagnation: An Update.” In his characteristic high-decibel mode, Paul manages in a single post to use the phrases “both wrong and, to some extent, cowardly,” “change the subject,” “actually engaged in an act of evasion,” “refusing to take sides is a dereliction of responsibility,” and more.
"If that’s how he reacts to Taylor, I sure hope he never reads my posts. Unlike Taylor, I don’t even think that what Taylor calls the “2009-2012” fiscal stimulus helped, and can’t help noticing that GDP growth accelerated slightly immediately after it ended."
http://www.themoneyillusion.com/?p=31394#comments
I'd love to see him read Sumner myself in that case. In all seriousness, I often wish Krugman would occasionally respond to Sumner just to keep him, uh, honest.
If NK with it's preference for monetary over fiscal stimulus is over-I'm not so confident-then all the better. A feature not a bug.
Ok, as long as Sumner is taking Timothy Taylor's side let's look at what he's saying. First Taylor says that the secular stagnation theory is not just about demand but the famous 'structural issues.'
On 2009-2012 fiscal policy, he says this:
"On the topic of fiscal stimulus, Krugman writes: "First of all, we did not, repeat not, have massive stimulus." As evidence, he offers a chart on the budgetary effect of one piece of legislation: the American Recovery and Reinvestment Act of 2009. Paul concludes that because this one law had an effect of 2% of GDP, total fiscal stimulus was 2% of GDP. But as I assume Paul knows perfectly well, one law doesn't summarize fiscal policy. Here's a graph showing budget deficits since the 1930s as a share of GDP. The deficits for the four years from 2009 to 2012 (9.8%, 8.7%, 8.5%, and 6.8% of GDP, respectively) are the four largest annual deficits since 1930, barring only the deficits of the World War II years. (And yes, if you would prefer to look at cyclically adjusted deficits, CBO estimates still say that 2009-2012 were the four largest annual deficits since World War II.)"
http://conversableeconomist.blogspot.com/2015/12/response-to-krugman-more-on-secular.html
Right, but this doesn't tell you how much of the deficit was structural vs. cyclical.
"For comparison, the sizable Reagan budget deficits of the 1980s increased the debt/GDP ratio from 25.8% in 1981 to 41% by 1988—a rise of about 15 percentage points over seven years. During the George W. Bush years, the debt-GDP ratio went from 32.5% in 2001 to 40.5% in 2008—a rise of 8 percentage points in eight years. Going back to the Great Depression, the debt/GDP ratio rose from 18% of GDP in 1930 to about 44% in 1940 – a rise of 26 percentage points over 10 years. The only comparable U.S. episodes of running up this kind of debt happened during major wars. For example, the federal debt/GDP ratio went from 42.3% in 1941 to 106.2% in 1945—a rise of 54 percentage points in four years. From this perspective, the fiscal stimulus from 2008 to 2012, as measured by the rise in the debt/GDP ratio, has been about about two-thirds of the size of World War II spending."
But why would you compare the post Great Recession period to the Reagan or George W. Bush years, neither of had this sort of economic pain?
As for the 30s, there you go-maybe we''d have been further along by 1940 if public debt had been allowed to increase more. Only when we took off the fiscal shackles in WWII do we really put it behind us.
I noticed someone in Scott's comments pointed out some things Taylor wrote that Sumner wouldn't agree with, and Scott responded that he didn't agree with either Krugman or Taylor.
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