Now We're Talking Sumner vs. Krugman

     I've long said that I think Krugman needs to engage Sumner more. I know he likes to avoid merely personal feuds and he's right. What matters are ideas. However, it's about ideas. Sumner has been pushing an idea that Krugman needs to push back on. Lately, he has done this a little. Maybe he's beginning to realize the stakes? Lately he has written on some important topics regarding the Market Monetarists.

    http://diaryofarepublicanhater.blogspot.com/2013/06/krugman-on-market-monetarism.html

    http://diaryofarepublicanhater.blogspot.com/2013/06/krugman-on-market-monetarism.html

    Yesterday, he was partiuclarly direct.

    http://diaryofarepublicanhater.blogspot.com/2013/06/krugman-to-market-monetarists-whose.html

    I knew this would get Sumner going. It didn't take long.

    "Here’s Paul Krugman:

Actually, before I get there, a word about self-styled conservative “market monetarists”: guys, have you noticed who your real policy enemies are? People like me, Brad DeLong, etc. are skeptical about the Fed’s ability to offset the effects of fiscal austerity, but we do want it to try. The furious academic opposition to quantitative easing is instead coming from moderate conservative macroeconomists, notably Taylor and Feldstein. So your problem isn’t just that the GOP’s effective leader on economic issues gets his macro from Francisco D’Anconia; it’s that even the not-so-silly wing of the party is dead set against what you consider reform.

     "A few points:

     That little paragraph was all it took. Sumner comes back with lots and lots of items, which he numbers, 15 of them in all. Here are a few highlights:

     

     1. The Fed should not give monetary stimulus a try; they should do it.

      Ah, but that assumes the matter under dispute-can they do it? Some doubt unconventional monetary policy is as powerful as Sumner thinks it is. Now we can debate this but as it's up for debate we can't assume it before having debated it. 

       2. We don’t favor the same monetary policy.  If we did they wouldn’t favor fiscal stimulus.

       This is the locus of the dispute. As much as Sumner wants monetary stimulus it's as if he'd be happy not to have it if it also meant there's no fiscal stimulus. Does he honestly believe that fiscal stimulus would be harmful now assuming the Fed doesn't offset it? He continues to believe the Fed always will to be sure-even though the Fed says otherwise. Bernanke was already calling for fiscal stimulus during President' Obama's transition and continues to urge Congress to do something about the sequester. 

     http://diaryofarepublicanhater.blogspot.com/2013/05/the-fiscal-multiplier-sumner-vs-bernanke.html

     What you notice is that Sumner's monetary offset theory is the only plausible way to justify the GOP sequester. 

     5.  The failure of monetary policy is partly bad motives (Rick Perry, etc) and partly ignorance.  I find it hard to believe that ignorance isn’t the biggest part.  I really can’t see how the entire western world would have created this needless catastrophe if they had know from the very beginning that the Fed and ECB could have easily prevented it, without running up debt (indeed shrinking deficits) and without high inflation.  Why don’t people understand that monetary policy could have prevented this?  When I talked to liberal intellectuals in 2008 and 2009 they almost all told me that we needed fiscal stimulus, because the Fed was out of ammunition.  When I asked them where they got that crazy idea, roughly 100% cited a certain famous Nobel-prize-winning public intellectual.

     So is Sumner claiming that somehow Krugman's influence has caused there to be less monetary stimulus than there otherwise would have? 

     8.  As far as I know no major public intellectual, on either the left or the right, has ever presented a plausible model explaining why QE is riskier than massive fiscal debts leading to an ever increasing national debt.  So why do we let the Fed get away with that excuse?  I do recall Paul Krugman warning in 2009 that QE could be risky.  Yes, he supported it anyway, but the perception of risk has unfortunately taken a lot of pressure off the Fed.  Why isn’t the economics profession demanding the Fed do more?  Why do the overwhelming majority of economists oppose a more expansionary monetary policy (despite many seeing a need for more AD?)

     Why does there need to be a model precisely to prove this? Why is fiscal stimulus always on trial rather than the reverse? Does Sumner have a model that shows that the economy would be adding less jobs now if we hadn't had the sequester? He's been crowing a lot lately as if somehow the job numbers mean the sequester makes us better off than if we hadn't had that. 

     Then he uses the Reinhart-Rogoff gloss about 'massive public debt' and 'an ever increasing national debt.' He seems to forget in this case about the record low rates we've had the last 4 years. If there were every a time for more government debt it's been with record low rates in the middle of the worst downturn since the Great Depression. 

     He seems to willfully misunderstand the point that Krugman and Keynesians always make: that during such deep downturns you expect higher deficits and debt and that's the time you want it. Debt and deficits should be countercylical. When the economy comes back, revenues will rise, driving down the deficit, while debt as a percentage of GDP will drop as GDP will be rising. 

     We had huge public debt after WWII. Yet we didn't do austerity or 'consolidation' but simply had healthy growth. By the early 70s the 'debt bomb' was defused without pain or incident. 

      9.  By taking the focus off of monetary policy, we’ve been led down a long and fruitless diversion into fiscal stimulus.  Given that the Fed is using QE and various signaling techniques to target inflation and employment, what evidence is there that the unemployment rate in May 2013 would be higher than 7.6% if we had done less fiscal stimulus?  Yes the focus is gradually returning to monetary policy, where it should have been all along.  But the fiscal diversion was incredibly costly.

       What's he talking about? We had some stimulus in 2009 and none since. It's been four years. How can he claim that the reason for our problems has been all that fiscal stimulus? We had only one bill and that was 4 years ago. Whatever the reason for the slow recovery it hasn't been because Congress keeps passing more and more stimulus. 

       10.  I have criticized Krugman more than any other single economist.  But I’ve also criticized the right on literally hundreds of occasions, including earlier today.  There is no one on the right, who also opposes monetary stimulus right now, who is anywhere near as influential and persuasive as Krugman.  He should take it as a complement that I’m obsessed with him.  I don’t waste very much time on arguments that are so obviously wrong that they are hardly worth debating.  (I.e. that inflation is the “real problem.”) His mistakes tend to be quite subtle; it’s a challenge to find flaws in his arguments.  He mentions Meltzer in the post.  A few years ago I did a post when Krugman and Meltzer first tangled–and said Krugman would be proved right and Meltzer would be proved wrong.  The old-style monetarists and the austerians have been dead in the water for several years.  I go after the only group still standing in the way of global market monetarist dominance—the Keynesians.

     There is some truth that the only schools left with any intellectual coherence are the Keynesains and Market Monetarists-this is why I've urged Krugman to engage more. As you can see after reading Diary of a Republican Hater, he took my advice. LOL. 

     I would point out that even though the inflation hawks and austerians don't have any intellectual foundation to stand on they have had a big influence on policy; that's the reason for the slow recovery, not because Krugman had some doubts about just how powerful unconventional monetary policy can be on it's own. 

       In a way what Sumner is complaining is that if Krugman had been making his argument-we should never do fiscal policy because of the hobgoblin of public debt-policymakers would have heeded him or at least taken it a lot more to heart and we'd have liked had more monetary stimulus or at least talked more about it. 

     12.  Tribalism?  Perhaps, who can really judge their own motives?  But I’d say it’s more likely annoyance at his tone, if you want to look for an “irrational” explanation for my obsession.  If Krugman didn’t exist I’d probably be obsessed with the next best annoying brilliant blogger on the left, perhaps DeLong.  Say what you will, but I don’t call Krugman a fool or a knave.  The closest was when I once called him “ignorant” but that was in response to a post where he proudly claimed to be ignorant of what conservative bloggers had to say.

    Conservatives are sensitive people. Remember when the GOP voted against TARP because Nancy Pelosi was mean to them? Meanwhile the whole Freshwater School hasn't read anything outside the school since about 1979.

      On the other hand I do agree you should keep up with what the opposition is saying. Keep your enemies closer. Notice how much I write about Sumner. 

      14.  He started it.  The very first Krugman post I did reached out for his support on monetary stimulus–he slapped me down.

      No question about it, Krugman was quite dismissive of his sincere entreaty at the time. Did you mean to address this to someone else? Still look at all the dismissive things Sumner has said about yours truly, your haplessly eager little blogger-he's asked why I blog about monetary matters as I don't know anything about them. 

         So Krugman doesn't have the market cornered on a snarky tone.