The latest issue of Agenda in which my paper in the previous post is published contains a symposium titled: Krugman on Economics in the Light of the Crisis. My colleagues Don Harding and Jan Libich have a piece there called: Froth and
Bubble: The Inconsistency of Paul Krugman’s Macroeconomic Analysis. Their summary reads: ‘ We have documented the changing state and consistency of Paul Krugman’s macroeconomic policy analysis. The contrast between his assessment of 2002/2003 and 2008/2009 is so large and the justification for the changed view so ephemeral that we feel his policy recommendations no longer have the required consistency and coherency. Rather than being the substance that nourishes public debate they seem to conceal the substance.’
I agree that Krugman does display inconsistencies but still think, nevertheless, that the criticisms Krugman makes of macroeconomics are correct. John Quiggin in this collection quips that economics indeed places much emphasis on logical consistency but that consistency is hardly a virtue when you always get it consistently wrong. I agree with Quiggin that real business cycle theory seems a particularly preposterous fantasy – Ed Prescott is alledged to have claimed that Obama caused the current US recession because zealously rational US workers anticipated higher taxes following the election of a socialist-Islamist!
Economist who push this drivel have lost the capacity to think. Their models have infected their brains with a virus that contaminates their core vision. (107)
The Harding/Libich article is very unfortunate, especially as I’ve generally admired Don’s work. The charge of inconsistency rests almost entirely on a failure to perceive the obvious irony in Krugman’s 2002 remarks about the need for another bubble.
It’s slightly more reasonable to observe that, while Krugman generally holds the standard Keynesian line – long run budgets must balance, but short term recessions need deficits – he places different relative emphasis at different times. Still, I don’t find any big inconsistency in his line.
John, can you support your ‘irony’ conjecture with any evidence? We read all of Krugman’s media pieces and to our knowledge he never resorted to this kind of explanation. As we note in the article what he did say was: ‘It wasn’t a piece of policy advocacy, it was just economic analysis.
On the issue of fiscal policy, the inconsistency was not about his fiscal policy recommendations you comment on, but about claiming now that the debt was not a problem, whereas he considered a much smaller debt (with much better economic growth prospects) a huge issue in 2003.
Here’s Krugman from 2005, in a piece entitled “Running Out of Bubbles” http://www.pkarchive.org/column/052705.html observing that “America’s housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble.”
Unless you are proposing a big shift in position between 2002 and 2005, it’s impossible to read Krugman as advocating bubble policies, leaving aside the obvious point that no one who advocates bubble policies uses the word “bubble”.
At most, you can read the 2002 piece as saying something like “given past failures, the Fed has to either accept continued recession or inflate another bubble”.
And again, your claim that he now says “debt is not a problem” is a total misreading of this recent piece, which is entirely consistent with what he was saying in 2003
http://krugman.blogs.nytimes.com/2010/03/05/debt-is-a-political-issue/
The point is not that “debt is not a problem”, but that the chronic irresponsibility of the Republicans, rather than the actual level of debt, is what threatens the future.
John, no one in the right mind would ever openly advocate a bubble.
The bubble quote just epitomizes Krugman’s sustained push for a stronger monetary expansion in the early 2000s, which we contrast with his pointing the finger at Greenspan as the number 1 villain of the crisis.
Jan, if you agree that no one in his right mind would openly advocate a bubble, then there are only two possible interpretations of Krugman’s 2002 statement, on which you rely heavily
(i) Krugman was not in his right mind at the time; or
(ii) He was not advocating the policy he described as “creating a bubble”, but was instead pointing out that this was the only option available to the Fed
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