Poor Scott Sumner. Little does he know, I will soon write a Mises Daily article that absolutely eviscerates his “interest-income-isn’t-really-income” posts. But then on top of that, Krugman gives him the cold shoulder today:
The truth is that it’s very hard for central banks to get traction in a zero-rate world. This doesn’t mean that they shouldn’t try. But nobody is sure how much effect quantitative easing will have on long-term rates; even a decade ago, I thought Ben Bernanke was too optimistic on that front, which is why I was more of an advocate of inflation targeting — yet I was also aware that making inflation targets credible is itself tricky. Furthermore, even if long rates can be reduced, how much effect will they have? Business investment is relatively insensitive to interest rates, mainly because equipment doesn’t have all that long a lifetime. Housing is the place where the rubber usually meets the road; but not in the aftermath of a huge bubble and vast overbuilding.
So I didn’t and don’t think that we can count on monetary policy to do the job; blithely declaring that the Fed should target nominal GDP misses the difficulties. And that means we need fiscal policy.
This is really getting out of hand. I know a lot of you folks have real jobs and you don’t keep tabs on Krugman’s latest stance vis-a-vis fiscal versus monetary stimulus, but that’s why you have me. I am not going to look it up, but trust me, Krugman has flip-flopped several times on this. Back when Obama first came in, Krugman was gung-ho about the need for big deficit spending.
Then, he gradually morphed over time until he sounded just like Scott Sumner. In fact–and here I’m not even kidding–I actually sent Scott an email saying something like, “Scott, I still think you’re nuts, but you actually managed to change Krugman’s mind. That’s impressive.”
And now, just like that, Krugman repudiates the Sumner Doctrine. And he doesn’t even have the courtesy to mention Scott by name. Nobel laureates have to keep up appearances, you know.
So I was wondering what could have prompted such a turnaround. Then I recalled a recent Sumner post that the ineluctable von Pepe sent me just yesterday, in which Scott opened like this:
Paul Krugman and Joe Stiglitz are brilliant Nobel-prize winning economists. Both have been known to be somewhat caustic in their criticism of others. Most importantly, both are public intellectuals who often criticize the orthodox establishment from a liberal or progressive vantage point. I used to think they were sort of similar.
Until now. In the field of macro, Krugman >>>>>>>>> Stiglitz.
For those of you who didn’t spend your adolescent years wishing you were an android, let me explain: Scott is saying that Krugman is a much much better macroeconomist than Stiglitz.
So I think we’ve solved the mystery. Scott ramped up the affection just a bit too much, and Krugman got freaked out and needed his space. Or, if you prefer Scott’s symbolic approach:
I know! Scott, you can make Krugman jealous by lavishing praise on some other hot-shot blogger. For example, you could say, “Maybe this Murphy guy has been right all along. Maybe diverting a trillion dollars in resources to investment bankers–the very people whose bad investments got us into this mess–is a bad idea. Maybe, just maybe, central planning is bad when it comes to the printing press too.”
Go ahead and try it, Scott. Krugman will be texting you in no time. “Scott u free 4 dinner 2 talk about M2?”