In my last post, I suggested that Paul Krugman has not been entirely candid with his readers on the issue of how economists from the Keynesian versus rival camps predicted the movement of prices as the recession struck. Yes yes, the Austrian purists don’t like to even talk about this stuff, but it’s Krugman’s only real trump card–”We were right about inflation! Those idiots were wrong! If you believe in science, you have to support stimulus!”–so I want to make sure we understand just how slippery Krugman has been. Even I didn’t fully appreciate it until recently.
To make my point, let me just do the mirror image of what Krugman has done, and tell me if you think (a) it’s above board and (b) Krugman, DeLong, et al. would be fine with me saying the below:
HYPOTHETICAL MURPHY ANALYSIS: When we first entered this crisis, economists and economic pundits quickly sorted themselves out into two camps. One camp — the “hawks” — basically said, printing money will only make things worse; there’s no such thing as a liquidity-trap economy, and (price) deflation is not the threat right now. The other camp said that we were Japan, and that accelerating (price) deflation was just around the corner.
These differing views reflected fundamental differences in economic models — differences that tended to be associated with political leanings, although there are a handful of politically conservative market monetarists out there.
And history has given us as decisive a test of rival economic theories as I’ve ever seen. If past experience is any guide, however, all of this will make no difference. Deflation phobia does not, it seems, require any actual deflation to persist. And being a Keynesian — or, in general, being a left-winger — means never having to say you’re sorry.
So, what do you guys think? I imagine you’d say the above is rather self-serving, since it makes it sound as if the doves predicted (price) deflation, while the hawks merely predicted “not deflation.”
Yet as I said, that’s exactly what Krugman has been doing, in his frequent victory laps on the vindication of IS/LM compared to the “models” of his rivals. The above hypothetical quotation was adapted from this Krugman piece (from July 2013), but anyone who reads him even occasionally knows that Krugman has been trotting out this “as decisive a test of rival economic theories as I’ve ever seen” line numerous times. When that’s his purpose–namely, to say that if people like me had any integrity, we’d admit abject failure–he casts the Keynesians as merely predicting, “No soaring interest rates and no soaring price inflation.”
Yet in reality, that’s not what Krugman thought would happen when the crisis first struck. As I walk through in this post, Krugman in February 2010 warned that the US was about to become Japan–which in context, meant actual reductions in core CPI. As I show in the post, the particular metric he was using turned around about 7 months after that warning, and within about 18 months had returned to 2005 levels. Furthermore, if you think I’m putting words in his mouth, Krugman himself linked to that very post in April 2013, and said of his 2010 analysis: “(In that post, I worried about deflation, which hasn’t happened; I’ve written a lot since about why).”
Note the parenthetical aside, and the timing: Krugman in April 2013 is mentioning in parentheses to his reader that oh yes, as of February 2010 he was “worried about deflation, which hasn’t happened.” In other words, Krugman entered this crisis with a model that predicted how prices would move in response to the economic situation, and chose his policies of government stimulus accordingly. He was wrong, and yet maintains the same policy recommendations.
As a last kicker, just to show how little Krugman cares about people on his side not adjusting their model in light of the new data, here’s how Krugman praised David Romer’s class notes earlier this week (i.e. September 2013):
I’ve mentioned David Romer’s nice formulation of modern applied macro — the way people actually think, as opposed to the intertemporal maximization with whipped cream that’s respectable. David now informs me that he has a set of publicly available class notes (pdf) that have been regularly updated, covering that ground even better — with an extensive section on the liquidity trap.
Romer’s notes still imply that a protracted liquidity trap should lead to accelerating deflation, which doesn’t seem to happen; I think most of us have turned to downward nominal wage rigidity as an explanation. In any case, this is more or less the state of the practical art, and I’m delighted to learn that he’s put it together. [Bold added.]
You see that? When it comes to right-wingers who predicted accelerating price inflation, their failure–and continued recommendation of hawkish policies–is evidence that they are knaves or fools.
In contrast, when David Romer is still teaching students with notes that imply a liquidity trap leads to accelerating price deflation, Krugman shrugs it off following a semicolon, and says the analysis is “more or less the state of the practical art” and is “delighted to learn that [Romer's] put it together.”
What’s funny is that the fans of Paul Krugman actually believe that the only reason the people he calls fools and liars get upset, is because gosh darnit he’s just always so right. Nope, that’s not it.