In the blogosphere’s discussion to the Krugman-Barro flap–which soon enough engulfed Russ Roberts and me–Scott Sumner has (partially) defended Krugman. Sumner too is frustrated with modern conservatives who reject Obama’s fiscal “stimulus” packages, yet do so with rhetoric that would also throw out the need for Fed monetary stimulus. I agree entirely with Scott when he writes:
If conservatives really believe “the real problem is real” then they shouldn’t be contemptuous of “Keynesian economics,” they should be contemptuous of “the entire Keynesian/Milton Friedman strand of economics.” After all, Friedman also thought nominal shocks had long lasting effects on unemployment. But they never add Friedman’s name.
Of course, Scott thinks the solution to this apparent inconsistency is for conservatives to maintain their rejection of fiscal stimulus, but to change their arguments when doing so, in order to leave room for the (alleged) benefits of fine-tuning monetary policy. In Scott’s case, he wants the Fed to do whatever must be done, in order to keep the market’s expectations of the level of nominal GDP growing on target.
Yet there is a different way to resolve the paradox: Conservatives who see the folly of “stimulus” as presented by the likes of Paul Krugman should realize that their objections also apply to the work of Milton Friedman, when it comes to monetary policy. We didn’t need just a little more deficit spending to cure the Great Depression; Hoover’s and FDR’s deficits only made things worse and prolonged the agony.
By the same token, Milton Friedman was wrong to say that the explanation for the Great Depression was an inadequate burst of inflation from the Fed. On the contrary–as the Austrians explain–it was loose monetary policy that caused the boom that collapsed in 1929.
So Scott Sumner is right that the conservatives in Obama’s America often contradict themselves; they use rhetoric against government intervention in the fiscal context that would just as well prove that the Fed should leave the economy alone, too. Scott thinks conservatives need to change their rhetoric. I think the conservatives need to start reading Murray Rothbard, starting with his take on Milton Friedman.