14 Jul 2010

Call the Papers! Brad DeLong Disagrees With Krugman

All Posts 4 Comments

This happens very rarely but DeLong disagrees with Krugman (HT2 Tyler Cowen).

I’d like to say that DeLong had said, “You know, on second thought, maybe Hoover wasn’t an Austrian,” but that’s not what happened.

(1) Krugman said even a helicopter drop of money can’t boost aggregate demand.

(2) DeLong says sure it can, and that’s why we should do it.

So you see, nothing to get excited about. It’s like watching the USSR fight Nazi Germany.

4 Responses to “Call the Papers! Brad DeLong Disagrees With Krugman”

  1. Jonathan Finegold Catalán says:
    at

    To be fair, I think DeLong’s point includes unfair pedantry. Krugman, in his post, writes,

    In my simple 1998 model, there’s only one way the Fed can affect things at all: by promising, credibly, to print more money in the future, when the zero lower bound no longer binds.

    So, in effect, DeLong and Krugman are actually saying the same thing. DeLong is arguing that that money does matter, because when private investment picks up (when the economy escapes from this so-called liquidity trap) then all that new money will provide “traction”.

    Krugman wouldn’t disagree. Krugman talks about the short-term, but doesn’t add the caveat DeLong does. But, Krugman is a clear supporter of inflation as a means of targeting full employment.

  2. Gringo says:
    at

    Doesn’t inflation make it easier for those who know it’s coming to go long stocks, leverage up and get richer?
    Or is it than inflation causes mal-investments and could bring a dictatorial person to reign in hyperinflation in if it’s the result?
    Why not use inflation to our advantage?
    What disadvantage does a knowledgeable person have from inflation, someone who adapts to it?

    Gringo

  3. mario rizzo says:
    at

    Interesting. Btw, if you used that analogy of the USSR vs. Nazi Germany on TV you would lose your job. It is useful to raise the point because this is how our enlightened news media proceed. One irrelevant distraction after another.

    On the issue of substance, I imagine that by saturating the system with money one could reduce the expected UTILITY yield on money held to such a low level that expenditures will almost certainly rise both in the short run and long.

  4. Daniel Hewitt says:
    at

    Krugman flip-flopped. Now he agrees with DeLong.

    http://krugman.blogs.nytimes.com/2010/07/22/joe-gagnon-is-right/