Krugman Upset That Opponents Don’t Read Him Carefully
The older I get–from my wistful observation you would think I was in my 70s, wouldn’t you?–the more I agree that people criticize in others that which they (deep down) despise in themselves. For example, take Krugman today talking about Casey Mulligan:
I’ve been asked for reactions to Casey Mulligan’s piece about the failure of New Keynesian economics.The short answer is, he should try reading a bit of Keynesian economics — old or new, it doesn’t matter — before “explaining” what’s wrong with it. For the doctrine he’s attacking bears no resemblance to anything Keynesians are saying.
This is fairly typical of freshwater economists. They know that what the other side is saying is obviously stupid, so there’s no need to read it; they picked up enough about it talking to some guy in a bar, or whatever, to criticize it.
That’s rather ironic, coming from the same blogger who wrote this back in March:
Some have asked if there aren’t conservative sites I read regularly. Well, no. I will read anything I’ve been informed about that’s either interesting or revealing; but I don’t know of any economics or politics sites on that side that regularly provide analysis or information I need to take seriously. I know we’re supposed to pretend that both sides always have a point; but the truth is that most of the time they don’t. The parties are not equally irresponsible; Rachel Maddow isn’t Glenn Beck; and a conservative blog, almost by definition, is a blog written by someone who chooses not to notice that asymmetry. And life is short …
If I might drop the Freudian analysis for a second, I want to make a serious point about economics. In complaining about Mulligan, Krugman says:
So Mulligan shows us a graph indicating how much prices would have to fall, according to New Keynesians, to restore full employment. No reference to anyone actually saying this, or any model that can be used to derive that line, is presented; nor is there any explanation of how Mulligan got that line. So what is it?
It looks as if he’s assuming that nominal demand is constant, so that a fall in prices would lead one for one to a rise in real output. But where’s that coming from?
If he had read anything — anything at all — that Keynesians have written about policy at the zero lower bound, he would have learned that there is no reason to expect falling wages and prices to raise employment — in fact, quite the contrary in the face of a debt overhang.
If Mulligan wants to argue that point, fine — but he presents as “the New Keynesian position” something that is just what he imagines, on casual reflection (or, again, maybe after talking to some guy in a bar) to be the New Keynesian position.
OK, so from now on I’ll assert that the Chicago position on unemployment is that we can cure it by sacrificing goats. Hey, I heard that somewhere — no need to actually read anything they say, right?
Are you kidding me? The idea that monetary and/or fiscal policy is important because wages are sticky, is now akin to saying that we need to sacrifice goats?!
Here are some quick counterexamples:
(1) In NYU, one of the New Keynesian professors once told the class (paraphrasing), “Wages and prices are sticky, they just are, we don’t need to debate that. We can talk about why they are, but we can’t doubt that they are.” (His point was to justify the sticky-price component of the New Keynesian model he was teaching the class. Without that assumption, it would have been a bang-whiz Chicago School markets-always-work model with no role for the Fed to affect anything.)
(2) Greg Mankiw, a New Keynesian, explicitly said I was wrong because prices were sticky.
(3) Scott Sumner–whom Krugman has praised for being on “his side” of the great Demand Matters debate–explicitly blames sticky prices/wages for everything.
(4) Krugman himself–and I wish I had the time to dig up the blog post–once sarcastically ripped on Chicago School types with a line like, “So recent data from the IMF shows that wages and prices are sticky–who knew?” It was only fairly recently that I noticed Krugman shifting to the even-falling-wages-won’t-fix-this-slump position. In particular, Krugman started saying that when Republicans and right-wingers began saying that labor unions and unemployment insurance were at fault for holding up wages. I.e. I didn’t see Krugman going out of his way to make the “if you had read anything–anything at all” point until it looked like right-wingers were calling the Keynesian bluff and saying, “OK, if the problem is sticky wages, then let’s knock down wages.”
In summary, I’m not claiming that Krugman invented this doctrine in the last year. Rather, I am saying he is nuts for claiming that only willful ignorance could lead a Chicago School economist to think that “sticky prices and wages” play a huge role in the standard New Keynesian explanation for involuntary unemployment.
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I’M STARTING WITH THE MAN IN THE MIRROR.
Now since I have pointed out that people’s criticisms of others actually reflects their subconscious views of themselves, let me acknowledge that the same holds for me. I mean, that guy Charlie Sheen really ticks me off. Just because he’s incredibly good looking and women throw themselves at him, he acts like he’s a big deal. I really wish he could handle his shocking good looks and charm more responsibly.
(See what I did there?)
I’m more of Brad DeLong’s position on Mulligan, and agree with him that Krugman was a little hard on Mulligan, but Krugman doesn’t seem to be saying that prices aren’t an issue – he seems to be saying “make prices not sticky” is not the NK response because of the special conditions of this downturn w.r.t. the zero lower bound. Krugman never says “prices/wages aren’t sticky” – what he says is that falling prices aren’t effective. I don’t think we need to review why Keynesians think they aren’t effective.
I’m of the opinion that Mulligan is right that the sticky-wages point is starting to look unconvincing. Sticky wages and prices don’t explain two years of wages and prices that stay too high. This is the point I’ve been trying to make to Brad DeLong recently over the issue of general gluts and monetary disequilibrium. Where that ought to lead is to precisely the stuff that Krugman mentions and that Nick Rowe has been talking about – and away from sticky prices as the be-all end-all.
Krugman’s probably right that there has been integration of old Keynesianism into a lot of the New Keynesian work that Mulligan ignores in the blog post. But Mulligan’s right that price stickiness plays an AWFULLY big role.
The line should have been “we’re all Pigovians now”.
Why do you even bother? It’s obvious Murphy has no interest in evidence or logic. He’s just a bad joke.
I’ll critique Bob insofar as I think he has a hard time giving Krugman a fair shake, but he certainly is sincere about trying. He’s not a joke (out of zombie costume he’s not, at least).
Okay, how is he not a joke?
He’s talked about the Fed causing food prices to rise, apparently ignoring the rise in food commodities versus the Australian dollar, for example.
In fact, he doesn’t even understand that we can not have a demand-driven inflation problem with an output gap, which is one of the very most fundamental facts of economics. References to Zimbabwe abound…
He doesn’t even understand inflation. Behold:
http://mises.org/daily/3933
Does it look like he has a clue?
My god, economists have nothing better to do? I’m not an economist and even I’m starting to vomit in my mouth before I giggle lately.
These people are wrong about just about everything. they’re flat earthers. Why do you even bother to actually try to treat them as equals?
There’s no such thing as an “output gap”. It’s just another garbage Keynesian “concept” meant to confuse the weak-minded.
In fact, he doesn’t even understand that we can not have a demand-driven inflation problem with an output gap, which is one of the very most fundamental facts of economics.
Thank you David for continually proving that I am not attacking a strawman when I say this is what some people think. Not only do you seem to believe it, but you are saying it is one of the most fundamental facts of economics. I now leave you and Kuehn to duke it out, if you so choose, since he’s always telling me that no Keynesian would ever be so dumb as to believe that in the naked way you just stated it.
Well Bob, if I’m dumb, that’s fine, but I can celebrate being lucky at least. That is, extraordinarily lucky, given how well my model of the economic world fits and predicts the data and how much it’s benefited. I can live with just being lucky.
Now, do you actually have an explicit model that explains the economic data over, well, any period in the last century?
You have to get to capacity before demand-driven inflation begins to grind an economy down. lol
And to respond to this quote below, since there’s no room to put it down there,
“I don’t care if you rip on me, but let’s please be civil to the other guests here. For someone who is always laughing, you seem to be a bit cranky.”
Feel free to fill the void of evidence on your side here. Otherwise, mockery will fill the void. I’ve never seen any economics from you or anyone who agrees with you.
Feel free to fill the void of evidence on your side here. Otherwise, mockery will fill the void. I’ve never seen any economics from you or anyone who agrees with you.
OK, and I’m just letting you know that if the mockery continues at the level of personal insults, I may have to start editing out your “contributions.” I give wide latitude and I’m here giving you a warning. If you want to say Austrians lack evidence etc. that’s fine, but please watch your tone in the future.
Regarding the NYU professor… this wasn’t in response to a persistent, bordering on pestering young Austrian student who was incredibly good looking, not unlike Charlie Sheen, was it?
No, and in fact I wasn’t even in the class. The other American was, and he told me about it.
Also, I didn’t probe too much in class. I did more than others, but I actually don’t like personal confrontation.
Hm, I think the problem is actually that Krugman is confusing real and nominal wages. The standard Keynesian position is that workers have to be “tricked” into accepting lower *real* wages by pumping up *nominal* wages slower that inflation. Keynesians only claim that falling *nominal* prices/wages exacerbate a recession, which (I think) Mulligan isn’t claiming.
Or am I wrong about Mulligan? From what limited context I have, he’s pointint to the required *real* drop in prices, which a Keynesian is supposed to be happy with, so long as nominal prices don’t contract.
Never mind — Mulligan *is* talking about real wages needing to fall, but he’s doing it by comparing how much nominal wages would have needed to fall given the actual CPI (nominal prices).
On what planet do Keynesians not want to use monetary expansion to make workers accept lower real wages, though?
I’m not sure Silas. Did you try reading the link from Krugman’s post? (It may not have carried through in my pasting.) I.e. go to where Krugman links when he says “if they had read anything–anything at all–they would know”…?
I *think* it might go like this: Even if nominal wages and (most) prices are flexible, even so the nominal interest rate is stuck at 0%. So real rates can’t go negative, even if wages can plummet.
But if that *is* the argument, then I think I blew it up in the post that Mankiw was mocking. If prices across the board fall, and then people think they will zoom upward next year, then a 0% nominal interest rate is (say) a -10% real interest rate. QED.
I just read it, and Krugman seems to agree with my characterization of Keynesians — that inflating the money supply would e.g. allow workers to pay off their more expensive debts, even if their wages didn’t keep up with inflation. The problem is only wage stickiness on the downward, nominal side — of course wages can go up nominally with no problem, which is why they want to inflate away the stickiness.
Krugman believe the increased money supply can work through vectors other than interest rates.
But I’m a bit lost because I don’t know what of my other points your post is replying to.
But Bob. You know the old Keynesian trick – argue that, due to downward price and wage stickiness, we get quantity adjustments in a recession, i.e., falling output and rising unemployment. But, once we’re in the recession, they argue that the quantity adjustments would be even bigger if prices/wages weren’t sticky(!).
To sum up, their position seems to be “bad things happen because markets don’t equilibrate but thank god they don’t because then where we would be!”.
Seriously though, I wonder if the issue is one of market equilibration for a given level of monetary accommodation or a given monetary stance (what you’re talking about) vs. a fall in the general price level or deflation due to excess money demand which is exacerbated by high levels of debt fixed in nominal terms (what Krugman’s talking about). Maybe?
Keynesians implicitly presume a priori that people are too stupid to realize that prior funny money dilution has caused mal-investments making everyone poorer and that their wage and price demands are a priori too high for their own good. They also presume a priori that enlighted elite Keynesian bureaucrats are much smarter than these dumb people who are demanding too high wages and prices and that it is OK for the smarter Keynesian bureaucrat to debase the money of the dumb peon (for his own good).
Doesn’t their excessive and unjustified reliance upon a priori assumptions render Keynesianism a religion?
Is there any school of economics that is different from religion?
The Austrian School is different from other “schools” because we explicitly note and rely upon the profound lack of knowledge of individual human beings. The other “schools” presume a form of mass stupidity on the part of average people and presume some sort of omniscience and good intentions on the part of themselves or the overseers of the masses they might appoint. Non-libertarians seem to hold a deeply spiritual and mystical belief in the efficacy of SWAT teams.
I agree that Austrianism is based entirely on ignorance.
Of course, you’ve done nothing but demonstrate your complete ignorance of Austrian concepts. Why are you so inclined to humiliate yourself in public?
Which I why I’ve directly quoted Mises, Rothbard, etc. while ripping them apart. lmao Austrians will always be jokes. When the economy eventually recovers, they will be forgotten jokes.
“…When the economy eventually recovers….”
These aren’t the droids you’re looking for.
Since they’ve written 5000 books and articles, quoting them is easy. You haven’t the slightest understanding of what they have said.
Keep it up. Your ignorance is an inspiration to us.
Tell you what Bob, give me a unique model any of them has produced and demonstrate its utility.
Roger Garrison has lots of models.
http://www.auburn.edu/~garriro/macro.htm
That link leads to some Powerpoint presentations about Keynesian and Hayekian models. lol There is no empirical data here at all and the material is at a sub-econ 101 level. lol I guess that’s the best you can do. You need to take an econ course, if you think you can handle it, sport.
Worse, anyone who’s taken econ 101 can see Hayek is wrong. Somehow, you’ve managed to underwhelm my already almost nonexistent expectations of competence from you. What should I expect? lol
You’re a joke and this is why you’ll always have to work for a living, especially if you support cutting Social Security and Medicare retirement benefits and get your way. lol
Hey David,
I don’t care if you rip on me, but let’s please be civil to the other guests here. For someone who is always laughing, you seem to be a bit cranky.
So a kid with a bad attitude who writes “lol” after every second sentence thinks “anyone who’s taken econ 101 can see” that a Nobel-Prize winning economist is wrong? Wow, this really impresses me. Lol, rotfl.
Like all non-Austrians, you have demonstrated for the world your complete lack of familiarity with even basic Austrian concepts. Your only purpose here is to demonstrate typical Keynsian anti-intellectual bullying and name-calling. What else do you have?
Tell you what, how about you show me how the particular Austrian models you subscribe to explain recent market data. Go back at least a few years, if you want. Or, even try to explain the last few months. lol
You have nothing. I can tell you’re a peasant and will always be one. I retired young based on my econ understanding.
Just different religions with different spiritual and mystical beliefs, that’s all. Fortunately a few of us don’t worship SWAT teams or shiny precious metals.
re: “They [Keynesians] also presume a priori that enlighted elite Keynesian bureaucrats are much smarter than these dumb people who are demanding too high wages and prices “
I am not aware of the existence of a single Keynesian who thinks this.
Which isn’t to say that there aren’t a few out there, but it ain’t the Keynes talking if there are.
Then why can’t the peons figure out the “correct” wage or price to demand and be allowed to negotiate those wages and prices? Why must prices and wages be manipulated by presumably smarter bureaucrats supported by SWAT teams? Wages and prices can’t be literally “sticky”. For wages and prices to be “sticky”, people must be too dense to lower their real wages and prices to market clearing rates. They must be tricked into lowering their wage and price demands by the unseen effects of money dilution.
Actually, Keynesians probably don’t “think” this. They refuse to think through the policies they insist upon inflicting on others.
You are free to lower your real wage as much as you want. No SWAT team will be sent in order to prevent you.
Except for minimum wage laws.
They apply to nominal wages. So he is free to pay twice as much for anything and lower his real wage. Or quit.
Not if there are price controls…
Oh come on Robert, who is controlling how much you charge for your speeches and financial advice? No SWAT team controls such a waste of human endeavour.
Sp please show us how your real wages are not sticky and cut them in half (and send me the difference).
Further, if you are going to presume that all or a major portion of the peons are way too dumb to know what price or wage to demand, shouldn’t you at least give a three hour interview to each such person so that you have the data necessary to support your presumption? Otherwise, you are just like a religious Austrian who doesn’t believe in data.
“I will read anything I’ve been informed about that’s either interesting or revealing; but I don’t know of any economics or politics sites on that side that regularly provide analysis or information I need to take seriously.”
It’s good to see Krugman has come to terms with the academic consensus regarding himself. Accepting that you have a problem is the first step on the road to recovery.
I could have sworn that “sticky wages” was one of the cornerstones to Keynesian theory, and that reducing real wages was their cure. Am I wrong in this?
OK I did a bit of digging, and in fairness I should say that Krugman (as opposed to other New Keynesians) has been pretty consistent on this. The best thing I could find where he seems to subscribe to the “heard in a bar” version of New Keynesian is this post.
Silas et al., if you want to see Krugman walk through why sticky wages and prices are relevant, but a little downward shift won’t save the day, this is the best I found. (That may be the one he himself linked to; I never clicked it.)
That’s what I went to the first time…
“The idea that monetary and/or fiscal policy is important because wages are sticky, is now akin to saying that we need to sacrifice goats?!”
Bob, he’s making a joke: If you get to attribute things to the other side with no referencing, hey, why not attribute something really wacky to them!
Right Gene, I get that. And I’m saying, there are PLENTY of references to New Keynesians saying we need to pump up AD because of sticky prices. In fact I listed several examples in my blog post.
Now you’re saying I am not only dogmatic but lack a sense of humor? Man oh man.
Casey Mulligan responds to Krugman here:
http://caseymulligan.blogspot.com/2011/05/new-keynesian-references.html
Thanks I’ll check it out.
Now I’m singing Michael Jackson to myself…”I’m starting at the man in the mirror!”
http://www.youtube.com/watch?v=oLXYiF_BdAs
NA NA NA! NANANA! NANANANA!!! NANANA!