If You Could Ask Krugman Anything…
UPDATE: Video below!
Kojo Prah writes me:
Bob, I’m a student at Texas Tech University and I recently found out Paul Krugman will be giving a speech about the economic crisis with a Q&A at the end tomorrow the 25th. So I was wondering what question you would, if you were here, ask him.
I told him to ask, “What would you need to see, to make you change your mind on the importance of government fiscal stimulus?”
However, upon further review I would change it to:
“What would you need to see, to make your change your mind on the importance of government and Fed countercyclical policies?”
The reason for the change is that on the first version, I think Krugman would swat it away with something like, “*sigh* As I’ve written many times, I’ve been totally consistent on this point throughout my career. You only need fiscal stimulus when you’re at the zero lower bound and the monetary authorities are either too ignorant or too politically impotent to use unconventional operations. So, once we emerge from the zero bound, I too will call for reining in deficits. But that’s not the urgent danger right now.”
And, the above answer is not at all what I’m looking for. I’m basically asking, what would make Krugman stop being a Keynesian.
Of course, Mr. Prah wondered if he should bring up the Krugman Debate challenge. Perhaps because I had recently viewed the obnoxious Trump video (which Bob Wenzel was the first to bring to my attention), I told him:
Eh, I dunno. I don’t want people to be obnoxious on my behalf. Ideally you could hold up a sign or something that Krugman would see, but wouldn’t distract from the presentation to everybody.
I think it’s a judgment call you have to make.
UPDATE: Here’s the video:
Krugman’s already answered that question here:
http://krugman.blogs.nytimes.com/2011/03/19/mind-changing-events/
He singles out a surge in wage inflation as something that would lead him to a major rethinking of his views.
I vaguely remember him posting that, but I can’t read it now since my free trial this month just expired.
Here’s what he says:
“One question that comes up occasionally in comments is, what would make me change my mind about how the economy works? Associated with this is the question of whether I have ever changed my views drastically in the face of events.
[He discusses how his worldview became more Keynesian as a result of the Asian crisis in the 1990’s.]
What would it take for me to decide that I needed another major rethink? A major surge in domestically-driven inflation — in particular, a surge in wages — would do it. And there has been an uptick in core inflation measures that is a bit of a surprise; but at this point it doesn’t remotely count as the kind of discordance with theory that would require a major shift.
The point is that yes, I am prepared to change my views when the evidence warrants. Are you?”
That’s pretty good, but I don’t think he’s saying he would endorse laissez-faire if that happened. I think he’d say something like, “Whoa, the SRAS curve is steeper than I realized! We have to be more cautious in the future when exploiting the Phillips Curve.”
He would contradict himself if he did that, because he is already on record as saying what would change his mind.
“…since my free trial this month just expired.”
Depending on your feelings about the fairness of this, there is a perfectly legal workaround….
http://marklets.com/NYTClean.aspx
That would be a legitimate argument, and I’d even agree with it myself, if and only if the Fed rate was not artificially manipulated. How Krugman can possibly fail to see the circularity of such a position when every single type of bond has been deliberately and brazenly targeted for ZIRP it beyond me. No one can be that dumb, not even Krugman.
The question I would like to ask goes something like this:
You’ve often extolled the IS-LM model and you’ve explained how it rests on a simple 3-market GE model. But GE theorists gave us the Anything Goes Theorem, which in effect says that GE theory is vacuous. Doesn’t it follow that your IS and LM curves have so many possible shapes and shift-variables that IS-LM is just as vacuous?
I doubt that he’d just say “yes, that’s right” but I’d genuinely like to know what he would say. If you’re looking for a great ‘gotcha’ don’t bother, but if you’re looking for a question that might provoke an illuminating answer I’d say it’s worth a shot.
It looks like Krugman said pretty much exactly what was in his blog post, including the Asian crisis in the 90’s.
Right. Unfortunately Krugman interpreted it as “what in the past would you have needed to see” rather than “going forward, what would you need to see”.
Bob,
I am quite disappointed you have ended your posts on public debt. I was hooked. No kidding, I have just spent a long weekend in Salamanca stowed away with a stack of the classic papers from Lerner to Buchanan to Barro and others. My wife could hardly get me out of the room for tapas. You can’t beat getting back to the roots of modern western economics for a bit of inspiration.
There are so many very subtle nuances and ramifications of this argument. Does Ricardian equivalance suggest that deficit spending under less than full employment exerts a Keynesian multiplier of 0? And how do the vulgar Keynesian cranks hold to a positive multiplier, but also hold that taxing and debt issue both exert an equal present burden? Perhaps this is where Gene is headed?
Are those of us who deny the applicability of a Ricardian equivalence under real political economy constraints implicitly admitting that deficit spending indeed may have strong short term stimulative effects? Certainly we are saying that we consume more apples now?
As the weekend is now coming to a close, and we are back in Madrid listening to the the news talking over and over about the crises, I have not moved at all from Buchanan’s fundamental insight back in 1958. A trade is a trade, and it is mutually beneficial to the participants. If someone chooses to purchase a bond un coerced to change his time preference toward future income, it is perverse to state that he has engaged in any present burden. The burden comes later when taxes are raised on the non-bond holder.
Also, If we think that the market leaves lots of gains laying on the table, and the government has a better eye to spot these than private investors, then we should probably give the government command of a much larger percentage of our income, and let them make us much wealthier.
If however, we think that empirical evidence and logic deem such a view to be crazy, then one can see debt issue for what it is. It is simply a loosing long-run strategy for a nation to continue to let its debt burden grow, regardless of whether it is held externally or internally. Eventually the nation must become poorer as its productivity must inevitably decline as it slowly and progressively squanders its scarce resources. This will come at the expense of our posterity if not sooner.
To add a more depressing footnote, the public choice vital insights from Buchanan and Tullock tell us that this result is the almost foregone conclusion of a radical democratic society unhinged from strict constitutional handcuffs to bind this demon.
K Sralla I want to read those classic papers myself. Perhaps in 2013 I can come back to this. But, I needed to cut myself off because I was really falling behind on my day job…