18 Jan 2013

Friday Night Magnanimity

Krugman, Scott Sumner 5 Comments

I just posted this comment over at The Money Illusion:

Scott, I don’t hope to convince you on this point, but for any innocent reader: I want to say for the record that Paul Krugman–my nemesis–has, since the late 1990s, consistently said that what Japan needs to do, to escape from the zero-bound liquidity trap, is to convince the public it will engage in future inflation.

Thus, I find it weird that when Japanese policymakers appear to be implementing Krugman’s solution, and it seems to be working just as he predicted, that Scott Sumner thinks this somehow embarrasses the Keynesians.

When Krugman is vanquished on the battlefield of ideas, I insist that it be a fair fight.

P.S. By “appears to be working” I just mean that the yen is falling, which is the evidence to which Scott points. I’m not saying the promise of more inflation by the BoJ is “working” the way Krugman/Sumner think, in terms of fixing the economy.

5 Responses to “Friday Night Magnanimity”

  1. Jason Quintana says:

    I am curious, what you think about the Japan situation? To me this looks like a perfect storm combination of massive debt, aging demographics, a dieing retirement ponzi scheme, and suicidal economic policy.

    Out of curiosity I was crunching numbers from the 2012 budget posted at the Japanese Ministry of Finance website today at work. If I understood their numbers correctly, “Debt Service” was 53% of tax revenue and Social Security was 62% of tax revenue last year. So those two expenses (excluding everything else) are 115% of tax revenue. The 10 Year Japanese Government Bonds have only been yielding around .80% and yet interest expensive eats up a huge percentage of tax revenue. Debt to GDP is around 230%. In US Dollars their debt is valued at around 14 Trillion in a country with a population of 125-130 million people.

    I can’t imagine a scenario where they will be able to go on a QE spree and get “economic stimulus” that somehow grows them out of this situation, and at the same time juggle it in a way that keeps their borrowing costs from completely blowing up and causing forced default, runaway inflation or both.

  2. Daniel Kuehn says:

    “There can be only one.”

    And Bob thinks that Krugman with Sumner powers is more easily defeated than Sumner with Krugman powers.

    *music in the background*
    I am immortal – I have inside me blood of kings
    I have no rival – no man can be my equal!

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