One Last Post on Russ Roberts and Me Commenting on Krugman vs. Barro
The only reason I am posting this is that several people seem genuinely unaware of what point Russ Roberts and I were making in the recent blog war. (Here’s a summary in case you’ve stumbled upon the present post.) Let me try one last time to explain. If I can save just one reader, my 20 minutes will not have been spent in vain.
First: We all agree that when it comes to the policy issue of extending unemployment insurance, the important, scholarly issue at stake in terms of the pure economics is whether an extension of unemployment benefits will increase or decrease employment. There are standard, textbook supply-side arguments about why such a move will increase unemployment. There are standard Keynesian demand-side arguments for why such a move will decrease unemployment. So the question now is: Which effect is stronger?
Now then, we all know that Robert Barro came down on the side of the former, while Paul Krugman came down on the side of the latter. But let’s look and see how they actually presented their respective cases to the public, Barro for the WSJ readers and Krugman for the NYT readers.
Here’s Barro in his 2011 piece (the one that Krugman linked in his recent critique):
The overall prediction from regular economics is that an expansion of transfers, such as food stamps, decreases employment and, hence, gross domestic product (GDP). In regular economics, the central ideas involve incentives as the drivers of economic activity. Additional transfers to people with earnings below designated levels motivate less work effort by reducing the reward from working.
In addition, the financing of a transfer program requires more taxes…These added levies likely further reduce work effort…
Yet Keynesian economics argues that incentives and other forces in regular economics are overwhelmed, at least in recessions, by effects involving “aggregate demand.” Recipients of food stamps use their transfers to consume more. Compared to this urge, the negative effects on consumption and investment by taxpayers are viewed as weaker in magnitude, particularly when the transfers are deficit-financed.
Thus, the aggregate demand for goods rises, and businesses respond by selling more goods and then by raising production and employment. The additional wage and profit income leads to further expansions of demand and, hence, to more production and employment.
And of course, Barro then goes on to explain why he thinks the incentive side wins the argument.
Now let’s look at how Krugman handles this tradeoff between incentives versus demand-side effects:
But I thought I could squeeze out a few minutes to talk about something I’ve been thinking about a lot lately: the remarkable extent to which powerful groups, including a fair number of economists, have rejected intellectual progress because it disturbs their ideological preconceptions.
What brings this to mind is the debate over extended unemployment benefits, which I think provides a teachable moment.
There’s a sort of standard view on this issue, based on more or less Keynesian models. According to this view, enhanced UI actually creates jobs when the economy is depressed. Why? Because the economy suffers from an inadequate overall level of demand, and unemployment benefits put money in the hands of people likely to spend it, increasing demand.
You could, I suppose, muster various arguments against this proposition, or at least the wisdom of increasing UI. You might, for example, be worried about budget deficits. I’d argue against such concerns, but it would at least be a more or less comprehensible conversation.
But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal and famous economists like Robert Barro — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!
You guys really don’t see the difference between Barro’s treatment and Krugman’s? In particular, do you still not see how it’s hilarious that Gene Callahan thought he was defending Krugman by writing, “I’m sorry [David Henderson], but [Krugman] does not “disown” his previous argument AT ALL: zero, zilch, nada. You have not even shown him mentioning it!”
Last thing: The only defender of Krugman of whom I am remotely sympathetic in all of this is Scott Sumner (here and here).
Oh Bob, Bob, Bob, Bob.
You choose not to quote Barro saying both that the Keynesian explanation is miraculous and magical.
Now let’s look at Krugman’s over-arching criticism. He criticizes Barro for being anti-science. Now that’s clearly laying it on thick, I’ll concede that. There’s no doubt at all Barro is a prominent and respected social scientist.
But how would you react to a respected scholar that calls plate tectonics or evolution by natural selection “miraculous” and “magical”.
Would you raise an issue with that? Consider it “anti-science”?
I would.
So maybe Krugman lays it on thick, but let’s make sure we are being honest about what is going on here.
“As I said above – THAT should be the real question here: who is right about the effect of UI.”— Daniel Kuehn, telling us what the actual scientific issue at stake is, putting aside snarky personal insults and over-the-top rhetoric.
Given that criterion Daniel, I thought this post would be just what you were hoping for. I guess we’re all really disappointed this week.
Hey, if it were me, Sumner, and Jonathan we’d be talking about AD and UI.
Given that the discussion went the other way it’s at least worth noting why it’s not worth getting mad at Krugman over.
To be accurate, no Keynesian, let alone any economist, has actually succeeded in showing that increases in consumer spending increases employment, either in a depression or with only frictional unemployment.
Correlations don’t work, because one could argue that employment would have been even greater had relative consumer spending been smaller than what it was.
The theory doesn’t work, because it contradicts the a priori knowledge that demand for commodities is not demand for labor.
———————-
Also, the fact that Barro “laid it on thick” with the “magical” comment, seems to justify giving Krugman a pass with his response, but when Krugman “laid it on thick” with accusations Barro is “anti-science”, we’re not supposed to give a pass to responses to that.
Bob, if Krugman had said “You might, for example, be worried about budget deficits or supply-side effects.”, then would you still have a problem with him?
Exactly right, Keshav, I wouldn’t have had a blog-worthy problem with his post in that case. You can choose whether to believe this or not, but in the past when Krugman was ripping on some Republican politicians for seizing upon the incentive effect, someone in the comments here (I think MF) said, “C’mon Bob that isn’t even a Kontradiction, that’s a flat-out contradiction,” and I pointed out that no it wasn’t. Krugman had given some two-word caveat like “right now” and I said that was his escape hatch.
So you’re right, the reason I flipped out this time is that Krugman made it look like he was really trying to understand how someone could possibly oppose extending UI, and he came up with “deficit reduction.”
I believe that comment of mine was based on his textbook argument, not his NYT articles.
It might not have even been you, MF. But whoever said it, was comparing Krugman NYT treatment of Republicans with Krugman’s textbook treatment (in which he used the very same arguments against UI that the Republicans were using).
So then you agree with me: You are after Krugman for writing a piece as advocacy rather than as explanation. But while you now concede that, you presented it as Krugman being hypocritical rather than partial.
The only way I have changed my take on this whole thing, from Day One, is that midway through I was really pissed at how anyone could possibly have misconstrued what my point was. Now, I understand why I was less than clear. But my point throughout has been the same. If you want to parse the world in some way such that I have now flipped, go ahead.
Bob, Krugman just said “for example”. He wasn’t trying to list all the reasons why you might oppose unemployment benefits. Are you just criticizing him for mentioning an example that’s not the primary reason why people oppose extending unemployment insurance?
Actually that’s not a very strong point. Krugman did talk about Barro and that was Barro’s main point. Krugman’s failure to grapple with Barro’s main point even in a casual dismissal is an example of tendentiousness, and part of why many see him as unfairly rapping Barro.
Yes, if Bob’s criticism is simply that Krugman chose as his example some ancillary reason why someone would oppose unemployment benefits rather than the actual reason that Barro and others have cited, that’s a fair criticism.
It would. But of course that was neither Roberts’s, which Bob endorsed, nor Bob’s, nor Henderson’s either, otherwise why harp on Krugman’s textbook, or say he disavowed it, or say Henderson and Roberts make the same criticism.
“…the remarkable extent to which powerful groups, including a fair number of economists, have rejected intellectual progress because it disturbs their ideological preconceptions.”
This is like Stuart Smalley talking to himself in the mirror.
The other great thing about that MF is that it is interesting in light of so many of Krugman’s defenders saying, “Huh? Where did he say Barro was an ideologue? Man you guys are paranoid.”
Given some of the things that “intellectual progress” has produced, I think I might wear the mantle of “rejects intellectual progress” with a badge of honor.
As a tutorial for Keshav and others who continue to be mystified, let’s diagram this:
You could, I suppose, muster various arguments against this proposition, or at least the wisdom of increasing UI. You might, for example, be worried about budget deficits. I’d argue against such concerns, but it would at least be a more or less comprehensible conversation.
So the bolded elements in order of appearance:
#1: By “I suppose” Krugman is saying that he has to put his thinking cap on in order to even generate possible objections to the wisdom of increasing UI.
#2: By “You might, for example, be worried about budget deficits” Krugman is implying that this is one of the more plausible candidates after his walk down fiction lane when he put on his thinking cap to try and imagine an argument against extending UI.
#3: By “…comprehensible conversation” Krugman sets us up for his discussion of WSJ and Barro, implying that their input into this debate was NOT comprehensible.
Keshav you really don’t see why the above is a bit jaw-dropping in light of his textbook discussion? Do you really think a layperson who only read Krugman’s blog posts for the last 5 years, would read the above and think, “I bet Krugman endorses the WSJ’s argument outside of a liquidity trap, and thinks Europe has a higher natural unemployment rate because of its generous unemployment benefits”?
This comment seals the deal for me.
He had you at “as”.
That was funny, I’ll give you that one Ken.
The jar was close to full by the “as”.
Bob,
You agree Krugman is here saying you could make a sensible (albeit mistaken) case. Right? And he is contrasting that sensible conversation (to use his exact word) with what he considers a nonsensible one. Right? So what is this nonsensible case/conversation/claim? It is not the textbook argument. It is representing that textbook argument about one incentive is a slam dunk killer argument that is so strong and clear only fools could reject it. THAT is what PK says Barro is doing.
Krugman is objecting to What he sees as an arrogant and high handed dismissal of the other factors.
Ken B. wrote:
It is representing that textbook argument about one incentive is a slam dunk killer argument that is so strong and clear only fools could reject it. THAT is what PK says Barro is doing.
Krugman is objecting to What he sees as an arrogant and high handed dismissal of the other factors.
Hey, what you have done, sir, with the Ken B. from an hour ago who explained to Keshav that Krugman was being tendentious for ignoring Barro’s strong argument against UI, namely the argument from Krugman’s textbook?
This is really silly guys. The Freudian projections are astounding. Ken, the following statements can possibly be true at the same time:
(A) Krugman had a logical argument in his mind that didn’t involve a contradiction, and that a trained economist who was familiar with the relevant literature would be able to extract from his remarks,
and
(B) Krugman’s column was unbelievably misleading, bordering on dishonest, and was a complete disservice to a novice trying to understand the actual scholarly dispute on the subject.
I have said repeatedly Krugman wrote a piece of advocacy not explanation. I think that’s pretty common for him. He’s often partisan and tendentious. He was here. That’s not the same as hypocritical (or worse) and its not disavowing a fact about a partial derivative which he had previously noted.
As DK noted, you left out the most incriminating thing Barro wrote. Eliding the other guy’s best argument. That seems suspiciously like what Krugman did, although I grant you with a lot less hauteur.
As DK noted, you left out the most incriminating thing Barro wrote.
You guys are amazing. I intentionally left that out TO FOCUS ON WHAT DANIEL SAID THE REAL ISSUE WAS. Daniel kept saying over and over (paraphrasing), “Of course Krugman is a jerk. He uses over the top language. But we’re all adults here, let’s focus on the real issue, which is the supply-side versus the demand-side forces. Which dominates?”
So I showed how Barro presented both sides to his readers, explaining where each side was coming from. Krugman totally ignored where his opponents were coming from. My point in this presentation was, “See? Even setting aside the names and metaphors, and focusing just on the issue, Krugman is not adequately explaining the two sides. So how the heck is anybody supposed to learn from this guy?”
Then Daniel complains that Barro was being a meanie. ??
“See? Even setting aside the names and metaphors, and focusing just on the issue, Krugman is not adequately explaining the two sides. So how the heck is anybody supposed to learn from this guy?”
Bob, if your only point is that average person wouldn’t learn much from Krugman’s post, you and I have no quarrel. Krugman is just trying to ridicule people who think that the notion of demand-side measures is “self-evidently absurd”.
Asked and answered.
http://consultingbyrpm.com/blog/2014/01/one-last-post-on-why-russ-roberts-and-me-commenting-on.html#comment-202725
re: “You guys are amazing. I intentionally left that out TO FOCUS ON WHAT DANIEL SAID THE REAL ISSUE WAS.”
If the subject is Krugman’s view of Barro, then I don’t think your quote focused on the real issue.
What about if the subject is the economic one, of which of the two (real side, incentives, etc, versus nominal side, demand, etc) dominate?
Please try to keep up MF.
Thanks. By educating myself on the content of your comment to catch up, I have now caught up.
So, about that question of mine…
Moreover, it seems dubious that you would cater to what I think is important in a post whose whole point is to clarify what you think is important.
My strong suspicion is that you are pulling our leg.
BTW -there was nothing particularly mean in what Barro said.
Krugman sets us up for his discussion of WSJ and Barro, implying that their input into this debate was NOT comprehensible.
Yes, I agree that Krugman thinks that the WSJ and Barro’s contribution to the debate is incomprehensible, but the reason he thinks it’s incomprehensible is not that they believe that unemployment benefits have supply-side effects, or that they believe that supply-side effects outweigh demand-side effects as a practical matter. Rather, it’s that they believe that unemployment benefits cannot possibly raise employment, even in principle. That is what Krugman calls “incomprehensible”. He thinks that “paying people not to work can never make more people work” is a silly argument.
So to sum up, he’s basically accusing them of “demand denialism”.
Keshav Srinivasan,
Krugman writes:
“What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant.”
The word “irrelevant” implies that incentives don’t matter at all in our current situation… incentive denialism? Is it really the Keynesian view that NO combination of incentives could lead to unemployed workers accepting SOME kind of work, thus lowering unemployment?
Irrelevant and non-existent are different things. No-one denies Major Freedom’s comments exist.
[Whispering] “Ease his pain.”
“It was you.”
“No Ray, it was you.”
Ken B,
1)Instead of paying UI, the feds could payl out the same money without the stipulation that people stay unemployed to receive it.
2)Or the feds could extend UI for as long as people stay unemployed.
If worker incentives are, for now, “irrelevant” to lowering unemployment, then 1 has the same effect as 2 on unemployment. Same AD = same unemployment. Is this word choice yet another example of Krugman’s inability to communicate clearly, or is it really his view that, for now, no gov action can induce people to work more or less?
But the supply-side effects *is* the argument. That’s *why* they believe that unemployment benefits cannot possibly raise employment.
Therefore, it’s not “incomprehensible,” which seems to be Bob’s point. It may be *wrong* and Krugman would be well within his rights to say “I believe they are wrong because demand-side effects can outweigh the supply side effects” but it certainly isn’t “incomprehensible,” to suggest otherwise.
Krugman believes that it’s incomprehensible to think that supply-side effects imply that it’s impossible for unemployment benefits to raise employment. He thinks that amounts to saying that unemployment benefits can never affect aggregate demand, and he thinks that’s an absurd position to hold. Now you may disagree with that, but that’s what he believes.
That isn’t “INCOMPREHENSIBLE.”
Incomprehensible would be things like watching Ken B and you trying to defend the state.
But it is not “incomprehensible” to argue UI never helps employment, regardless of “aggregate demand”.
Fortunately we don’t have to. Gene went barrel-fishing on this topic recently. http://gene-callahan.blogspot.com/2014/01/the-justification-of-civil-authority.html
and on a related note
http://gene-callahan.blogspot.com/2014/01/the-great-libertarian-illusion-or-mike.html
Is that the post were he gets schooled by the first poster to make a comment and has his entire argument shattered? Otherwise, I must have missed it.
Out of curiosity, is there a praxeological argument for unemployment benefits not being able to ever raise employment?
Because action.
Because crickets?
Keshav, I think this may address it:
“A nice problem, moreover, will be raised by the relief program designed to take care of the unemployment caused by the minimum wage law. By a minimum wage of, say, 75 cents an hour, we have forbidden anyone to work forty hours in a week for less than $30. Suppose, now, we offer only $18 a week on relief. This means that we have forbidden a man to be usefully employed at, say $25 a week, in order that we may support him at $18 a week in idleness. We have deprived society of the value of his services. We have deprived the man of the independence and self-respect that come from self-support, even at a low level, and from performing wanted work, at the same time as we have lowered what the man could have received by his own efforts. These consequences follow as long as the relief payment is a penny less than $30. Yet the higher we make the relief payment, the worse we make the situation in other respects. If we offer $30 for relief, then we offer many men just as much for not working as for working. Moreover, whatever the sum we offer for relief, we create a situation in which everyone is working only for the difference between his wages and the amount of the relief. If the relief is $30 a week, for example, workers offered a wage of $1 an hour, or $40 a week, are in fact, as they see it, being asked to work for only $10 a week—for they can get the rest without doing anything. It may be thought that we can escape these consequences by offering
“work relief ” instead of “home relief;” but we merely change the nature of the consequences. “Work relief ” means that we are paying the beneficiaries more than the open market would pay them for their efforts. Only part of their relief wage is for their efforts, therefore (in work often of doubtful utility), while the rest is a disguised dole.” – Haziltt