I find it Imp – ossible to disagree with Krugman
Recently, I was pleased to note a disagreement between Paul Krugman and Dean Baker. Finally, I hoped, a chance to prove I am not a knee jerk acolyte of Krugman. Sadly I found I agreed with Krugman and not Baker (ouch). But I didn’t give up hope,
Surely, I can disagree with Krugman when he disagrees with my BFF Brad DeLong ? Even Krugman was shocked by this event “Brad DeLong has a long meditation on policy that, surprisingly, includes some things I strongly disagree with.”
But wait, there’s more. The main think Krugman disagrees with is the analogy between the convidence fairy and the “expectations imp” which is clearly a reference to the “expected inflation imp” whose naming Delong ascribed to uh Robert Waldmann. She is an imp because I am, more less illiterate, and inflation imp was as alliterative as I could get.
DeLong has also written that he considers an earlier Krugman post to be a smack down of us on that topic.
So what does Krugman say about the analogy
But here’s where I think Brad is getting something wrong now: when he says that
“It is unfair for Keynesians to be making fun of the people who call for austerity by saying “confidence fairy” when they are making similar expectational-shift arguments themselves.”
He’s referring to calls for the Fed and other central banks to raise expectations of future inflation as a way to get some traction in a liquidity trap — which is certainly something I and others support. But there are two crucial differences between us and the expansionary austerity types.
First, our expectations argument is a hope; theirs is a plan. I want the Fed, the Bank of Japan, etc. to target higher inflation, in the hope that it might help, but it’s a hope, and meanwhile we need to fight demands for fiscal austerity and even push for stimulus. The expansionary austerity types, on the other hand, are (or were) actually counting on the supposed rise in confidence to avoid what would otherwise be nasty recessions, which have in fact materialized.
Which brings us to the second point: those of us hoping to summon the expectations imp want to do so with policies that are at worst harmless, such as expanding the monetary base under conditions where this has no direct inflationary impact. The austerians, on the other hand, have pushed directly destructive policies — fiscal contraction in depressed economies — in order to achieve their hoped-for shift in expectations.
Oh nooooooo, I agree with Krugman entirely. I take some comfort in the fact that Brad DeLong does too.
But it’s frustrating. I have written from time to time that I support QE and unorthodox monetary policy in general on the principle that it will help at least some and certainly won’t hurt (Krugman’s second point) . I won’t look for links to prove this, because the only point would be to argue that I’m not a total Krugman groupie, and I can’t make that claim.
I wrote this post mainly to note that, when he typed “Imp” Krugman quoted Brad quoting me.
My only objection is that he called the imp the “expectations imp” I notice only now that in the second Delong post, the imp has become the “inflation expectations imp”. But it gets worse. When he links to Krugman, Atrios referred to “the expectations fairy” sending the Imp back to the vestibule of the ignavi* where it chases the banner of futility.
My Krugman is right this time too frustration isn’t new. I remember reading “Peddling Prosperity” during the late 90s boom. This was Krugman’s first popular book and it was a harsh attack on some elements of the Clinton administration whcih was new when it was written. One would imagine that Krugman wouldn’t look so good critiquing prosperity peddlers on whose watch prosperity had arrived. I found I agreed with everything in the book. In particular Krugman warned that Ira Magaziner was a menace to ClintonCare.
*”ignavi” is an Italian pejorative term for mugwumps, the indecisive, those who think both sides have a point and, in particular, in the Divine commedy for those angels who sided with neither God or Satan — seems the right place for a critique of QE made by people who rush to agree with critiques of their critique).
I am not sure I understand the whole discussion, but I feel strongly that using monetary policy instead of a reasonable fiscal policy has not worked out very well. I agree that without Bernanke’s liquidity approach things would be worse and that fears about inflation are decidedly overblown, but like the ACA it has only served to blunt the problem with the result that pressure is relieved to actually do something about high un/under employment or in the case of the ACA a deeply flawed model for paying health care costs. In addition, the unreasonably low interest rates have done little to get loans to people who need them while depriving seniors of any return on their savings unless they want to risk what they have left in the casino. People talk about the wealth effect of a rising stock market–or home prices– but the fact is that only about half the public owns any stocks directly–as opposed to life insurance or pension plans–and many, especially older people are not willing to let their future depend on the whims of Wall Street speculators. I would hazard a guess–I am not empirical–that whatever stimulative effect the low interest rates have had, that it is at least partly offset by older Americans reducing consumption in the face of declining returns. So I think there are real negatives associated with the Fed’s policies, Krugman taking the contrary view notwithstanding.
I couldn’t care less about what anyone else has to say. Krugman has brains!
just said it way better than i was gonna.
i don’t know much but it seems to me that putting money in the hands of workers, which the government can do, HAS to improve the economy.
guessing about the moods of the bond market, or the investor class is just kind of a parlor game and thoroughly delusional for policy purposes.
i worry that Krugman has to talk about it because it was a chapter (at least) in the econ book, so naturally it is “serious economics.”
and for those who don’t think the New Deal ended the Depression (i just was reading one of them): maybe it didn’t. but it ended the misery of millions of people, and that should count for something in “economics” but somehow it never seems to count for much.
hell, we might even find that if the people are doing okay, we don’t have to worry about the “economy” so much.