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.
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).