Dear Mr Krugman

What a strange thing for a Keynesian to say:

How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?

If you were a New Classical or a Real Business Cycle type then this comment would make sense. For at the core of these ideas is the thought that the economy (and thus people) react near instantaneously to a change in relative prices, tax rates and so on.

But you\’re not, you\’re a Keynesian (possibly a New Keynesian), someone who is adamant that such relative price changes, such new tax rates, do not have instant effect. Indeed, your entire macro-economic approach is built on the fact that changes can be years in coming: that\’s why we have recessions and why it\’s even possible to have depressions.

Now it does rather depend upon what you think the time lags are but there\’s now at least the possibility that Clinton\’s tax rises are what led to the slow growth in the early Bush years, no? Which makes something of a mockery of your logic in the above phrase.

For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.

Snigger. So if we\’ve disinflation then even if nominal interest rates are low then real interest rates are high, yes?

For a great economist (which PK most certainly is) and a great essayist (which PK most certainly is) this isn\’t a particularly good outing, is it?

2 thoughts on “Dear Mr Krugman”

  1. And uhh… Shouldn’t a Keyensian be strongly in favour of the idea of raising taxes during boom times, and lowering them during busts? So if anything, shouldn’t the criticism be that Clinton failed to keep raising taxes, and that Bush failed to cut taxes enough?

    His argument is – in Keyensian terms – equivalent to the following:

    “When the fire department sprayed water on the burning building, it suffered severe fire damage. When they did not spray water on the building which was not on fire, it didn’t burst into flames. How did we end up with bipartisan support for spraying water on burning buildings?”

    (Also, dearieme: Krugman is a good (and arguably great) economist, and he is a very definitely a great essayist, especially on economic topics, and I’d trade one of my kidneys to possess even a significant fraction of his skill. His problem is that he has spent much of the past decade steadfastly refusing to apply his skills as an essayist OR an economist, but instead deploying his profoundly mediocre skills as a columnist and political analyst towards partisan ends, usually in the shrillest tone possible, often directly contradicting his earlier writings and research. Quite sad; I’d hoped the election of Obama would have helped him return to sanity, but honestly I think he’s worse now than during the Bush administration.)

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