Hoisted from the comments over at Scott Sumner’s blog, we get this little bit of wisdom:
And the irony is that Yglesias’s approach actually prepares his readers for battle much better than Krugman’s. If I debate a Krugman reader, I have no problem picking apart their arguments. They’ve been told that conservatives are morons who lack any good arguments. They don’t know what they have missed. It’s like shooting apples in a barrel.
How true this is. Krugman regularly makes blunt points that — to argue them with success — need to be backed up with subtle modifications, asides, and caveats. Unfortunately (as I said in the comments), Krugman tends to leave these types of things out (at least in his columns, and it is understandable with the limitations of the format)…or, he buries them underneath a strong point that supports his claim.
So when Krugman’s less economically sophisticated NYT crowd reads, “We’re in a liquidity trap! The laws of economics don’t apply! Only fiscal stimulus can save us!”; most probably don’t end up going to his blog to read about how a monetary policy of inflation targeting is the first best solution…and they don’t head over to the PKArchive to read about how Krugman reformed his (Keynes’) model of liquidity traps to include rational expectations. But they certainly do know that Republicans (and conservatives in general) are 1. evil, 2. racist, and 3. stupid.
Not to say that there is anything wrong with what he does…I write like that too, sometimes. I don’t even wholly disagree with him about conservatives. However, it hands your audience just the bare bones of the argument that you’re making, and that weakens their position (even while strengthening yours with numbers). In contrast, Yglesias often goes out of his way to add meat to the bones of his argument (while he’s making it). It sets his audience up in a better position.
Would the world be a better place if everyone wrote with the thoughtfulness and respect of Tyler Cowen? I think so.
Update: Mark Thoma points out that I should have worded things more subtly. I often write hastily, so it is my fault…and he is correct, so here is an update to his criticisms on from my Facebook page:
1. Paul Krugman’s argument for fiscal and monetary policy in a liquidity trap (as I understand it) is that first, a monetary policy of inflation targeting is the optimal solution. Not only would this be the optimal solution, but it would increase the multiplier effects of fiscal policy, so we should use both to combat a deficit in aggregate demand. If the commitment to these policies is credible, then with expectations of an increase in the future price level, inflation targeting will cause the current AD curve to shift to the right. Since SRAS is fairly flat in recessions, a subtle increase in the price level will produce a large jump in real output, and a negligible rise in inflation. Taken together with fiscal policy, which can be much more finely-targeted (I note that Krugman uses the “opportunity costs of borrowing at low rates argument”), not only can we boost output, but we can also achieve various social investments at a bargain, as well. However, since it seems politically impossible to go after inflation (and even I blame conservatives for this), then our (only?) next-best option when in a liquidity trap is fiscal policy.*
Now why, in Paul’s model, do the normal rules of economics not apply? I think it’s the residual effect of an intense focus on the interest rate as monetary transmission mechanism. Indeed, the standard NK model uses no money at all — just movements in *the* interest rate. You can, of course, assume money in the parameters, but it makes little difference in the world of bonds or consumption goods. Indeed, the NK models can predict wild things happening at the ZLB. Of course, in the papers** Paul cites regarding these bizzare phenomenon; there are all kinds of the “subtle modifications, asides, and caveats” that I alluded to earlier.
Here is what I believe happens to the central bank reaction function
2. The “74-year old theory” comment has been retracted. Krugman does, indeed, use modern NK models to justify his policy stances. And he does, indeed, build models on his blog. I explicitly didn’t compare his blog to his columns. I realize that the two are different vehicles, as said as much.
I take issue with Krugman’s delivery. In offering an opinion, you can say something to the effect of, “There are quite a few models out there, some are garbage, some are well worth exploring…but I personally believe that Keynes got it mostly right in saying…” This is not what Krugman does. I’m pointing out that I think it is a better way to make a point.
3. Mark offers a warning to Yglesias readers:
Finally, a note of caution for Ygleisias readers. He hasn’t been consistent in his policy recommendations and at times, without knowing it, has taken contradictory positions. I don’t think is very helpful to readers even if it is couched in language you happen to approve of (the problem is that he doesn’t seem to fully understand the modern monetary transmission mechanisms).
*This paragraph written in my own language, not necessarily Krugman’s.
**This, for example.