Afternoon Must-Read: Paul Krugman: Orthodoxy, Heterodoxy, Ideology

…And there’s a lot wrong with mainstream economic analysis. But how closely are these two assertions related? Not as much as you might think. So I’m very much in accord with Simon Wren-Lewis on the remarkable unhelpfulness of recent heterodox assaults… a lot… misidentifies the problem… gives aid and comfort to the wrong people…. Standard macroeconomics does NOT justify the attacks on fiscal stimulus and the embrace of austerity. On these issues, people like Simon and myself have been following well-established models and analyses, while the austerians have been making up new stuff and/or rediscovering old fallacies…. Formal modeling and quantitative analysis doesn’t justify the austerian position; on the contrary, austerians had to throw out the models and abandon statistical principles to justify their claims….

People who should know better claim… whether fiscal stimulus can work involve[s]… Ricardian equivalence…. But that’s all wrong. Claims that a temporary rise in government spending crowds out an equal amount of private spending were based either on crude confusions between accounting identities and causation, or on a complete misunderstanding of… Ricardian equivalence…. Expansionary austerity… is really hard to get out of any formal model, and by and large the advocates of that position didn’t… try… invoked the confidence fairy pretty much on faith…. Claims that the US and the UK were at risk of an attack by bond vigilantes were similarly hard to justify…. It’s very hard to come up with a way such an attack can either happen or do much damage to a country that borrows in its own currency. As I’ve written many times, I reproach myself for having worried about such things back in 2003, when my own models refused to tell that story…. Last but not least, all that 90 percent threshold of doom stuff was based on no model… just an alleged statistical regularity… [which] probably reflected a lot of reverse causation. So if you go around claiming that model-oriented, quantitative economics gave rise to austerity mania, you’re getting the story all wrong… [and] covering up for the austerians’ intellectual sins…