Tag: Paul Krugman

Must-Read: Paul Krugman: Scam They Am

Posted on by Brad DeLong
Scam They Am The New York Times

Must-Read: Paul Krugman: Scam They Am: “Eric Lipton and Jennifer Steinhauer… find that the…

[Tea Party] PACs… [of] the Freedom Fraud caucus are basically in it for the money… consultants’ fees… paid to the… people organizing the drives…. As Rick Perlstein pointed out several years ago, the modern conservative movement is in large part a ‘strategic alliance of snake-oil vendors and conservative true believers’ with ‘a cast of mind that makes it hard for either them or us to discern where the ideological con ended and the money con began.’… Goldbuggism, for example, is intimately tied to direct-marketing schemes for gold coins and gold certificates…. The American Seniors Association… bills itself as a conservative… AARP… [but] is a for-profit enterprise whose goal is to sell me insurance. And so on. This is surely a[n]… important part of our political story…. Obama- and Hillary-hatred… much of it is generated by scammers out to make a buck off the racism and misogyny of some–sad to say, fairly many–older white men.

The two classic readings on this are: Rick Perlstein**: [The Long Con](http://thebaffler.com/salvos/the-long-con); **David Frum**: [The Fox News Wink](http://www.thedailybeast.com/articles/2012/08/08/fox-news-email-chains.html). It is an attempt to identify those Americans with the very-poorest reality testing and mobilize them politically–but only tertiarily to get them to vote. The primary objective is to scam them directly. The secondary objective is to terrify them, and so keep their eyeballs glued so that they can be sold to advertisers.

Central Banks Are Not Agricultural Marketing Boards: Depression Economics, Inflation Economics and the Unsustainability of Friedmanism

Posted on by Brad DeLong

Central Banks Are Not Agricultural Marketing Boards: Depression Economics, Inflation Economics and the Unsustainability of Friedmanism

Insofar as there is any thought behind the claims of John Taylor and others that the Federal Reserve is engaged in “price controls” via its monetary policy actions.

Strike that.

There is no thought at all behind such claims at all.

Insofar as one did want to think, and so construct an argument that the Federal Reserve’s monetary policy operations are destructive and in some ways analogous to “price controls”, the argument would go something like this:

The Federal Reserve’s Open Market Committee’s operations are like those of an agriculture marketing board–a government agency that sets the price for, say, some agricultural product like butter or milk. Some of what is offered for sale at that price that is not taken up by the private market, and the rest is bought by the government to keep the price at its target. And the next month the government finds it must buy more. And more. And more.

Such policies produce excess supplies that then must be stored or destroyed: they produce butter mountains, and milk lakes.

The resources used to produce the butter mountains and milk lakes is wasted–it could be deployed elsewhere more productively. The taxes that must be raised to pay for the purchase of the butter and milk that makes up the mountains and the lakes discourages enterprise and employment elsewhere in the economy, and makes us poorer. Taxes are raised (at the cost of an excess burden on taxpayers) and then spent to take the products of the skill and energy of workers and… throw them away. Much better, the standard argument goes, to eliminate the marketing board, let the price find its free-market equilibrium value, provide incentives for people to move out of the production of dairy products into sectors where private demand for their work exists, and keep taxes low.

Now you can see that a central bank is exactly like an agricultural marketing board, except for the following little minor details:

  1. An agricultural marketing board must impose taxes to raise the money finance its purchases of butter and milk. A central bank simply prints–at zero cost–the money to finance its purchase of bonds.
  2. The butter mountains and milk lakes that the agricultural marketing board owns cannot be sold without pushing the price down below its free-market equilibrium and thus negating the purpose of the board. A central bank does not want to sell its bond mountains, but merely to collect interest and hold them to maturity, at which point they are simply money mountains.
  3. The butter mountains and milk lakes are useless for the agricultural marketing board: all it can do with them is simply watch them rot away. The bond mountain turns into a money mountain–seigniorage–which the central bank then gives to the government, which lowers taxes as a result.

So a central bank is exactly like an agricultural marketing board–NOT!!! They are identical–except that they are completely different.

But, somewhat smarter John Taylor and others might say, a central bank is like an agricultural marketing board. The extra money it puts into circulation when its bonds mature and it transfers profits to the government devalue and debauch the currency. It raises the real resources needed to finance its bond purchases by levying an “inflation tax” on money holders–by reducing the value of their cash just as an income tax reduces the (after-tax) value of incomes.

And I would agree, if the inflation comes. Under conditions of what I like to call Inflation Economics, money-printing and bond purchases do push the interest rate below the natural rate of interest–push bond prices above their natural price–as defined by Knut Wicksell. Money-printing and bond purchases then do indeed cause economic problems somewhat analogous to those of a marketing board that keeps the prices of butter and milk above their natural price.

But what if the inflation does not come? What if our economy’s phase is one of not Inflation Economics but Depression Economics, in which the central bank is not pushing the interest rate below its Wicksellian natural rate but is instead stuck trying to manage a situation in which the Wicksellian natural rate of interest is less than zero?

Then the analogies break down completely. Money-printing is then not an inflationary tax but instead a utility-increasing provision of utility services. Bond purchases do not create an overhang that cannot be sold without creating an opposite distortion from the optimal price but instead push the temporal slope of the price system toward what a benevolent central planner would want the temporal slope of the price level to be.

Milton Friedman was very clear that economies could either have too much money (Inflation Economics) or too little money (Depression Economics)–and that a central bank was needed to try to hit the sweet spot. He hoped that hitting the sweet spot could be made into a somewhat automatic rule-controlled process, but he was wrong.

So trying to construct a thinking argument that central banks are engaged in something analogous to “price controls” via their monetary policy actions leads even a substantially sub-Turing entity to the conclusion: Sometimes, under conditions of “Inflation Economics”, but not now.

And let me offer all kudos to those like David Beckworth, Scott Sumner, and Jim Pethokoukis who are trying to convince their political allies of these points that I regard as basic and Wicksellian–cutting-edge macro from 125 years ago. But I think that Paul Krugman is right when he believes that they are going to fail. Let me turn the mike over to Paul Krugman to explain why he thinks they are going to fail:

Paul Krugman: More Artificial Unintelligence: “David Beckworth pleads with fellow free-marketeers to stop claiming that…

…low interest rates are “artificial” and comparing them to price controls…. The Fed isn’t imposing a price ceiling… monetary policy… nothing at all like price controls…. What interest rates would be in the absence of distortions and rigidities [is] the Wicksellian natural rate…. The actual interest rate, at zero, is above the natural rate…. But… Beckworth should be asking… why almost nobody on the right is willing to think… not just… ignoramuses like Rand Paul and George Will. The “low interest rates = price controls” meme is bang-your-head-on-the-table stupid–but… John Taylor…. [It’s] a line of argument that people on the right really, really like….

Beckworth is… tak[ing] the… Friedman position… trusting markets… except… [for] the business cycle…. This is… [intellectually] problematic…. You need… market failure to give monetary policy large real effects, and… why… is the only important failure?…

Let me, as an aside, point out that it could indeed be the case that monetary policy joins police, courts, and defense as they only significant areas in which the costs of rent-seeking, regulatory-capture, and other government failures are less than the costs of the market failures that the government could successfully neutralize. It’s unlikely. But it’s possible. Indeed, Milton Friedman thought that that was the case. And he was not at all a dumb man. And laying down general rules sector-by-sector about the relative magnitudes of market and government failures is almost surely a mistake. As John Maynard Keynes wrote in his “The End of Laissez-Faire”:

We cannot therefore settle on abstract grounds, but must handle on its merits in detail what Burke termed: “one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion…”

But let’s give the mike back to Krugman to make his major point:

More important… this position turns out to be politically unsustainable. “Government is always the problem, not the solution, except when it comes to monetary policy” just doesn’t cut it for modern conservatives. Nor did it cut it for traditional conservatives. Remember, during the 1930s people like Hayek were liquidationists, with Hayek specifically denouncing expansionary monetary policy during a slump as “the creation of artificial demand.” The era of Friedmanism, of free-market views paired with tolerance for monetary stimulus, was a temporary and unsustainable interlude, and no amount of sensible argumentation will bring it back.

But this doesn’t mean that Jim, Scott, David, and company should not try, no? It is not just the Milton Friedman was a galaxy-class expert at playing intellectual Three-Card Monte, no? It is true that at times my breath is still taken away at Friedman’s gall in claiming that a “neutral” and “non-interventionist” monetary policy was one which had the Federal Reserve Bank of New York buying and selling bonds every single day in a frantic attempt to make Say’s Law, false in theory, true in practice. But he wiped the floor with the Hayekians intellectually, culturally, academically, and politically for two generations.

Krugman’s line “claiming that laissez-faire is best for everything save monetary policy (and property rights, and courts, and police, and defense) is intellectually unstable and unsustainable in the long-run” may well be true. But as somebody-or-other once said:

This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again…

UPDATE: And I should add a link to Krugman’s original:

Paul Krugman: Artificial Unintelligence: “In the early stages of the Lesser Depression…

…those of us who knew a bit about the… 1930s… felt… despair…. People who imagined themselves sophisticated and possessed of deep understanding were resurrecting 75-year-old fallacies and presenting them as deep insights…. [Today] I feel an even deeper sense of despair–because people are still rolling out those same fallacies, even though in the interim those of us who remembered and understood Keynes/Hicks have been right about most things, and those lecturing us have been wrong about everything. So here’s William Cohan in the Times, declaring that the Fed should ‘show some spine’ and raise rates even though there is no sign of accelerating inflation. His reasoning….

The price of borrowing money–interest rates–should be determined by supply and demand, not by manipulation by a market behemoth….

[However,] the Fed sets interest rates, whether it wants to or not–even a supposed hands-off policy has to involve choosing the level of the monetary base somehow…. How would you know if the Fed is setting rates too low? Here’s where Hicks meets Wicksell: rates are too low if the economy is overheating and inflation is accelerating. Not exactly what we’ve seen in the era of zero rates and QE…. There are arguments that the Fed should be willing to abandon its inflation target so as to discourage bubbles. I think those arguments are wrong-but… they have nothing to do with the notion that current rates are somehow artificial, that we should let rates be determined by ‘supply and demand’. The worrying thing is that… crude misunderstandings… are widespread even among people who imagine themselves well-informed and sophisticated. Eighty years of hard economic thinking, and seven years of overwhelming confirmation of that hard thinking, have made no dent in their worldview. Awesome.

Monday Smackdown Watch: Paul Krugman Admonishes Me on My Making Out of Milton Friedman Not a Golden, But a Paper-Money Calf

Posted on by Brad DeLong
NewImage

Paul Krugman: Milton, Money, and Interest Rates: “I have a moderate disagreement with Brad DeLong…

…[who] has been arguing that demands for tight money are, in fact, contrary to the bankers’ own interests:

It was Milton Friedman who insisted, over and over again, that in any but the shortest of runs high nominal interest rates were not a sign that money was tight–that the central bank had pushed the market interest rate above the Wicksellian natural rate–but rather that money had been and probably was still loose, and that market expectations had adjusted to that.

Friedman did in fact make that claim. But… he was wrong.

Consider the Volcker disinflation. The Fed… did everything one might imagine to make it clear that there was a regime shift that would lead to disinflation…. This policy change nonetheless led to a severe recession… conclusive evidence against both the Lucas notion that only unanticipated monetary policy has real effects, and the Prescott view that business cycles reflect real shocks. But the episode also undermines the Friedman claim on interest rates…. Short rates… were sharply elevated for three years…. Long rates… rose along with short rates and stayed high for several years. So put yourself in the (very expensive) shoes of a bank CEO today…. Even if you understand the macroeconomics and know the history (which you probably don’t), this is a story about a better bottom line four or five years down the pike, by which time you will have foregone a lot of bonuses and may well be retired. As I see it, interest-rate hawkery on the part of bankers isn’t irrational, just evil.

Touché…

I confess I have been thinking that we have a choice between:

  • The Federal Reserve starts its liftoff this fall, and then has to reverse course within two yours back to the ZLB, thus cementing market expectations that we will be at the ZLB for a loooong time…

  • the Federal Reserve waits two years to start liftoff, and then successfully accomplishes normalization…

Paul says: It won’t be that quick. And the historical evidence is certainly on his side.

Plus: Dean Baker piles on:

Dean Baker: The Argument for Higher Interest Rates: Are the Bankers Evil or Stupid?: “I would mostly agree with Krugman, but for a slightly different reason…

…An unexpected rise in the inflation rate is clearly harmful to banks’ bottom line. This will lead to a rise in long-term interest rates and loss in the value of their outstanding debt…. While we (the three of us) can agree that such a jump in inflation is highly unlikely in the current economic situation, it is not zero. Furthermore, a stronger economy increases this risk….[Banks] are faced with a trade-off between a greater risk of something they really fear, and something to which they are largely indifferent. It shouldn’t be surprising that they want to the Fed to act to ensure the event they really fear (higher inflation) does not happen. Hence the push to raise interest rates.

I suspect also there is a strong desire to head off any idea that the government can shape the economy in important ways. There is enormous value for the rich to believe that they got where they are through their talent and hard work and that those facing difficult economic times lack these qualities. It makes for a much more troubling world view to suggest that tens of millions of people might be struggling because of bad fiscal policy from the government and inept monetary policy by the Fed.

Must-Read: Paul Krugman: Nutcases and Knutcases

Posted on by Brad DeLong

Must-Read: If you work really, really hard, you might be able to make something not completely unintelligible out of Andrew Sentance. You might agree with Paul Krugman that interest rates need to be even lower to provide people with an incentive to consume and invest at the economy’s sustainable non-inflationary potential. But you might go on to say that interest rates need to be higher to curb people’s desires to engage in overleverage, bubbles, and Ponzi schemes–that debts of extraordinarily long duration with extraordinarily low rates of amortization is asking for trouble.

But if you did that, you would be advocating not tight money but, rather, a higher inflation target. Amortization rates and durations of debt, you see, depend primarily on nominal interest rates. While the Wicksellian real rate to balance aggregate supply and aggregate demand and make Say’s Law true in practice is a real interest rate. And a higher inflation target is the way to make a bigger wedge between the two.

So even if you try really, really hard to make something not completely unintelligible out of Andrew Sentance, you conclude that he has no idea what he is talking about:

Paul Krugman: Nutcases and Knut Cases: “Monetary permahawkery takes two forms…

…One is obviously ridiculous… with a lot of influence on right-wing politicians… the likes of Ron Paul, Zero Hedge, and Paul Ryan. Hyperinflation is always just around the corner. And no matter how wrong the scare stories have been in the past, there’s always a willing audience.

But the clear and present danger comes from people like Andrew Sentance, who was until recently a member of the Bank of England’s Monetary Policy Committee… a remarkable piece… castigating the Fed for not hiking rates…. Sentanc[has] made up his own version of macroeconomics… unaware that he has done so. As I… [and] others, notably Ben Bernanke… point out… monetary wisdom… starts with Knut Wicksell’s concept of the natural interest rate. Try to keep rates too low, and inflation accelerates; try to keep them too high, and inflation decelerates and heads toward deflation. Now comes Sentance, claiming that monetary policy has been consistently too easy, not just in recent months, but for the past generation….

This should imply that policy has had an inflationary bias, right? Except that inflation has trended downward…. You might have expected at least some effort to explain why this isn’t a problem…. Sentance mocks the decision not to raise rates, suggesting that it has no real justification…. How about the fact that inflation is still below the Fed’s target, and shows no sign of rising? And that doesn’t even get into the argument, which Larry Summers, yours truly, and many others have made, that the risks of getting it wrong are highly asymmetric…. Maybe Sentance is right to toss almost everything economists have said about interest rate policy for the past 117 years out the window. But… it’s hard to escape the suspicion that he has no idea that this is what he’s doing. And he sat on the committee making British monetary policy!

Trekonomics Panel at New York Comic Con: The Annotated Transcript: The Honest Broker for the Week of September 28, 2015

Posted on by Brad DeLong

: Trekonomics Panel at New York Comic Con (October 11, 2015)

I have been playing with FOLD, and having fun. Here I take the transcript of the New York Comic Con “Trekonomics” panel created by the extremely-productive-on-long-airplane-flights Izabella Kaminska, add to it, and annotate it…

Hey! Why hasn’t the Financial Times paid for her to step back from Alphaville and turn her Beyond Scarcity series of weblog posts into a book?

FOLD is great fun–it scratches my itch that the web should have been built on hypercard. I have no idea what its chances of survival in the long run are–or what tools will exist for reading exported FOLD files either. The fact that Berkeley is not providing a great deal of assistance with migrating bspaces files elsewhere in comprehensible form as they shut bspace down is thus yet another reason to put the text of my version of the transcript down here, below the fold (ha, ha, ha):

Trekonomics ComicCon New York Panel (October 11, 2015): Transcript

So on an intercontinental flight when I couldn’t focus on anything having to do with my day job, I went back over Izabella Kaminska’s transcript of the Trekonomics panel:

Izabella Kaminska: FT Alphaville Transcript http://ftalphaville.ft.com/2015/10/12/2142030/you-see-money-doesnt-exist-in-the-24th-century/

listening to the tape myself, and seeing what I could add….

Welcome!

Felix Salmon: Hello! Welcome! This is the most exciting and most nerdy panel at ComicCon. So welcome! All of you! And you are in for a treat because we have some of the smartest and some of the most awesome people on the planet to talk about the intersection of two things that most people don’t think about: Star Trek and economics.

It’s psychology, though. Star Trek is all about transporters and warp drives and cool bits of technology. But in fact it’s about the most incredibly mind-blowing stuff. And, in Star Trek, that is the economics.

Very quickly, for few people on this panel require any sort of introduction. We have:

  • Manu Saadia. Manu wrote the book called Trekonomics from Inkshares. Preorder your copy. It is a fantastic, fantastic book.
  • Chris Black, who actually wrote for “Star Trek: Enterprise”.
  • Annalee Newitz of Gizmodo and io9, who I believe Star Trek made a Marxist.
  • Paul Krugman, the one and only.
  • Brad DeLong, the world’s greatest economics blogger.

Trekonomics the Book

Felix Salmon: I think there is no one better than Manu Saadia to try to explain what all of us have in common–what we are going to talk about here.

Manu Saadia: The project for the book–it started out drinking beer with Chris. We were discussing whether there is a book about Star Trek economics because there is a book about everything to do with Star Trek: Physics of Star Trek. Ethics of Star Trek. Holodecks of Star Trek. How about the economics? And Chris said: “Well, you should write it.”

In a nutshell, the book tries to take Star Trek seriously. Usually when watching Star Trek we say: “Oh! How would that work?” and we get into this engineering mindset–the technologies, the gizmos. In the book I’ve tried to step out of that particular mindset, and tried to actually describe how it works. And I’ve discovered some rather surprising things. The biggest thing, I believe, that I got out of researching the book and writing it, is that the post scarcity in Star Trek is not driven by technology but a policy choice. And this is where having such a stellar economic panel to discuss this comes in.

A Post-Scarcity Economy

Felix Salmon: What is post scarcity?

Brad DeLong: 400 years ago, in almost all human societies, being rich relative to your neighbours mattered a lot. If you were poor, especially poor and female, chances were you weren’t getting the calories you needed to reliably ovulate. Chances were your children weren’t getting the nutrients that they needed for their immune systems to be protected against the common cold.

400 years ago the great bulk of humanity lived lives that were nasty, brutish, short. They were hungry pretty much all the time. And when they weren’t hungry they were wet, because the roof leaked. And when they weren’t wet they were probably cold, because damp-proofing hadn’t been invented.

Now we, here, in the prosperous middle class in the North Atlantic are moving into another society.

Gene Roddenberry tried to paint our future by saying: “Wait a minute! What’s going to happen in three centuries? In three centuries we are going to have replicators. Anything material, gastronomic that we want–indeed, anything experiential with the holo-deck we want–we are going to have. What kinds of people will we be then and how will we live?

We are quite far on that transition already. Whenever I go, say, to the middle of the country, I find myself terrified: I’m rarely the fattest person in the room. That means, right now, that here in the United States what used to be the principle occupation of the human race–farming–is at satiation. We are down to 1 per cent of our labour force growing essential nutrients. (Time spent growing eggplants which are harvested when they are four-inches isn’t really spent growing food. That’s art.) We have about three times as many people in our medical and health-support professions working to try and offset the effects of excessive calories as we do growing calories and nutrients. Thus we are now rapidly approaching a post-scarcity economy.

And it is not just for food. If you go and look at containers coming in from China, we are approaching it with respect to things physically-made via manufacturing processes as well. And that’s one of the things Star Trek is about.

Are Robots Free? Is the Federation an Exploitative Colonial Empire?

Annalee Newitz: One of things I find interesting about Star Trek is that it does try to imagine a post-scarcity economy, where there is no money. People don’t work because they have to, but because they want to. However, there are all these hints that we get — especially in Star Trek the next generation, my favourite series — that there’s a lot of ways that the post-scarcity economy is supported by other types of economies. Economies that we might consider to be part of the past.

That’s why one of the most interesting episodes to think about is “Measure of a Man”, from the second season of Next Generation, where the question comes up whether Data, our favourite android with a positronic brain, is actually his own person or is in fact property. This is a question which comes up again in Voyager when the holographic doctor, who is unquestionably an autonomous human being, is also considered property. He writes basically the “Communist Manifesto”, and encourages all his fellow holograms which are being horribly oppressed and enslaved to have a revolution.

This is going on at the periphery of Star Trek all the time. Any time you get off the Enterprise, the wonderful utopian Enterprise, which did in fact inspire me to become a Marxist as a student–because I did believe “wow, we really could get to a world which was better than this one”–we are constantly being reminded that there may be other systems of labour, like slavery, or things that are closer to wage-slavery, which are supporting this wonderful life that the Federation enjoys, and which Picard and team enjoy on their really clean ship.

So that’s one of the things about Star Trek: it allows us to have that kind thought experiment of what would it be like if we did get past capitalism? Or if we did have a system of capitalism which was more restrained by government and regulation–whatever the hell the Federation is, the government, the military, the UN? But at the same time, we are forced to recognise that there are these differences in what people have access to, and hence the labour they perform. And some of them are being treated like property. Some of them are chattel. So that’s always the good part of the thought experiment.

What Were the Writers Thinking?

Felix Salmon: Is that what the writers were thinking about? Or how did people come up with these interpretations.

Chris Black: Yes. Well. It’s funny. We didn’t think about a lot of that stuff consciously. And I worked on Enterprise, so it was at the end of the long-run of the franchise. That universe had been well established. To hear this conversation, to hear this book has been written so thoughtfully and profoundly is really gratifying. There were larger issues that came into play than people consciously thought about.

The practical reality of trying within the production schedule of producing 24 hours of network television a year. You were constantly scrambling to get good entertaining scripts written to place in front of the camera. We were, first and foremost, trying to write what we thought were thoughtful exciting adventure stories for Captain Archer and the crew. So we weren’t consciously thinking about how these characters were being motivated by the needs of a post-scarcity economy. But, because that universe had already been established, we all wanted to be respectful of that universe. We were all very grateful and privileged to be invited into this universe.

So we took the responsibility of keeping Gene Roddenberry’s vision intact and moving it forward. We took that very very seriously. We were very conscious of not violating those rules. We were very conscious of doing our best, not always succeeding, in keeping those characters in the world that had been established.

But at the same time no.

This is a very long-winded answer to the question, but the answer is no.

Are the Catering Carts of Hephaestos Citizens?

Felix Salmon: Paul, how do you analyze the Star Trek universe in an economic perspective? Does economics even make sense in conditions of post-scarcity?

Paul Krugman: I am a bit of a ringer here. I watched the original series when it came out. I watched a fair amount of Next Generation. Then I dropped off afterwards. I’m an Asimov guy more than a Star Trek guy. What can I say?

Do we accept the premise of a post-scarcity society? That’s a boring point, which then leads to a more interesting point. First of all, there’s a long history of people saying: “We’re much richer than our ancestors were, and if you go just a little bit further you’ll get to the point where there won’t be an ‘economic question’–post scarcity.” John Maynard Keynes wrote an essay about that saying that if the world got as rich as it is right now, people would no longer be interested in money. John Kenneth Galbraith wrote in his New Industrial State that the standard of living of the average American worker is already so high that it’s only propaganda that makes them want more. To this, Robert Solow responded: “Well, it doesn’t look that high to me. But maybe things look different from Gstaad, where Galbraith vacations.”

In Star Trek they have a replicator that can make any thing you want. But it can make any thing you want. Even now, we spend only 30% of our income on goods. We spend the rest–70%–services. Replicators won’t help with that. We have essentially no farmers. We have fewer and fewer manufacturing workers. But we have lots and lots of nurses.

Here is the more interesting point: We can imagine a world where all services are provided as well. We have robots or something to do the services. But in order to do the full range of stuff we want they have to be very intelligent. In which case, aren’t those then people? The actual issue is: A world where you have servitors of some kind who will give you everything you want is a world where it’s very hard to tell the difference between servitors and slaves. So I think there’s–arguably–a dark side to the abundance theory.

The other thing to say is this: There’s this great show where Jean-Luc Picard lectures a man from the 21st century, saying: “We’ve moved to a world where people don’t seek money they seek reputation and honour.” Well Brad and I live in the academic world, where pretty much that’s how it works….

Status-Based Meritocracy and Its Discontents

Felix Salmon: That’s absolutely true. So the post-scarcity economy is not utopian. It’s actually not that pleasant–this meritocracy of the Federation?

Manu Saadia: It’s horrible.

It’s not horrible horrible. But I always thought Star Trek looked like a weird cross between the MIT Faculty Club and the Red Cross. It’s very humanitarian. But at the same time I know for a fact–the professors here know what I’m talking about–that the world of meritocracy and academia is extremely harsh and cutthroat. You’re on top one day, but you’re always afraid and watching your back, because someone else is going to come and unseat you.

So what you see on the show, in the Next Generation, is really the 1 per cent. Those who are the ultra-achievers in that society. You barely see the other side of it–the 99% who lead lives of comfort and abundance, but not necessarily the most interesting. So it seems to me to be very harsh.

As a kid watching the Next Generation, I always identified very much with Wesley Crusher. He lived in a world where he had to achieve. He had to become the person that the adults wanted him to become. He actually didn’t want to. That’s the part that’s hard. You’re driven to achieve. But it’s not at all clear you will achieve. Which is the problem of a meritocratic world. It’s not all fun and games.

Scripting Drama with a Harmonious Starship Crew

Felix Salmon: On the one hand Star Trek is that rarest of beasts–utopian science fiction. On the other hand, it’s meritocratic and people work very hard for reputation. It’s very hard for a meritocratic world to be utopian. A meritocracy is a horrible place to live in. So what about the 99% of people in the Federation who live in places like earth–are they happy?

Chris Black: Are they happy? I don’t know. I look at this through the lens of the show. What people wanted to see, and what we focused on, was the adventures of the people on the ship. This doesn’t exactly answer your question, but in terms of the meritocracy of it all you are seeing people at the top of their game. This is the 1/1000th of the 1 per cent who get to crew the first experimental warp 5 spaceship and get to go to out of space. Look at Apollo: 400,000 people worked on that program. The stories you hear again and again are the stories of the dozen guys who went to the moon.

That was the mandate of the show.

The funny thing was that there was an inherent conflict in trying to write the show. You had a group of people–Starfleet officers–and this was a mandate given to ud–that these people have a singular purpose in mind. They get along. They don’t get into petty conflicts and arguments.

That immediately took 90% of the drama out of the show.

Everything had to come from an external source. And you didn’t exactly want every threat, every week, week in and week out, to be about some hostile, greedy, or malicious alien race. What you wanted was for the drama to come from within the ship–from conflict between these characters that didn’t always get along.

Look at the original series. Spock and McCoy didn’t get along at all. McCoy would sometimes say the most outrageous racist things to Spock. There was mutual respect and friendship at the end of the day. But there was also amazing conflict. And that was what made those ST:TOS shows so amazing and so entertaining to watch.

We were constantly trying to balance that storytelling–how to get these characters, this crew, on this ship, in conflict with each other, and so fight this mandate from above. I don’t know how many times I sat in the producer’s office and heard him say: “They’re Starfleet officers, they get along.” And I would say: “Then there’s no scene!”

Manu Saadia: There is a brawl between Star Fleet officers on “Deep Space 9”. But you don’t see the brawl–you just see the result of the brawl.

Chris Black: What I was always trying to fall back on was that “Enterprise” was hundreds of years before ST:TOS. So people weren’t getting along yet.

Scarcity: Survival vs. Status

Felix Salmon: Brad, you are an academic in a meritocratic world. Is there anything utopian about meritocracy? 2016 is not the only anniversary of “Star Trek”, but also the 500th anniversary of Utopia by Thomas More. Are we as far from utopia today as we were 500 years ago? Or is it just this thing–that there’s always going to be this conflict, as Paul was implying. Or is there something different now? Thanks to Star Trek, can there be policy choices which mean we can get through it?

Brad DeLong: First let me put in a plug for hyper-intellectualised prosperous academic meritocracy.

The status insult of having Larry Summers look at me across the table at the Treasury in early 1995 and said: “How did you get what demand for pesos would be after NAFTA so wrong, Brad?” I think that was my career nadir. It was the worst analysis I have ever conducted as an economist. That status insult burns.

But that burns considerably less than watching your children starve to death because you don’t have the resources to feed them.

We are problem-solving, puzzle-solving, advantage-grabbing, status-seeking mammals. Fortunately, we also very much like to get involved in gift-exchange relationships with each other. And so we can all hang together, mostly, in a 7.2bn-person society.

We will find puzzles to solve. We will find and make sources of stresses and conflict and striving. But the sharp point of what we’re most worried about–that is is very different in a post-scarcity society.

The plutocrats of New York are more interested right now in who happens to have the best apartment with a better view of Central Park than in where the next meal is going to come from. That is a considerable gain.

We will make our status differences important and powerful to us psychologically, but we should be able to move beyond that. As Adam Smith wrote, the interesting thing about humanity and the strivers is: The strivers work like dogs for their entire life, so that when they are retired they can sit in the sun–and be happy and comfortable in the parks of central London. But they could have done that anyway in their 20s. They could have sat in the sun then, and they would have got more fun out of it.

What Do the Simple Folk Do?

Felix Salmon: Are we always going to be competing for positional goods? Or could a post-scarcity world of abundant goods and services and no money somehow change human psychology so that this constant search for positional goods just evaporates?

Paul Krugman: When listening to Brad, I think of the old line about how fights in academia are so bitter because the stakes are so small. And the stakes are small–whether you are considered to be the 3rd best or the 15th best international-trade economist in the world is, aside from ego, worth nothing at all. And that is a good thing. And that status-competition is always going to be for ego-status only in a really restricted universe.

The people who are engaged in ferocious status competition–these are the people that are going to be featured on a TV show because it’s interesting, but the 99.9% of the Federation are people who are doing other things. What is that exactly? I’m not sure it makes good drama.

It’s kind of interesting to ask, however: What exactly would they be doing? Where Picard explains what motivates us, that’s actually what motivates people like him. And there are very few people like him. So what is the rest of the civilised universe doing? I suspect that they are enjoying life–probably doing cosplay and things. That would probably be an interesting thing to explore.

Colonized by Vulcans

Brad DeLong: But even cosplay would be a source of status. Have you seen the costumes Annalee Newitz and her minions have been posting from here?

Annalee Newitz: And I’m cosplaying as an economist right now.

One of the things that’s really interesting about what you were raising, Paul ,with what happens with ordinary people, is that there’s this really funny story about the timeline in Star Trek. It is established in the Next Generation shows. What happens is that earth is plunged into a war–maybe it’s the Eugenics Wars, maybe it is something else. In the first episode of next generation Q torments the crew by saying: “We’re going to go back in time” to the world of our future, which is a medieval world, ruled by religious creepozoids. There is this cyclical view of history. This highly-industrial organisation has fallen back to a medieval state. They’re living in extreme poverty. There’s disease and famine. It is evil. And, then, some white dude figures out how to build a rocketship by the skin of his teeth, erupting out of this medieval world of scarcity–not coming out of a hyper-industrial society.

And then the Vulcans arrive.

So I am left wondering: What really happens to humans as we transition to this post-scarcity world? Basically we are colonised by Vulcans. So really it’s not that humanity evolves, it’s basically we’re colonised.

Brad DeLong: It’s not colonisation, we’re the Vulcans’ pets.

Annalee Newitz: That’s colonisation, buddy.

Felix Salmon: I was colonised by my cat a long time ago.

Are We the Vulcans? Who Are the Vulcans?

Manu Saadia: I always took the more optimistic view that we are the Vulcans, or we have to become the Vulcans. There is something about humanity that has to be changed.

If we are going to be colonised, I’d rather be colonised by Vulcans anyway.

Brad DeLong: Vulcans are not idealized, but rather extreme versions of Vulcans in both directions. Leonard Nimoy always said that he played Spock not as a being without emotions, but rather as a being whose emotions were so terribly and completely strong that he could not give into them at all–could not react emotionally in any situation, because then after the mood swing had passed he would greatly regret whatever he had done. The Vulcans were a civilisation desperately trying to figure out how to behave in a civilised manner.

Gorillas–you know you cannot keep more than one adult male gorilla in a zoo enclosure. With chimpanzees in zoos–admittedly a very artificial environment–you really cannot keep more than ten adult males in an enclosure. We humans are doing somewhat better. I think Roddenberry’s point in creating the Vulcans–creating the character of Spock–was that we are not doing well enough.

Felix Salmon: Chris?

Chris Black: I think the interesting thing about Spock was that he was only half-Vulcan. You had the best of both worlds, this character in conflict. This sense of what humans wanted to be, and what they were fighting against being.

We would cast Vulcan characters on “Enterprise.” The actors would come in, and they often-time would read the part as very robotic. And we kept having to give them the note that this character is not devoid of emotions, this character has emotions but really needs to keep them under control, needs to keep them in check. This was a somewhat subtle distinction, but we found it a very important distinction when actors would try to play Vulcan characters.

Felix Salmon: Is that utopian or not? This world where we have emotions but we are constantly trying to keep them tacked down and never showing them–that doesn’t sound very utopian to me.

Brad DeLong: It does have a certain appeal to pubescents, especially perhaps males, trying to figure out what is happening to them…

Chris Black: Conflict is the source of drama, and Spock was continually in conflict with not just the other characters on the ship, but most of all with himself. That was what made him so interesting.

Brad DeLong: God! Leonard Nimoy was great!

Paul Krugman: People have an amazing ability to be unhappy. That is most of why utopias do not work if you try to envision them. You imagine that if only you could get people to accept things and take glory in the goodness of everyday life. Some people will do that. But not all.

Looking at utopias in our imagination, there are not that many. There are a few. Ursula K. LeGuin’s The Dispossessed comes to mind. But even there there is a lot of hidden hierarchy.

The point is that if you look at utopia–the problem isn’t scarcity, it’s people.

Manu Saadia: The Dispossessed–it’s horrible. It really is horrible. The pettiness and the conflicts…

Brad DeLong: She was a U.C. Berkeley faculty brat. I’ve often wondered if PDC is California Hall…

Iain M. Banks’s Culture Novels

Annalee Newitz: The Iain M Banks Culture novels are another example of a post-scarcity world. In them, we see a lot of the same problems we see in Star Trek. There are these beautiful ships. But at the edges, there’s slavery and imperialism and racism. People are constantly struggling with those issues–even though they can transcend them at any time.

Paul Krugman: Iain M Banks–I hope lots of you have read them. If you have not, you really should. The Culture novels are amazing. Everyone should read them. And in some ways he does take on these issues.

Brad DeLong: Do not read Use of Weapons first. Do not read Use of Weapons first. It should only be read by a trained professional…

Paul Krugman: Use of Weapons is extraordinary.

All of the Culture novels are really concerned with the fringe of the fringe of the fringe. Special Circumstances is that the one part of society which isn’t functioning like the rest. It does what Star Trek does–it has someone who is recruited from outside who gets to wander around one of these ships and gets to see what life is like for ordinary people. And they do have a solution to the problems. But the solution to the problem of limitless abundance without slavery is that there are in fact these super-intelligent Minds. They supply all the needs for the mere organic guys by basically–it barely requires a finger nail’s worth of attention. They can give you everything you need without them worrying about it. And that solves it.

People do seem to be somewhat more balanced in that kind of environment than they probably would be in practice.

Annalee Newitz: But also everyone’s a cyborg. They all have neural nets.

Paul Krugman: And they have built-in drug-dispensing mechanisms in their brains–I could use that.

Annalee Newitz: They can restrain their emotions.

Isaac Asimov’s Robots, Earthlings, and Spacers

Manu Saadia: To understand Star Trek’s economics you need to go back to Asimov. It’s very much very directly connected–not so much the Foundation part but the robot stories. If you read The Robots of Dawn and the later novels, Asimov describes a society beyond earth where robots take care of everything. You have these people living on their gigantic estates. They are enjoying life and not doing much.

Paul Krugman: And they’re completely neurotic screwed up people. The books are all about luxury and isolation.

Annalee Newitz: It’s also made the robots moronic too. The robots are so tightly constrained by the rules of submission imposed on them by the Three Laws.

Manu Saadia: I believe Asimov wanted to make the case for humanity. The people on earth are hard-scrabble. They are counterposed to the dissolute spacers who live with every comfort and do not accomplish much. Asimov was this Russian immigrant. There is something strong about the morality of hard work.

Paul Krugman: It is so obvious that earth vs. spacers is Brooklyn vs. Scarsdale.

Manu Saadia: The structure of the society of the spacers is, if you look at the Federation, especially in the Next Generation, very close. It seems to me that this is the logical thing: you have robots that take care of almost everything, and people are kind of floating around not doing very much. Except for the sociopaths who want to become Starfleet officers.

Felix Salmon: But they do not become like the blobs from Wall-E. That is what many people think would happen to us if we could have anything we wanted. We would just become fat blobs on Lazyboys. There are not any fat blobs on Lazyboys in Star Trek–at least not on the Enterprise.

Regency Romances

Brad DeLong: What of those who are not the maladjusted people who become Star Trek officers, who go off and put themselves in real danger by facing challenges at the fringe of the society as they compete for status?

If we want to be looking at what post-scarcity life is really like, perhaps we should be looking not at Star Trek but at Regency Romances. The Regency aristocracy is a historical previous culture of material abundance where people neverthless find very important and interesting things for themselves to do. There is no serious material conflict or scarcity in a Regency Romance novel.

You could say there are three standard focuses of narrative conflict: fear of violent death, scarcity of resources, and who is going to sleep with whom. In a society of abundance, like in a Regency novel, who is going to sleep with whom becomes the focus of the plot. Plus there is a secondary focus: the demonstration of human excellence, via proper appreciation and display of fashion.

Maybe that is what all the people in the Federation who are not Star Trek officers are doing.

Paul Krugman: Regency Romance society is cosplay, just a slightly different version.

Annalee Newitz: But don’t you think it’s possible, Brad, that what most ordinary people are doing is living on Bajor. After having been screwed over by the Cardassians, they are now being screwed over again by the Federation. Maybe that’s more what the rest of the society is like?

Brad DeLong: Add in Bajor, and what we have is no longer Roddenberry’s dream of a society of abundance.

Instead, Federation-plus-Bajor is a metaphor for the world we actually have today. That is the world in which we have the upper-middle class of America, plus others–700mn approaching post-scarcity. But the rest–out of our 7.2bn people living today, we have:

  • 2bn of us lead lives which are, frankly, indistinguishable or barely distinguishable from the lives of our pre-industrial ancestors.
  • 4.5bn of us live lives that look to us here like the standard of living people had in the 1970s and 1950s, 1920s and 1880s. But on all of their TVs and smartphones they can see us 700 mn of the Lucky 10%.

I got off the plane today from Lima, Peru. A wonderful city, marvelous culture, lots and lots of people–all of them working at least as hard as anyone in New York. Only about 1/8th as rich. We may be approaching material abundance in terms of manufactured goods, and calories and nutrients.

They are very far.

We Have a Short Amount of Time for Questions

Felix Salmon: We have a short amount of time for questions. I give the first question to Izabella Kaminska because I can.

Brad DeLong: Abuse of power via social networks in a post-scarcity society!

Annalee Newitz: This is a meritocracy, right?

Izabella Kaminska: In the 24th century, will the Federal Reserve have raised interest rates?

Brad DeLong: Social credit! Quantitative easing for the people! Monetary policy via direct crediting of seigniorage to everyone’s bank account, in equal shares!

Izabella Kaminska: My real question: Perhaps we are moving into something we could call a post-scarcity world–or at least post-scarcity of material goods. If not Star Trek, in the Q Continuum. In that world, how do you account for positive forward interest rates?

Brad Delong: The Q Continuum–where they can make anything they want, even entire universes, by exerting their minds. What’s the Wicksellian natural rate of interest?

Paul Krugman: I think that in a world without prices of any kind, you do not have interest rates. It’s the reward for accepting the delay of your gratification. But everyone is totally gratified.

Izabella Kaminska: So there just is no interest rate?

Paul Krugman: That’s right. But I do not believe that ever happens. No matter how productive we get, there is always something else that people are going to want.

Brad DeLong: And how hard are you working so you can have an apartment on rather than just off Riverside Drive?

Paul Krugman: I actually do have an apartment on Riverside Drive–but the windows look east rather than west.

[Thereafter the file is inaudible…]

A Reader’s Guide to the Secular Stagnation Debate: The Honest Broker for the Week of October 12, 2015

Posted on by Brad DeLong

The very sharp and energetic Peter Passell, who runs the Milken Institute Review these days, commissioned me to write a reader’s guide to the secular stagnation debate. I set it up as a four-corner cage match–Bernanke, Rogoff, Krugman, and Summers–and I am proud of it. (But I have to offer apologies to those–Koo, Blanchard, Feldstein come most immediately to mind, but there are others–who have their own serious positions that are not completely and satisfactorily understood as linear combinations of the four I chose to be my basis vectors.) It is out:

J. Bradford DeLong (2015): The Scary Debate Over Secular Stagnation, Milken Institute Review 2015:IV (October) pp. 34-51:

Bernanke… says we have entered an age of a “global savings glut.”… Rogoff… points to the emergence of global “debt supercycles.”… Krugman warns of the return of “Depression economics.” And… Summers calls for broad structural shifts in government policy to deal with “secular stagnation.” All… are expecting a future that will be very different than the second half of the 20th century, or even the so-far, not-so-good third millennium. But they… [differ on] optimism or pessimism… [and on whether] cautious repairs or an abrupt break with policy as usual [are needed. This] is, I believe, the most important policy-relevant debate in economics since John Maynard Keynes’s debate with himself… which transformed him from a monetarist to the apostle of active fiscal policy.

I think Summers is largely right, but then, I would, since I have been losing arguments with him since I was 20. What’s needed here, though, is not a referee’s decision, but a guide to the fight…

Briefly:

  • Bernanke sees anomalies in portfolio decisions by emerging-market central banks and plutocrats that have generated a global savings glut in the relatively short-run.
  • Rogoff sees overleverage as having created a medium-run period of stagnation that requires active debt-liquidation policies to shorten it.
  • Krugman sees the end of the era of moderate inflation as bringing about a return to “Keynesian” economic structures that require activist fiscal policy.
  • Summers sees deeper problems that call for more in the way of government’s acting as investment-spender, risk-bearer, safe asset-supplier, and bubble-preventer of last resort, and thus extend its proper role beyond that of Keynesian demand-management policies toward what Keynes called a “comprehensive socialization of investment”.

All are serious and live possibilities…

Must-Read: Paul Krugman: Angus Deaton and the Dodd-Frank Election

Posted on by Brad DeLong

Must-Read: Paul Krugman: Angus Deaton and the Dodd-Frank Election: “Angus Deaton has won the Nobel, which is wonderful…

…a fine writer with important things to say about political economy. Cardiff Garcia excerpts a passage in which he explains why we should care about the concentration of wealth at the top:

[T]here is a danger that the rapid growth of top incomes can become self-reinforcing through the political access that money can bring. Rules… set not in the public interest but in the interest of the rich, who use those rules to become yet richer…. To worry about these consequences of extreme inequality has nothing to do with being envious of the rich and everything to do with the fear that rapidly growing top incomes are a threat to the wellbeing of everyone else…

Confessore, Cohen, and Yourish documents… that campaign finance this election cycle is dominated by a tiny number of [the] extremely wealthy… overwhelmingly flowing to Republicans…. The biggest piece of the super-rich-super-donor story is money from the financial sector. And there has… been a huge swing of finance capital away from Democrats to Republicans that began… after the passage of financial reform…. the people who brought you the financial crisis trying to buy the chance to do it all over again.

Angus Deaton and the Dodd Frank Election The New York Times

Note that “finance” as a whole was split 50-50 in the money it gave in 2008, and split 75-25 Republican in the money it gave before 2008–Tom Ferguson of U.Mass is the Master of All Who Know on these issues. “Hedge funds” are (or were) people who were not terribly invested in the pre-2009 structure of Wall Street, were relatively young, and were much more Democratic than finance as a whole even before 2008. Their swing to the Republicans is very bad news. You would think that after Arthur Burns’s inflation, Ronald Reagan’s deficits, and Ben Bernanke’s financial crisis that they would be wary. Economic regulation is onerous. But macroeconomic mismanagement is disastrous.

But no…

Must-Read: Paul Krugman: Did The Fed Save The World?

Posted on by Brad DeLong

Must-Read: Looking back at my archives, I find that my own ratio of “Paul Krugman is right” to “Paul Krugman is wrong” posts is not in the rational range between 10-1 and 5-1, but is 15-1. So I am looking for an opportunity to rebalance. And I find one this morning: Here I think Paul Krugman is wrong. Why? Because of this:

2015 10 06 for 2015 10 07 DeLong ULI key

Housing crashes. And does not bounce back quickly by the end of 2010–or, indeed, at all. And Paul Krugman is correct to write that “Even a total collapse of home lending couldn’t have subtracted more than a point or two more off aggregate demand”:

2015 10 06 for 2015 10 07 DeLong ULI key

But exports collapse as the financial crisis hits, and then bounce back very rapidly as the financial crisis passes:

2015 10 06 for 2015 10 07 DeLong ULI key

And roughly one-third of the financial-crisis associated collapse in business investment is quickly reversed after the financial crisis passes:

2015 10 06 for 2015 10 07 DeLong ULI key

Together these two factors plausibly associated with the reuniting of the web of financial intermediation look to me to be five times as large as the fiscal stimulus measured by government purchases. Now fiscal stimulus worked through channels other than government purchases. And without the Recovery Act we would have seen states and localities not holding their purchases constant over 2008-2011 but cutting them by 1% of GDP or so. And not all of the export and business investment bounce-back in the two years after the 2009 trough can be attributed to lender-of-last-resort and easy-money policies.

But it looks to me like the balance is that–even with housing left to rot on the stalk–monetary and banking policy did more than fiscal policy to stem the downturn and promote recovery up to 2011. And it looks to me that, since 2011, it is the reknitting of the financial system and easy money that has kept the extraordinary austerity that the states and the Republicans imposed and that Obama has bought into from sending the U.S., at least, into a renewed and deeper downturn.

Paul Krugman: Did The Fed Save The World?: “Bernanke’s basic theme is that the shocks of 2008 were bad enough that we could have had a full replay of the Great Depression…

…the reason we didn’t was that in the 30s central banks just sat immobilized while the financial system crashed, but this time they went all out to keep markets working. Should we believe this?… I very much agree with BB that pulling out all the stops was the right thing to do…. But I’m not persuaded that the real difference between 2008 and 1930-31 (which is when the Depression turned Great) lies in central bank action, or related bailouts. It’s true that the 30s were marked by a big financial disruption…. Shadow banking rapidly shriveled up, with repo and other alternatives to bank financing shrinking very fast; liquidity for everything but the safest of assets disappeared even though the big financial firms remained in being. And if we’re looking for effects of the tightening in credit conditions, remember that credit policy usually exerts its biggest effects through housing — and housing investment fell more than 60 percent as a share of GDP….

So really, was putting a limit on the financial crisis the reason we didn’t do a full 1930s? Or was it something else? And there is one other big difference between the world in 2008 and the world in 1930: big government…. Again, Bernanke and company were right to step in forcefully. But I’d argue that the fiscal environment was probably more important than monetary actions in limiting the damage. Oh, and since 2010 officials everywhere, but especially in Europe, have been doing all they can to undo the favorable effects…. And the result is that in Europe economic performance is at this point considerably worse than it was at this point in the 1930s.

Must-Read: Paul Krugman: TPP Take Two

Posted on by Brad DeLong

Paul Krugman: TPP Take Two: “What I know so far: pharma is mad because the extension of property rights in biologics is… shorter than it wanted…

…tobacco is mad because it has been carved out of the dispute settlement deal, and Rs in general are mad because the labor protection stuff is stronger than expected. All of these are good things…. I’ll need to do much more homework…. But it’s interesting that what we’re seeing so far is a harsh backlash from the right against these improvements. I find myself thinking of Grossman and Helpman’s work on the political economy of free trade agreements, in which they conclude, based on a highly stylized but nonetheless interesting model of special interest politics, that: “An FTA is most likely to politically viable exactly when it would be socially harmful.” The TPP looks better than it did, which infuriates much of Congress.

Must-Read: Paul Krugman: Puzzled By Peter Gourevitch

Posted on by Brad DeLong

Must-Read: Over the past twenty years, Paul Krugman has a very good track record as an economic and a political-economic analyst. His track record is so good, in fact, that any even half-rational or half reality-based organization that ever publishes a headline saying “Paul Krugman is wrong” would find itself also publishing at least five times as many headlines saying “Paul Krugman is right”. And when any organization finds itself publishing “Paul Krugman is wrong” headlines that are not vastly outnumbered by its “Paul Krugman is right” headlines, it is doing something very wrong.

Thus note this “Paul Krugman is wrong” headline from the Washington Post’s Monkey Cage:

In the article, the well-respected Peter Gourevitch puzzled and continues to puzzle Paul Krugman:

Paul Krugman: Puzzled By Peter Gourevitch: “Peter Gourevitch has a followup… that leaves me, if anything…

…more puzzled…. He notes that….

The Federal Reserve is not a seminar… not only about being ‘serious’ or ‘smart’ or ‘finding the right theory’ or getting the data right. It is… a political… multiple forces of pressure: the… Committee; Congress and the president… political parties… interest groups… media… markets… foreign governments and countries.

But how does that differ from what I’ve been saying?…

[My original] column… was all about trying to understand the political economy of a debate in which the straight economics seems to give a clear answer, but the Fed doesn’t want to accept that…. I asked who has an interest… my answer is that bankers have the motive and the means….

I talk all the time about interests and political pressures; the ‘device of the Very Serious People’ isn’t about stupidity, it’s about how political and social pressures induce conformity within the elite on certain economic views, even in the face of contrary evidence. Am I facing another version of the caricature of the dumb economist who knows nothing beyond his models? Or is all this basically a complaint that I haven’t cited enough political science literature? I remain quite puzzled.

I agree.

It puzzles me too.

So let’s look at the arguments: In what respects does Peter Gourevitch think that Paul Krugman is wrong about the Federal Reserve?

(1) Here we have, for one thing, a complaint that Paul Krugman should not believe that there is even a “correct” monetary policy that the Fed should follow. This criticism seems to me to take an “opinions of the shape of the earth differ” form. I reject this completely and utterly.

(2) Here we have, for another thing, Peter Gourevitch saying–at least I read him as saying–that: “Paul Krugman is wrong! Political science has better answers! Political science better explains the Federal Reserve’s actions than Paul Krugman does!”

Yet Gourevitch does not actually do any political science.

He does not produce any better alternative explanations than Krugman offers.

In lieu of offering any such better alternative explanations, at the end of his follow-up post he provides a true laundry list of references for further reading:

  • William Roberts Clark, Vincent Arel-Bundock. 2013. “Independent but not Indifferent: Partisan Bias in Monetary Policy at the Fed.” Economics & Politics 25, 1 (March):1-26.
  • Lawrence Broz, The Federal Reserve’s Coalition in Congress. Broz looks at roll calls in Congress to explore left and right influences on the Fed.
  • Chris Adolph, Bankers, Bureaucrats and Central Bank Policy: the myth of neutrality, Cambridge University Press 2013
  • John T. Woolley. Monetary Politics. The Federal Reserve and the Politics of Monetary Policy. 1986. * Thomas Havrilesky. The Pressures on American Monetary Policy. Kluwer 1993.
  • Cornelia Woll, The Power of Inaction.
  • Kelly H. Chang. Appointing Central Bankers: The Politics of Monetary Policy in the United States. Cambridge UP 2003.
  • Jeff Frieden, Currency Politics: The Political Economy of Exchange Rate Policy
  • Roger Lowenstein, America’s Bank: The Epic Struggle to Create the Federal Reserve (suggested by Jeff Frieden).
  • Bob Kuttner’s Debtors’ Prison
  • Mark Blyth, Austerity.
  • Paul Pierson and Jacob Hacker, American Amnesia: Rediscovering the Forgotten Roots of Prosperity.
  • Greta R. Krippner, Capitalizing on Crisis: The Political Origins of the Rise of Finance
  • Marion Fourcade, Economists and Societies: Discipline and Profession in the United States, Britain, and France, 1890s to 1990s; 2015
  • Marion Fourcade, “The Superiority of Economists” (with Etienne Ollion and Yann Algan), Journal of Economic Perspectives; 2013
  • Marion Fourcade, “Moral Categories in the Financial Crisis.”
  • Marion Fourcade, “Introduction” (with Cornelia Woll)
  • Marion Fourcade, “The Economy as Morality Play” Socio-Economic Review 11: 601-627.

18 references. Some of them are quite long. Figure roughly 3000 pages. Or roughly 1,000,000 words. Offered without guidance.

As one of my Doktorgrossväter, Alexander Gerschenkron, used to say: “to tell someone to read everything is to tell him to read nothing.”

So let me provide some guidance: If you are going to read one thing from Peter Gourevitch’s list, read Mark Blyth’s excellent Austerity. I do think it is the place to start.

And if you do read it, you will find a very strong book-length argument–an argument which carries the implications that Paul Krugman’s screeds against and anathemas of VSPs are not, as analytical explanations, wrong, but rather profoundly right.