- Matt Yglesias picks up my post on Jefferson.
- Bob Murphy cites my 1920-21 paper in a post on the "soft patch" we've hit that may turn itself into a double-dip. The article itself is very odd to me. Murphy writes:
"But go look at Krugman's analysis at the time. His point was not so much that the Romer team's numbers were wrong (though he did think their projections of what would happen without the stimulus were very optimistic). Rather, he was saying that on their own projections, they weren't anywhere near to closing the "output gap." In other words, in terms of the above graph, Krugman wasn't warning, "Guys, I think actual unemployment with the stimulus package will look like the red dotted line, so you need to spend a lot more." Rather, he was saying, "Guys, that blue line is still pretty miserable, and the Republicans might classify the stimulus as a failure. So you'd better spend more.""
As for the first bolded statement - what exactly is Bob under the impression the "output gap" is? That is a proclamation that the estimates are too rosy, is it not? And what's this talk about Republicans? Nothing Bob links to seems to mention Republicans at all. Certainly Krugman and others were worried that Republicans would scuttle the stimulus, but from the beginning the complaint was that this wasn't enough - that it would help but we would still have high unemployment. How Murphy gets this: "Therefore, when it comes to the effects of the "stimulus" package, the free-market economists (including the Austrians) were right, and the Keynesians were wrong" is beyond me (kind of an oddly constructed sentence too - although I guess in the same way that I'm not a "classical liberal" to Bob, I'm also not a "free market economist", so in the mises.org world it makes sense). Is anyone aware of any Austrian forecasts of unemployment for 2009-2011? I bet if we paired the Austrian forecasts (I doubt there are any) with the actual unemployment with stimulus, it wouldn't look quite so bad. But then again, it wouldn't serve their interests to forecast and subsequently post such a thing. This is all bizarre to me.
- And speaking of Krugman, the blog Beats and Pieces likes my "On Paul Krugman" post.- In a comment on what I have to say in a spectacularly bad post by Don Boudreaux on Keynes and Smith, a commenter writes this of me: "You have the potential to become the Walter Kaufmann of John Maynard Keynes. Kaufmann scrubbed all the naughtiness of Friedrich Nietzsche and made him palatable to the English-speaking public. You are doing the same for Keynes. Congratulations on your new role." My response: "The English-speaking public on both sides of the Atlantic found Keynes quite palatable even in his own time."
Posts
WRT the Cafe Hayek discussion:
ReplyDeleteI am impressed that a self-declared anarcho-capitalist like JMF Catalan is giving a defense of Keynes to...Hayekians.
It's interesting, because while Hayek and his admirers are a little towards the middle of the road, it is a relative "extremist" as Jon who is correcting misinformation, unfair characterization, and parody of an opponent being done by the people on Cafe Hayek.
I say it's interesting, because one would think the latter would be more likely to enage such misrepresentations than the former.
All in all, that's what distinguishes people who are concerned with the truth from those who are not.
What I find particularly impressive was that posters on MISES DOT ORG were criticizing Glenn Beck for misrepresenting the Progressive movement, and even LRC had a few articles correcting Beck's selective and wrongful claims about Progressives before 1920s. To some extent, a good number of them go beyond partisan talking points and aim to seek the truth.
He is an intelligent and fair guy.
ReplyDeleteDaniel, do you mean that the Austrians were warning the stimulus package would lead to, say, 14% unemployment, and so the reality was somewhere in between Romer's optimism and (say) Murphy's doomsaying?
ReplyDeleteIf that is indeed what you're saying, OK fair enough, I'll buy that. That's why I have been saying that if we really *did* hit rock-bottom in 2009, then free markets are not nearly as important as I thought they were.
But what I am focusing on is the *direction*. Professional forecasters working for investment banks and other places had their estimates of what the economy would do, absent stimulus. I think Krugman was generally OK with those views. Then the stimulus gets approved, and whoops all of a sudden the economy is a lot worse than people thought.
So say what you will about the free-market people, they were saying the stimulus wouldn't help any (because at best it shuffles money around) and when you factor in the difference between private investment versus gov't spending, then it would actually make things worse. Surely you remember them saying that--Brad DeLong and Krugman were going nuts because of it, classifying it as the Dark Age of Macro.
Of course "other things equal" is impossible to do in practice, but my point is, to the extent that the stimulus episode taught us anything, it was that the free-market people were right and the Keynesians were wrong. (And I will concede that by the same approach, looking at the inflation numbers thus far would say the Keynesians were right and the free-market people were wrong.)
Fair enough? I still think I'm right, despite the CPI fiasco, and you can still think Krugman was right, despite the stimulus/unemployment fiasco. But I'd like you to admit it was a fiasco.
I'm just trying to understand your concern with the counterfactual here.
ReplyDeleteSome Austrians, it should be noted, were saying that the stimulus could cause a recovery but would set the groundwork for a later bust too.
I just see the Austrian case and the Austrian evidence in relative disarray. I find elements of the approach plausible, but I am still unsure why I'm supposed to be convinced at its ability - on its own - to explain the current crisis (and maybe it's not supposed to - but I thought it was). The Keynesians story is very clear. They didn't have crystal balls in early 2009, it's true. I don't know who expected them to, though, so I'm unclear on why I should care. Most other assessments have held up very well.
re: "So say what you will about the free-market people, they were saying the stimulus wouldn't help any"
By this do you mean Austrians, or a wider circle?
My point is this - we don't have any empirical evidence that can tell us if it "made things worse" or not. Yes, Austrians (not all free market people, but certainly many Austrians) thought it would make things worse. Did it? Do you know? Do you know what the unemployment rate would have been in an alternate universe with no stimulus?
Of course you don't. If you could peer into such an alternate universe you would be absurdly rich. Neither do I, neither does Krugman, and neither do Romer or Bernstein.
What can we observe?:
- What rates of change are doing.
- What interest rates are doing.
- What inflation is doing.
Those all seem to be telling a pretty Keynesian story to me. In the absence of a GDP or unemployment counter-factual, and with observed unemployment and GDP apparently not surprising Keynesians or Austrians, that seems like important evidence to me.
re: "to the extent that the stimulus episode taught us anything, it was that the free-market people were right and the Keynesians were wrong."
WHA?!?!?!
This is why I asked you on your blog if you thought Romer-Bernstein was the right counter-factual. You can ONLY say this if you think that. Do you think that?
RE: "Fair enough?"
I take your point but still do not understand it at all.
re: "But I'd like you to admit it was a fiasco."
What is there to admit? I'm not sure what the fiasco is supposed to be. I think unemployment is lower now than it would have been. You have offered no reason at all to think otherwise - none at all. I think what I think because all the other evidence points to a counterfactual that is higher than the observed data. I'm not trying to be difficult - I am genuinely ignorant of what it is you think you have said that you think should convince me that the counterfactual was lower than the actual data.
re: "That's why I have been saying that if we really *did* hit rock-bottom in 2009, then free markets are not nearly as important as I thought they were."
ReplyDeleteWhy? The people who you hear making these claims - me, Krugman, DeLong, etc. - certainly aren't second guessing the importance of free markets.
In all honesty, your post this morning and then the post on your blog deeply confuse me. I'm really not quite sure I understand what I should be persuaded by. As far as I can tell the only issue we can possibly fault Krugman and other Keynesians for is getting a forecast wrong.
Aren't forecasts suppose to be mean-reverting and extremely hard to do - particularly in the middle of a major financial crisis?
I'm fully willing to stipulate that we as economists are very bad at forecasting levels of unemployment and output. I'm not sure how the rest of your claims follow from that.
Hang on a second Daniel. I can just do the same trick to explain away interest rates and inflation. "Oh, actually Daniel, I was right--CPI really *did* go through the roof, just like I predicted, and Krugman was totally wrong for dismissing concerns about the monetary base. But the thing is, my baseline forecast was a bit off. Absent QE1 and QE2, CPI would have dropped 5%."
ReplyDeleteI actually think the above (I would have to think more carefully about the numbers if I were doing this for real) is true. But I wouldn't dare go around saying, "Krugman for some reason thinks he 'called' inflation, but we all know counterfactuals are hard to prove. Why Daniel thinks Krugman was right on inflation is beyond me."
Can you see why that would be rather unfair of me to say?
Incidentally, Daniel, would you mind doing a blog post summarizing your major objections to Tom and me on the 1920-1921 episode? I always try to send people to your RAE article whenever I make the point, but actually it doesn't help you too much when I link to Tom's YouTube and my online article, and I send them to your article which they have to buy.
ReplyDeleteSo I'd rather send them to a blog post where you link to your article but summarize the key points.
One of the more absurd things about the debate about the effects of stimulus is the total failure to look at other countries.
ReplyDeleteAmerica was not the only country to implement Keynesian stimulus: Germany, the UK, France, Sweden, Canda, Australia etc, etc.
If you bother to look at the data you will see that stimulus is correlated with growth and falls in unemployment in all these countries.
The case of Germany is particularly striking.
Because of stimulus and the "short work" program there, unemployment fell from about 8% to 6%.
http://www.google.com/publicdata?ds=z9a8a3sje0h8ii_&met_y=unemployment_rate&idim=eu_country:DE&dl=en&hl=en&q=unemployment+rate+germany
Any unbiased observer would conclude that it is more stimulus, not less, that is necessary to bring down unmployment even further in industrialized nations.
Bob,
ReplyDeleteI believe there is still a rough draft of Daniel's article available on the net.
Bob -
ReplyDeleteCPI and interest rates seem to be fundamentally different from employment, don't they? They are much less closely tied to the business cycle, which is precisely the unpredictable element. I don't know if 5% is right but I think that's plausible - that we would have had much more deflation as the counter-factual. But if that's true, then why did you predict high inflation as a result? Why didn't you predict low inflation?
Notice also, Bob, that I haven't said that the Austrians are wrong. I'm not saying the evidence disproves your case or that you can't make an argument. That has been your argument about Keynesians. You didn't have to say Keynesians were wrong in your Mises Daily article, but you did! Why? That's what seems strange to me. Even if we can't decisively arbitrate this, Keynes seems to hold up very, very well.
ReplyDeleteThis is the same with 1920-21, I'll note. I never came out saying "the Austrians were wrong". I never had the arguments to make that claim. You all are the ones that were saying Keynesians were wrong and I'm just left asking "how could you suggest such a thing?".