Tuesday, June 19, 2012

Two solid blows to Krugman yesterday

1. David Henderson on a Reagan-era inflation memo, and

2. Bob Murphy on loan guarantees.

Both hit their mark, I think. I would be curious to know what transpired in the 80s after the memo (I don't know the situation well enough myself). After all, Krugman's bona fide Keynesian memo of late 2008 would have looked very, very different from his bona fide Keynesian memo of mid 2009. "When the facts change...". But I agree with David, that it does sound like Krugman is thinking along different lines than he did then. He may very well have a point now, but it clearly wasn't at the forefront of his mind in 1982.

On Bob's post on loan guarantees, again I think it makes its mark, but I'd point out that I don't think Krugman ever denied that dirty backroom dealing went on with Solyndra. I don't think he ever claimed that particular case was squeaky clean. The whole concern was why one bad apple like Solyndra was making people think there was something wrong with the whole program. You can also tell from the Cameron post that he's taking a jab at him for using it as a way to save face.

Actually the post where Krugman scolded the British for the loan guarantees really sold me on loan guarantees. Why don't we do this more often for fiscal policy? It seems like it would really help to leverage local knowledge on project success but still achieve the basic goal about overcoming uncertainty about future demand. You would, as Krugman suggests, need to establish better rules like we have in contracting of course.

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