Garrett Jones's review of Krugman's book (also discussed by David Henderson here) does a great job highlighting one, misses the second, and is guilty of violating the third. They are:
1. Don't expect miracles
2. Do no harm
3. Snark is in the eye of the beholder
Don't expect miracles
Jones does a good job deflating miracle expectations about policy. I think good macroeconomics teaches us that economies can spontaneously fall into downturns. The mechanisms are endogenous and inherent in human psychology: you don't have to invoke some kind of exogenous mischief by the Fed and you really don't have to accept criticisms that you "don't have faith in the market" by acknowledging this. Good macroeconomics also provides a few solutions. The mistake is in thinking that those solutions are necessarily going to be completely satisfying. Jones bursts this bubble, appropriately:
"...he doesn't even believe in overwhelming payoffs to government spending: A
dollar of government spending might only increase the private sector by
fifty cents, he reports in his postscript. Once you consider that
government isn't all that efficient, that taxes will have to be raised
someday to pay the bill, and that government programs tend to outlive
their usefulness, this doesn't sound like such a great idea."
We can debate about how much sense that last point makes (it's kind of weird to be cautioned against income generation because that income will be taxed... taxed income is better than no income! Positive multipliers at the zero lower bound are sustained even in the face of full Ricardian equivalence), but generally speaking I think this is a reasonable, if alarmist, statement. We could of course keep Congress continually appropriating until a 1.5 multiplier filled the jobs deficit. If we had something sensible to do with that money (like keep fascists from taking over Europe), that might make sense. But in the real world today, there could be very real limits (and not entirely senseless ones) to the public expenditures that are willing to make. Tack a 1.5 multiplier on top of that and you're going to get good policy, but there's no law of macroeconomics that says its going to be sufficient.
The same goes with monetary policy. Scott Sumner regularly confuses the goal with the policy lever. The Fed does not control NGDP - it just controls things that are related to NGDP. While an NGDP target may be wise, damaged credit channels could keep it from materializing. We may have to live with a second or third best.
Do no harm
One thing that frustrated me about Jones's review was this line: "By his own calculations, however, state aid would make a modest contribution". This seems like a very misleading way of framing the issue to me. Insofar as this is just a reiteration of the point above - that we shouldn't expect miracles - that's fine. But that's not really the issue at hand with state and local aid. Public sector employment is down, not up, and of course even if it were to improve it's still way off trend. State and local hiring isn't some kind of excessive Keynesian stimulus. It's just doing the stuff that government always did. Our approach should be "do no harm". Who cares if turning around state and local hiring only makes a "modest contribution", to use Jones's words? A modest contribution to the economy is better than a drag on the economy! Right now state and local austerity isn't just costing the jobs that are being cut, but you have a negative multiplier effect. That's what's truly insane about policy these days - it's not just that they're not doing things that would improve the situation: they are actively hurting it. If we just did what most of us agreed was good policy in 2007 it would be an improvement.
Jones obscures this point by treating state and local aid as weak fare.
Snark is in the eye of the beholder
Anyone that ever plans on writing about Krugman should read this carefully. Jones's review was less about Krugman's book than about Krugman himself - it's full of obnoxious barbs against the man. The opening line is a backhanded compliment ("he's playing nice than usual"). He recommends the book "if you're comfortable with Krugman's snark". Another backhanded compliment: "Paul Krugman doesn't give a good clean fight, but he gives a good fight" and "he names his opponents and gives a hint of their ideas so Google can tell us if he's representing them fairly (50% fair)". Some of it isn't even disguised as a compliment: "the descent into what some have called Krugmania is also here in abundance", and "when you disagree with Paul Krugman, you have a better than even chance of being right". Krugman fans also come in for abuse!: "Let it be noted for all congregants in the Krugman church: Paul K. said
it was "clearly right" that there were limits to stimulus in 2009" - the "Krugman church"?!? What is that? This stuff is sprinkled throughout the review - it's a part of every point that Jones raises and is really the unifying theme of the review.
So why do I point this out? I've met Garrett Jones once and had an online exchange with him once, and he seemed perfectly nice. I've been very interested in his work on IQ and growth and have been wanting to cite and integrate that work into my own stuff on the science and engineering workforce. I barely know the guy but even from the little I do know, he's impressed me.
If I didn't have that context and just read this review, I would have just assumed he was just some asshole with the same knee-jerk reaction to Krugman that a lot of people have.
So, part of me is just glad I had some familiarity with Jones before reading this. But part of me also thinks there's a lesson here for people: snark is often in the eye of the beholder. There are a lot of us out there who don't think Krugman is a partisan hack and who think that the people who bend over backwards to paint him as such can be truly neurotic. Clearly the "macro wars" get heated - it's one thing to recognize that. But if you act like only crazy people deny that Krugman has somehow fallen from grace, you're going to come off as a real jerk that doesn't really know what he's talking about.
If you feel the need to acknowledge the heat of the macro wars, do that and move on.
Procrastinating on September 26, 2016
3 hours ago