...Jonathan Catalan thinks that guy is "making a mistake" for not focusing on monetary policy.
It appears someone has drunk the Scott Sumner Kool-Aid on diagnosing the econ blogosphere. His diagnosis is of Krugman is wrong. Jonathan writes: "If I remember correctly, the reasoning for the change of emphasis to fiscal policy was mainly “political.” Krugman felt that it was more worthwhile to draw attention to fiscal stimulus, because inflation hawks were making it difficult for the Federal Reserve to change its position on the two percent inflation target."
As Jonathan points out and I think Krugman is well aware, there are less political obstacles at the Fed than in Congress. What I remember from the Japan paper and most of his blogging during the crisis is that in a liquidity trap monetary policy works on output through expectations - it cannot work through interest rates. It can't even work through inflation until we reach something approaching full employment again. Expectations are delicate, particularly for a central bank that has cultivated an image of price stabilization so fiscal policy and monetary policy together can work better than just monetary policy in a liquidity trap. The word Krugman always uses is "traction" - fiscal policy helps monetary policy get traction.
I imagine (and I'm only speculating here) that this has much less to do with Jonathan wanting to criticize Krugman and much more to do with Jonathan starting a transformation many Austrians and libertarians have made in the last couple years into realizing that a lot of Austrian macro is bunk and wanting to hitch on to the market monetarist train. John Papola did this virtually overnight and I feel like a lot of internet Austrians followed suit. Ryan Murphy did it a long time ago. I'm guessing something like that may be behind Jonathan's post. That's great - there's a lot to market monetarism. But that wrong way to embrace it is to alienate a huge group of people that agree with you on monetary policy and make public statements that seem to imply there's some kind of big division among economists on what the Fed should do. There's not. If you ask the average non-economist that's fairly up on things and reads the New York Times whether Krugman supports expansionary monetary policy at the Fed they'll say "well of course he does - duh!". If you ask the same person what Scott Sumner thinks, unfortunately he'll probably say "who's Scott Sumner?". I say "unfortunately" because Scott does deserve to be better known. Even among professional economists, a lot of people associate NGDP targeting with Christina Romer, not Sumner, for her 2011 op-ed. Older guys that aren't immersed in the blogosphere and as a result didn't know who Scott Sumner was first got the NGDP targeting message that way.
I don't think anyone has any trouble understanding the Keynesian position that we should be firing on all cylinders. Now the politics of Washington might only ever get us one, but there is no conceivable way that advocating fiscal policy has reduced the prospects of expansionary monetary policy.
Procrastinating on April 24, 2017
1 hour ago