Footnote to a Current Controversy

The current dust-up between Paul Krugman and the “austerians,” in which the Princeton University economist, a columnist for The New York Times, cast Carmen Reinhart and Kenneth Rogoff, both of Harvard University, to play the villain opposite himself, is reminiscent of an earlier episode in the same drama.

In 1992 it was Krugman vs. the incoming Clinton White House.  Then it was Laura D’Andrea Tyson who played the heavy.

Bill Clinton had been elected and convened an all-star economics conference in Little Rock. Krugman was then being mentioned as a possible member of the Council of Economic Advisers. After Tyson, a University of California at Berkeley economist who had been a graduate student at the Massachusetts Institute of Technology just before Krugman arrived there, was chosen to chair the Council, Krugman went on Larry King Live and called the summit “useless.”

Over the next several weeks Krugman conducted a not-so-sotto-voce campaign against various appointments, especially Tyson’s. At one point he told Hobart Rowen of The Washington Post that Clinton “wouldn’t be able to get good economists to work for him.”  Rowen called the criticism “churlish.”

Tyson went on to distinguish herself as a strong player, first as CEA chair, then replacing Robert Rubin as director of the National Economic Council, before leaving in 1997 to become a dean, first of Berkeley’s Haas School of Business, then of London Business School.

Krugman, having known for fifteen years that there was a good likelihood he would eventually share a Nobel Prize, having tired of academic research, retooled as a textbook and popular author and economic journalist, for Slate, Fortune and, since 2001, for the Times.

The current drama bears a striking resemblance to the earlier event mainly for this reason: Reinhart and Rogoff have something that Krugman wanted.  Their 2009 book, This Time Is Different: Eight Centuries of Financial Folly turned out to be the authoritative warning of the severity, breadth and duration of the recent economic crisis.

In comparison, Krugman’s rapid revision of an earlier book about Japan, The Return of Depression Economics and the Crisis of 2008, which appeared about the same time, had comparatively little effect on the way the crisis was perceived in policy circles (though it was a mass-market best-seller).  And, for all Krugman’s spirited defense of massive stimulus, it was NEC director Lawrence Summers and CEA chair Christina Romer who devised the government’s response for the Obama Administration. As an economist, as opposed to a journalist, Krugman was a marginal figure throughout the crisis.

In the aftermath of the crisis, Krugman was an influential proponent of stimulus – “compensatory government spending” in the language of an earlier age.  When the  original $800 billion measure failed to produce a robust recovery, Krugman and other argued for a second, larger spending bill—despite the new prominence the 2010 election results had given the Simpson Bowles proposal for long-term deficit reduction. See this lucid article by Michael Kinsley for the context.

All along, Krugman needled Reinhart and Rogoff for what he saw as excessive devotion to caution. And when a key paper of theirs was criticized on methodological grounds last month, Krugman ramped up his attack. It reached new heights earlier this month in an essay “How the Case for Austerity Has Crumbled” in The New York Review of Books.  “[R]einhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics,” he wrote.

The Harvard economists last week posted an open letter to Krugman in their defense. Their refutation of Krugman’s charge that they had declined to share their data is worth reading. So is the record of their policy advice-giving in the appendix.  Otherwise, it is not worth sorting through the details. Here’s why.

Last week, Krugman on his energetic New York Times blog praised Laurence Ball, of Johns Hopkins University, for his “Four Percent Solution”:

Larry Ball makes the case that we would be a lot better off with a 4 percent inflation target rather than the 2 percent that is now central bank orthodoxy. Intellectually, this position is hardly outlandish; indeed, Ball’s case is very similar to the case Olivier Blanchard made three years ago, just stated more forcefully and with more evidence.

Here is Rogoff, writing in a December 2008 op-ed for Project Syndicate, “Inflation is Now the Lesser Evil”:

It is time for the world’s major central banks to acknowledge that a sudden burst of moderate inflation would be extremely helpful in unwinding today’s epic debt morass…. Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective.

By any standard, that was a prescient call – a bit too early to build popular support, but a year earlier than Blanchard, and sufficient to demonstrate the Rogoff was anything but a single-minded budget-cutter. In 2011 he renewed the prescription.

A lawyer who withheld exculpatory evidence like that from his argument would have his case tossed out of court. A columnist for a great newspaper should be held to a similar standard.

I have known Krugman for a long time; I admire him. I share many of his convictions. I would even say that we are friends. His career as a journalist, like his career as an economist, has been studded with brilliant coups.

But as in the Little Rock case, he lacks a governor; or, in this situation, even an editor. The earlier episode ensured that Krugman would never again serve in government. (He had done a turn the CEA as a junior staffer under Martin Feldstein in the early 1980s.) This one surely cinches the case that he should never win a Pulitzer Prize. The habitual thumb on the scale has become contempt for the balance itself.

30 responses to “Footnote to a Current Controversy”

  1. And I doubt you’ll remain his friend for very long after this blog-post gets famous.

    Overall, though, I agree. I can’t pretend to know Krugman but, though I share many of his ideas, I find his combative style and contempt for any opposition more than a bit counterproductive…

  2. I’m confused. The inflation discussion and the Reinhart-Rogoff paper are two totally different discussions. Why can’t Krugman initiate a legitimate debate about one without bringing up the other?

    Now, if Krugman was saying “I disagree with Reinhart and Rogoff on everything they’ve ever done,” that would be a different story. But he’s not.

  3. I would put it differently. I would say that Carmen and Ken have been consistently pro-higher inflation, pro-debt writedowns, anti-fiscal expansion, all as part of their general orientation toward S=i rather than C+I+G=Y formulations of macro. The problem is that monetary expansion at appropriate scale and debt writedowns have been mostly frozen for three years, with all the policy action coming on the fiscal side, where their influence has been overwhelmingly to reinforce the “we have to cut the deficit now! We dare not let the debt-to-annual-GDP ratio go above 90%!” side.

    There is an alternate universe–one I really wished we lived in–in which Ken Rogoff, Carmen Reinhart, Greg Mankiw, Christie Romer, and Larry Ball led a politically-effective “we need a higher inflation target” campaign over the past four years. But, alas, we do not live there…

  4. You make it sound as if Krugman thought the initial stimulus was big enough. He never did. He always said that it was too small. Also, R&R have to admit that causality probably runs the other way: Slow growth probably leads to high debt. This is one of Krugman’s major points. Also, he has defended R&R many times. He’s very balanced. You are not.

  5. Larry Summers deliberately understated the size of the required stimulus because he didn’t want to get cross-ways with the Obama political team, according to Noam Scheiber.

    Krugman was right. Summers was intellectually dishonest.

  6. The question is, who is correct?

    If Reinhart and Rogoff are correct that there is a sharp “cliff” — a substantial decline in growth at 90% debt-to-gdp. You say they won the debate on the merits, why not show your readers the “cliff” with a simple graph? Paul Krugman was able to back up his points with actual data. Where is yours?

    And since Reinhart and Rogoff have repeatedly implied and hinted at a causal relationship running from debt to growth (including in their letter to Krugman), why not also plot the debt-to-gdp ratio verse 5 year leads and lags of growth, just to show your readers how Reinhart and Rogoff are correct on the merits?

    If Krugman is so wrong on this, then you owe it to your readers to show them.

    Why not let the data speak in this case?

  7. Don’t you have it backwards?

    Didn’t R+R, having ballyhooed their study, get busted with their own thumbs on the scale?

    Didn’t R+R want an influential popular pulpit and overstate their case?

    And aren’t they a little bit peeved, having stooped to popularization and politics, to be bested by the despised popularizer, and now abasing themselves with further ad-hominem?

  8. David, at several points in their letter to Krugman, Reinhart and Rogoff again assert a causal relationship from debt to growth.

    They wrote: “A number of studies looking at more comprehensive growth models have found significant effects of debt on growth.”

    What studies? Where are these studies? Theoretical models perhaps, but there are no careful empirical studies. And there is also a theoretical framework which implies the opposite for economies suffering from enormous demand shortfalls — it’s called IS-LM in a liquidity trap.

    Before, they wrote: “the difference in annual GDP growth between high and lower debt cases
    is about one percent a year, debt overhang episodes last on average 23 years. Thus, the
    cumulative effect on income levels over time is significant.”

    Except, when you plot leads and lags of growth versus debt, you see that high debt loads are preceded by much slower growth, and you also see that carrying 100% debt-to-gdp is well within the Margin of Error on subsequent growth as carrying 50%. Even the correlation is not significant, as Reinhart and Rogoff assert.

    From a previous Op-Ed: “we find that very high debt levels of 90% of GDP are a long-term secular drag on economic growth that often lasts for two decades or more.”

    But correlation does not equal causality.

    That’s the key flaw which Reinhart and Rogoff, still, are simply unwilling to acknowledge.

    You’re an economic journalist, why not ask Reinhart and Rogoff? Ask them why they have repeatedly asserted a causal relationship when they have found correlation, and whether this is generally sound methodology. And then ask them to explain this graph:

  9. Thank you, Thorstein Veblen, that is a great link to Arin Dube’s analysis. Obviously, there is a cost to a high debt/GDP ratio, but it is very small compared to the cost of a liquidity trap with high unemployment. If somehow the world finds its way out of this predicament with a non-Keynesian method, it will have suffered years of stagnation and suffering of tens of millions. R&R will have to spend their time in purgatory for their role in this debacle. Krugman is right to be critical of them, not uncivil.

  10. There is an alternate universe–one I really wished we lived in–in which BRAD DELONG AND PAUL KRUGMAN Ball led a politically-effective “we need a higher inflation target” campaign over the past four years. But, alas, we do not live there…

    Alas, the Keynesians led a politically INeffective campaign for fiscal stimulus.

  11. This is full of accusations that Krugman has said certain types of things, or had certain types of attitudes, without referring to specific quotes. Much of this seems to have a basis only in atmospherics. In my reading (rather complete, over the years, but who remembers everything) he very consistently avoids personal attacks, but can be quite harsh when assessing the intellectual substance. No doubt this feels personal if you’re the recipient, but it isn’t, and R&R’s letter mostly doesn’t offer any substantiation to the claim that his attacks have been personal.

    There is one exception: the accusation that R&R did not share their data and methods. Now clearly Krugman didn’t accuse them of refusing to share with him; he was (at least implicitly) passing along others accusations of this sort. Dean Baker has said more than once on his blog, in so many words, that he wrote to them asking for materials that would enable his to reproduce their results, and received no response to his emails. In what they write R&R say their data was in fact posted on various websites, but I don’t see any claim that the spreadsheet was publicly available before they gave it to Herndon.

  12. I find it quite puzzling that you seem unaware that the Kinsley column you cite approvingly has been attacked quite strongly, by Krugman, but also by many many others. There are various specifics with considerable substantive detail, but the overall gist is that Kinsley is said, by his critics, to be doing macroeconomic analysis with his gut rather than his brain…

  13. This post is imbecile, borderline disingenuous. I am not a “fan” of anyone, but I know how to read, and apparently the author of this post is just unable to.

    R&R have always been in favor of inflation as *the* solution to the current crisis not only in the USA but also in Europe. Krugman never was against this solution per se, only against the idea that this solution was *sufficient*. He said this over and over, and still these allegedly smart bloggers can’t read. He said that inflation helps, but you also need fiscal solutions, aka stimulus.

    He also always said that the stimulus was too low from the very start. He didn’t say “after” the solution was implemented and deemed innefectual that we needed “more”. That’s rewriting history disingenuously. That people think they can get away with this behavior in the internet age is beyond me. Or probably they just aren’t able to read. He even predicted that the reasoning of “they will make half-assd stimulus, it won’t work and then the stimulus will be rendered as bad policy” would occur. But again, you didn’t read that.

    When you say that Krugman’s problem is that he’s jealous he didn’t get the economic prominence that the Austerians had, well that could be 100% true and it would still be 100% irrelevant. Because what matters is who is right or who is wrong here. If he is right, then we *all* suffer from the idiotic turn to austerity, and I couldn’t give one iota of importance to someone’s ego. If he’s wrong, then we should know it by now, except we don’t and all we got is some illiterate bloggers trying to badmouth Krugman for all the wrong reasons.

  14. OMG, nothing to say about any topic at hand, but some kitchen sink psychology. This post exemplifies the reason why we can’t have nice things. It cannot possibly get more useless than this.

  15. Well google search reveals a 2010 Krugman blog post about Rogoff’s inflation call:

    “September 2, 2010, 9:23 am 144 Comments
    The Inflation Cure
    Ken Rogoff is proposing — not for the first time — that the United States use a burst of inflation to get out of its slump. My reaction is a mix of agreement and exasperation. I agree that higher inflation would help; my exasperation comes from Rogoff’s offhandedness about the whole thing. How, exactly, are we supposed to get this burst of inflation?…
    So what are you exactly objecting to? Krugman not crediting Rogoff with calling for higher inflation? And the post you cite from followed a June 2008 post by Rogoff where he called for lower inflation:

    It clear Rogoff evolved his understanding of the economy in crisis. That’s all good. but is your “evidence” is that Krugman did not credit Rogoff in his latest blog post? He did acknowledge that call nearly 3 years ago asked for more clarification back in 2010. Befuddling.

  16. This is completely remarkable.

    You wrote “By any standard, that was a prescient call – a bit too early to build popular support, but a year earlier than Blanchard, and sufficient to demonstrate the Rogoff was anything but a single-minded budget-cutter.”

    … while talking about Rogoff’s support for inflationary monetary policy. How does support for inflationary monetary policy (never remotely on the table in Europe) indicate that he was not a “single-minded budget-cutter” with respect to fiscal policy?

    Or would his support for, say, gay marriage also indicate that he’s not (only) a single-minded budget-cutter?

    If you’re going to use his stance on monetary policy to explain (the correctness of, it appears, in your opinion) his stance on fiscal policy, then you should at least draw that out and explain why monetary policy could have been a sufficient prescription – when paired with budget cuts and austerity simultaneously.

    And on top of that, the “4% solution” discussed by Krugman is not designed to be a temporary solution. It is designed to provide sufficient downside cushion so that the zero lower bound is less of an issue.
    (From the linked Krugman blog post: “The basic point is that a higher baseline for inflation would make liquidity traps, in which conventional monetary policy is up against the zero lower bound, less likely and less costly when they happen.”)

    As far as I can tell, Rogoff’s 6% inflation comment was a very short term solution to a specific downturn, as opposed to a long term plan.

    How are the two block quotes even connected to the same debate?

  17. Yes, it’s all Krugman’s fault.

    R&R produced sloppy research, then popularized and politicized the growth “cliff” and the causality angle.

    Grad students found no cliff, and the causality angle was torn apart by Krugman among many, many others.

    R&R then try to tap in to widespread Krugman hatred by trying to make this a personal argument between R&R and Krugman. To top it off, they call for austerity in Europe … why? No coherent reasons… Seemingly to just stick it to Krugman.

  18. This is mostly nonsense. See comment #3. Add:

    Krugman has repeatedly recognized Rogoff as someone who has advocated for higher inflation during the downturn. But he can’t be expected to mention him every time he discusses inflation!

    More importantly, on the facts, Reinhart and Rogoff are clearly in the wrong. Experts providing policy advice need to be held to a high standard. These professors’ erroneous or unsubstantiated conclusions have contributed to immeasurable suffering. They need to be called out and forced to explain or withdraw their claims. Krugman has done so. Why is he being attacked for it?

    This post has considerably diminished my respect for its author.

  19. I find it odd that R&R assert that the way forward is inflation. Economists of all stripes recognize that a little inflation is good for a healthy economy. But given that demand is weak and corporations and savers are sitting on trillions of dollars of unspent cash, (think Apple) it is hard to see how the “inflation only” policy could be implemented. Wages are stagnant; weekly wage rates have not increased to any degree. Saying that inflation should be “implemented” is really to argue that demand should be increased…by artificially increasing wages! Try getting Congress to mandate that Apple should pay $2 above the minimum wage.

  20. Wow. Yet another tool who hasn’t been reading what Krugman has been writing since 2008, except in dribs and drabs.

    Krugman, from the beginning in 2009, warned that the $800 stimulus was nowhere near enough. Thus his call for more when his prediction that it was insufficient came true. His opinion, it turns out, was SHATED by Christina Romer who proposed a much larger stimulus but was prevented from giving this option to the President by Larry Summers.

    Krugman also admits he hasn’t been listened to by policy makers. Well, except Ben Bernanke who has been doing what he could to expand the monetary base. And Prime Minister Abe in Japan as well.

    In any case, your anima diversion into early 90’s irrelevancies is interesting, but has nothing to do with the major screw up by Reinhardt & Rogoff.

    I get that they are better liked by their colleagues than Krugman. But that’s no excuse to cover for their foul up and lie about Krugman’s positions.

  21. Krugman had alway wanted a 1.2 trillion stimulus , as oppose to 800 billion. The Australian government took his advice and ‘go big, go early,go household’, and avoid rrcessi pool n by the narrowest of margin. The prime minister (Kevin Rudd) rresponsible then got rolled by his own party when he want to raise taxes to pay back the debt. Good economic policy = lousy politics.

    Having read both work, R&R write from a point of view that blame everything on the financial market and lax supervision, making it a morality tale. In contrast, Krugman’s work deal with the macro economy that is hard for readers to understand even when he is correct. That is the great tragedy : being right means nothing when people refuse to believe you, and the idea that ‘more money’ can make everything better is morally wrong even when it’s technically correct. People want to believe in fairytales.

    The 90% claim on debt and growth gave a cover for imposing human suffering in the name of economic growth, when the real reason is political. Somewhere along the way, economist are only interested in their model, and completely forgot about the people.

  22. Pretty sad that this is what passes for respectable economic journalism these days.

  23. This is an interesting comments thread. I noticed no attempts to defend the post at all. Since many of the comments point out false claims of fact in the post, defending it would be a challenge. However, our host should read the comments and either defend his claims or retract them.


    There is an alternate universe–one I really wished we lived in–in which BRAD DELONG AND PAUL KRUGMAN Ball …
    Alas, the Keynesians led a politically INeffective campaign for fiscal stimulus.

    They campaigned for both. In particular, after roughly 2009 they switched their focus from fiscal to monetary policy, basically because they knew there was no way another large stimulus would get through Congress (Krugman by the way, argued in early 2009 that the ARRA was the only chance for fiscal stimulus so this is just another correct Krugman prediction).

    DeLong especially is quite casual about the difficulty of obtaining higher inflation. I have regularly argued with his claim that another QE will work, that the latest QE did work and that of course the latest QE didn’t work, because Bernanke didn’t say the exact right magic words when announcing it.

    Now only in an alternative universe could a DeLong/Krugman campaign be politically effective, since Republicans are against whatever they are for.

  24. I think that you are being too harsh on Krugman.

    I’d like to focus on his comments on
    Laura Tyson and try to supply some context. If you recall, Tyson was a proponent of an “industrial policy” approach for the US. This was her claim to fame and what seemed to make her intellectually attractive to Bill Clinton. Krugman was responding as a believer in the efficacy of markets and as a
    card carrying member of the International Economics Club. It’s no surprise that he should have used his platform to complain about Tyson’s views and to question whether someone who, he believed, didn’t like markets would be able to attract quality economists to Washington.

  25. It’s quite telling that people have stopped trying to defend RR’s research and are resorting to attacking Krugman instead.

    It’s not about caution or lack thereof; it’s about priorities. The percentage of the unemployed who have been out-of-work for more than 6 months is usually 5-20%, but is now around 40%. The median unemployment “stint” is still almost 18 weeks, or 4.5 months.

    The obvious danger is that the persistence of this will erode human capital and create a drag on long-term growth. If allowing this situation to persist is a “riskless proposition”, why doesn’t it happen more often?

Leave a Reply

Your email address will not be published. Required fields are marked *