Krugman’s blog, 8/4/15

There were two posts yesterday.  The first was “Corbyn and the Cringe Caucus:”

I haven’t been closely following developments in UK politics since the election, but people have been asking me to comment on the emergence of Jeremy Corbyn as a serious contender for Labour leadership. And I do have a few thoughts.

First, it’s really important to understand that the austerity policies of the current government are not, as much of the British press portrays them, the only responsible answer to a fiscal crisis. There is no fiscal crisis, except in the imagination of Britain’s Very Serious People; the policies had large costs; the economic upturn when the UK fiscal tightening was put on hold does not justify the previous costs. More than that, the whole austerian ideology is based on fantasy economics, while it’s actually the anti-austerians who are basing their views on the best evidence from modern macroeconomic theory and evidence.

Nonetheless, all the contenders for Labour leadership other than Mr. Corbyn have chosen to accept the austerian ideology in full, including accepting false claims that Labour was fiscally irresponsible and that this irresponsibility caused the crisis. AsSimon Wren-Lewis says, when Labour supporters reject this move, they aren’t “moving left”, they’re refusing to follow a party elite that has decided to move sharply to the right.

What’s been going on within Labour reminds me of what went on within the Democratic Party under Reagan and again for a while under Bush: many leading figures in the party fell into what Josh Marshall used to call the “cringe”, basically accepting the right’s worldview but trying to win office by being a bit milder. There was a Stamaty cartoon during the Reagan years that, as I remember it, showed Democrats laying out their platform: big military spending, tax cuts for the rich, benefit cuts for the poor. “But how does that make you different from Republicans?” “Compassion — we careabout the victims of our policies.”

I don’t fully understand the apparent moral collapse of New Labour after an election that was not, if you look at the numbers, actually an overwhelming public endorsement of the Tories. But should we really be surprised if many Labour supporters still believe in what their party used to stand for, and are unwilling to support the Cringe Caucus in its flight to the right?

Well, if only our own Democrats would stand up from their cringe…  Yesterday’s second post was “Sarcasm and Science:”

Paul Romer continues his discussion of the wrong turn of freshwater economics, responding in part to my own entry, and makes a surprising suggestion — that Lucas and his followers were driven into their adversarial style by Robert Solow’s sarcasm:

I suspect that it was personal friction and a misunderstanding that encouraged a turn toward isolation (or if you prefer, epistemic closure) by Lucas and colleagues. They circled the wagons because they thought that this was the only way to keep the rational expectations revolution alive. The misunderstanding is that Lucas and his colleagues interpreted the hostile reaction they received from such economists as Robert Solow to mean that they were facing implacable, unreasoning resistance from such departments as MIT. In fact, in a remarkably short period of time, rational expectations completely conquered the PhD program at MIT.

Now, it’s true that people can get remarkably bent out of shape at the suggestion that they’re being silly and foolish. My impression is that several of the people trying to have feuds with me over macroeconomics and austerity are motivated to a substantial degree by the fact that early on in the debate they were, in effect, caught with their intellectual pants down, and that ever since they have been driven largely by a desire for revenge.

But Romer’s account of the great wrong turn still sounds much too contingent to me, and not just because, as he himself says, rational expectations quickly took over much modeling at MIT.

At least as I perceived it then — and remember, I was a grad student as much of this was going on — there were two other big factors.

First, there was a political component. Equilibrium business cycle theory denied that fiscal or monetary policy could play a useful role in managing the economy, and this was a very appealing conclusion on one side of the political spectrum. This surely was a big reason the freshwater school immediately declared total victory over Keynes well before its approach had been properly vetted, and why it could not back down when the vetting actually took place and the doctrine was found wanting.

Second — and this may be less apparent to non-economists — there was the toolkit factor. Lucas-type models introduced a new set of modeling and mathematical tools — tools that required a significant investment of time and effort to learn, but which, once learned, let you impress everyone with your technical proficiency. For those who had made that investment, there was a real incentive to insist that models using those tools, and only models using those tools, were the way to go in all future research.

Let me offer a parallel. There was a time when the study of international trade was utterly dominated by “2X2X2″ — the two-country, two-good, two-factor Heckscher-Ohlin model. This dominance persisted for a long time even though the model never worked empirically. Why? Well, it seemed clear to me, entering that field, that it had a lot to do with the way 2X2X2 fell into a sort of technical sweet spot: hard enough that only aficionados could put it through its paces, but simple enough that you could prove a bunch of interesting results; it was perfect for set-piece classes, and knowledge of the Four Theorems (don’t ask) made you part of a sort of insider clique. Something similar, I’d argue, made Lucas-type models attractive to some economists, in a way that made them very resistant to critiques.

And of course at this point all of these factors have been greatly reinforced by the law of diminishing disciples: Lucas’s intellectual grandchildren are utterly unable to consider the possibility that they might be on the wrong track.


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