Krugman’s blog, 9/15/15

There was one post yesterday, “Keynesianism Explained:”

Attacks on Keynesians in general, and on me in particular, rely heavily on an army of straw men — on knocking down claims about what people like me have predicted or asserted that have nothing to do with what we’ve actually said. But maybe we (or at least I) have been remiss, failing to offer a simple explanation of what it’s all about. I don’t mean the models; I mean the policy implications.

So here’s an attempt at a quick summary, followed by a sampling of typical bogus claims.

I would summarize the Keynesian view in terms of four points:

1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.

2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.

3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.

4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.

Is this a complicated, convoluted doctrine? It doesn’t sound that way to me, and the implications for the world we’ve been living in since 2008 seem very clear: aggressive monetary expansion, plus fiscal stimulus as long as the zero lower bound constrains monetary policy.

But strange things happen in the minds of critics. Again and again we see the following bogus claims about what Keynesians believe:

B1: Any economic recovery, no matter how slow and how delayed,proves Keynesian economics wrong. See [2] above for why that’s illiterate.

B2: Keynesians believe that printing money solves all problems. See [3]: printing money can solve one specific problem, an economy operating far below capacity. Nobody said that it can conjure up higher productivity, or cure the common cold.

B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary policy. That just happens to be the world we’ve been living in lately.

I have no illusions that saying this obvious stuff will stop the usual suspects from engaging in the usual bogosity. But maybe this will help others respond when they do.


One Response to “Krugman’s blog, 9/15/15”

  1. The Wizard Says:

    It’s obvious Mr. Krugman, that an under educated society is easy prey for slogans misstating facts and theories. Yesterday I heard a CBS radio talking head on Baltimore’s AM 1080 station target Bill Nye. Discrediting climate change he referred to Nye’s engineering credentials as imaginary calling him an actor and by reference a charlatan and thereby disproving the science supporting climate change.
    May I appropriate this sort of skulduggery and use the NYT as an example of shoddy journalism? Making epic if not Olympian efforts to drag the US into the European refugee calamity they have since turned their attention to quips on coed fraternities: should we or shouldn’t we? How dare we be concerned that jihadist use this stream of undocumented people to enter Europe and by extension the US? How dare we get in the way of people, any people who demand our attention, our sympathy and our protection? How dare we should remember these are the same people who adored Assad. Who shouted down the WTC? How dare we? It has surprised me that no one saw fit to bring up the problems of violence in the streets of Paris by unemployed Arabs and Muslims just a few short years ago. But as I said before Germany deserves to have such a problem. It has more than six million empty seats at the table to share their bounty with.

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