Tuesday, September 15, 2009

Spoke Too Soon

. Tuesday, September 15, 2009

Krugman in 2007, on Milton Friedman:

For example, the Fed responded to the 2001 recession by slashing interest rates and allowing the money supply to grow at rates that sometimes exceeded 10 percent per year. Once the Fed was satisfied that the recovery was solid, it reversed course, raising interest rates and allowing growth in the money supply to drop to zero.

[S]ince the early 1980s the Federal Reserve and its counterparts in other countries have done a reasonably good job, undermining Friedman's portrayal of central bankers as irredeemable bunglers. Inflation has stayed low, recessions... have been relatively brief and shallow. And all this happened in spite of fluctuations in the money supply that horrified monetarists, and led them—Friedman included—to predict disasters that failed to materialize.

That is in defense of the sort of Fed "tweaking" that led to the loose money of 2001-2004 -- and inflation of the housing bubble -- that Krugman now derides. I'm not a moneterist, but I'm just sayin': if in 2007 you say the Fed was right to pursue expansionary monetary policy (and you said the same thing in 2001, 2002, 2003, 2004, 2005, and 2006), and in 2009 you say the Fed was wrong to pursue those same policies because they led to bubbles, then maybe you should stop lobbing hand grenades at your ideological opponents for not being omniscient.

Just sayin'.

Nevertheless, that whole article is worth reading. It's a eulogy of sorts, and Krugman shows a fair bit of respect (though it comes with several accusations of intellectual dishonesty). It's basically the story of a very smart guy grabbling with the ideas of another very smart guy that he very much disagrees with but is forced to respect. And there's also a distinct note of admiration for Friedman's ability to steer public policy, a level of influence that Krugman has often yearned for but seldom achieved. Here's his conclusion, which applies every bit as much to Krugman as to Friedman:

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications.

Perhaps the only difference between the two in this regard is that there is no such thing as "Krugmanism".


Thomas Oatley said...

Yet, of course you mean.

Kindred Winecoff said...

Maybe, but I've been thinking about what "Krugmanism" would involve. His best academic work has almost nothing to do with his political commentary, nor does he have a defining positive paradigm like Friedman had. I mean, what would "Krugmanism" look like in a nutshell? "Markets aren't always good"? "Governments aren't always bad"? "I really like the way Europeans do some things but not other things"? Even if that does represent a coherent system of thought, how is it distinctly "Krugman-esque"? The same things have been said by lots of people, including Jamie Galbraith, Larry Summers, Joe Stiglitz, etc.

What could "Krugmanism" actually be?

Spoke Too Soon
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