Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Just a little context to justify Frank's praise that accompanied the frontpaging of this diary.

I think it is important both for the fact that the origin of the article was The Economist, so long a bastion of a neo-liberal world view, but also for the fact that Krugman himself has for so long been an adherent of the 'Samuelson Synthesis' American version of Keynesian economics. That version, which incorporates Hicks-Hanson's IS-LM toy economic model and Phillip's curve relating unemployment and inflation, but leaves behind Keynes historical contingency and radical uncertainty, is what Joan Robinson called 'bastard Keynes' and it formed one pole of the Cambridge Controversy - a dispute over the legacy of Keynes.

Krugman's climb down from his previous certitude about the benefits of trade is important. After all it was for his work on trade patterns that he received his Riksbank prize in honor of Alfred Nobel. But also important is Lars Syll's critique of the vacuousness of IS-LM.

Left unmentioned is the role of the Phillips Curve. The validity of the Phillips Curve was historically contingent upon strong capital controls by nation states. When countries reduced capital controls the assumptions underlying the Phillips Curve were undermined. Milton Friedmanm during the '70s stagflation, seized upon the failure of the Phillips Curve, which he (knowingly?) conflated with the work of Keynes to proclaim "Keynesianism is dead!" In fact, it was just the Americanized Samuelson version of Keynes that had died.

Krugman himself touted Keynes as the remedy for the problems we faced after the GFC of '08-09. But Keynes has never regained the cachet he had in 1971 when Richard Nixon said: "I am now a Keynesian in economics". We need an all weather economics, not just Keynes in bad times and the latest derivative of Neo-Classical Economics in good times.

However annoying the neo-liberal views of The Economist can be, it is still an influential magazine and Krugman is an influential economist. It is good to see them both adjusting their views to accommodate the harsh realities of the world economy.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 07:58:16 PM EST
On a recent visit to his house, I was surprised to see that one of my very conservative friends subscribes to The Economist.
by asdf on Sun Oct 27th, 2019 at 10:01:15 PM EST
[ Parent ]
I subscribed to it from the '80s through 2008. It had excellent coverage of developments all over the world in those days, and editorials were kept separate from news content. It was founded by John Stuart Mill, its first editor, and was Classical English Liberal in its orientation. That is very close to modern conservative views in the USA before the Tea Party, etc.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 27th, 2019 at 10:13:27 PM EST
[ Parent ]
About the Economist and its American readership, this old piece (1991) is still quite to the point:

The Economics of the Colonial Cringe: Pseudonomics and the Sneer on the Face of The Economist.

A certain modesty would seem appropriate in The Economist's leaders these days, considering that after 10 years in which the Thatcher government essentially did what the magazine said, Britain has the weakest economy in Europe. (Remind me, again, why we're looking to the British for economic advice.) But the implied message of the leaders often seems to be, "I took a First at Oxford. I'm right."

The cover of anonymity for the magazine's writers is an important part of its omniscient stance, among other reasons because it conceals the extreme youth of much of the staff. "The magazine is written by young people pretending to be old people," says Michael Lewis, the author of "Liar's Poker," who now lives in England. "If American readers got a look at the pimply complexions of their economic gurus, they would cancel their subscriptions in droves."

by Bernard on Mon Oct 28th, 2019 at 09:40:41 PM EST
[ Parent ]
Speaking of the Phillips curve, I was reminded of something I recently read:

Leash the Dogma

Without torturing every permutation of this relationship, suffice it to say that the foregoing clouds of noise and weak relationships show up in every other statement of the inflation-unemployment tradeoff, regardless of whether one uses levels, changes, trailing data, subsequent data, CPI inflation, core inflation, or mixtures of all of these.

What's perplexing about this entire inflation-unemployment argument is that the original "Phillips Curve" proposed by A.W. Phillips in 1958 was a relationship between unemployment and wage inflation, based on century of data where Britain was on the gold standard and general price inflation was virtually non-existent. So the Phillips curve is actually a relationship between unemployment and real wage inflation.

The resulting relationship can be stated very simply: wages rise, relative to other prices, when unemployment is low and labor is scarce; wages fall, relative to other prices, when unemployment is high and labor is abundant. The chart below nicely illustrates this relationship in U.S. data. It relates current unemployment to subsequent real wage inflation.

If this is true, utilising it to say something about general inflation is to push it, but it can work as long as general inflation is mostly dictated by wages and not say the price of oil or imported deflation from a nearby currency area, or any other factor.

by fjallstrom on Mon Oct 28th, 2019 at 11:02:02 AM EST
[ Parent ]
Well, the 'failure' of the Phillips Curve to which Friedman attributed the 'failure' of Keynesian macro analysis occurred shortly AFTER the US went off the gold standard and in the face of import driven inflation in the price of oil in the '70s. So historically contingent conditions seem to hold the day vs immutable laws supposed to hold everywhere and always. Another stake through the vampire propagandist Milton Friedman.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 28th, 2019 at 11:39:08 AM EST
[ Parent ]
The questions about the Phillips Curve only highlight a bigger problem in economics. To the extent the profession addresses how to manage an economy, the consensus in the USA and Europe seems to be to restrict intervention to monetary policy. Japan and China have adopted much more fiscally interventionist policies and have had impressive results.

Economics is inherently about money and wealth, though the profession itself discretely avoids discussions of those subjects whenever possible. That task is reserved for anthropologists of wealth and power and for sociologists, whose insights, often penetrating, can and are successfully ignored by professional economists for the most part. This has the effect of leaving the profession insular and isolated from all but the very wealthy to whose prejudices leading economists pay strict attention.

It is unfortunate that there are so few prominent people who can, as Queen Elizabeth did in 2009, ask the profession how they could have gotten things so wrong. Surely there must be a better solution than having more inquiring monarchs.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 28th, 2019 at 10:00:19 PM EST
[ Parent ]
Well Duh!  That last paragraph merely says that when an item is scarce it's price rises and when it is abundant the price falls.
by StillInTheWilderness on Wed Oct 30th, 2019 at 02:35:51 PM EST
[ Parent ]


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