Fri Oct 25th, 2019 at 05:56:09 PM EST
Paul Krugman -- finally -- admits he was wrong! Lars Syll RWER Blog
Paul Krugman has never suffered fools gladly. The Nobel Prize-winning economist rose to international fame--and a coveted space on the New York Times op-ed page--by lacerating his intellectual opponents in the most withering way. In a series of books and articles beginning in the 1990s, Krugman branded just about everybody who questioned the rapid pace of globalization a fool who didn't understand economics very well. "Silly" was a word Krugman used a lot to describe pundits who raised fears of economic competition from other nations, especially China. Don't worry about it, he said: Free trade will have only minor impact on your prosperity.
Now Krugman has come out and admitted, offhandedly, that his own understanding of economics has been seriously deficient as well. In a recent essay titled "What Economists (Including Me) Got Wrong About Globalization," adapted from a forthcoming book on inequality, Krugman writes that he and other mainstream economists "missed a crucial part of the story" in failing to realize that globalization would lead to "hyperglobalization" and huge economic and social upheaval, particularly of the industrial middle class in America. And many of these working-class communities have been hit hard by Chinese competition, which economists made a "major mistake" in underestimating, Krugman says.
Michael Hirsh - The Economist
It was quite a "whoops" moment, considering all the ruined American communities and displaced millions of workers we've seen in the interim. And a newly humbled Krugman must consider an even more disturbing idea: Did he and other mainstream economists help put a protectionist populist, Donald Trump, in the White House with a lot of bad advice about free markets?
Too important not to frontpage - Frank Schnittger
But what about the Samuelson Synthesis and endogenous money?
Yours truly, (Lars Syll), has for years been complaining about Krugman on this issue, so of course, it's great that he finally admits he was wrong!
Another issue on which yours truly is having a beef with Krugman is his view that his hobbyhorse IS-LM interpretation of Keynes is fruitful and relevant for understanding monetary economies. Is it time for Krugman to come out on this also and admit he has been wrong?
My own view is that IS-LM is not fruitful and relevant and that it does not adequately reflect the width and depth of Keynes's insights on the workings of monetary economies:
The workings of a monetary economy is especially important as Krugman's warmed over Neo-Classical explanation of money 'as a veil over the economy' and his denial of endogenous money, insisting on 'loanable funds' - as in his embarrassing fairly recent dust up with Steve Keen - has helped prop up the bankrupt Neo Classical view of monetary economics as opposed to the growing support for the 'Modern Monetary Theory' view of money as being created endogenously by banks.
The difference is crucial to a progressive solution to government fiscal policy - at least in countries which have their own sovereign currencies. MMT and Post Keynesian Economics provides policy space for spending by currency issuing governments that is not available to countries on the gold standard or to countries in currency unions, such as the EuroZone in the EU. MMT provides an answer to the omnipresent objection to any progressive fiscal policy: "How are you going to pay for it?!"
The USA has an aging and fragile electrical distribution system that is predicted to fail under the stress of expected global warming. With US Mainstream Economic views such as The Samuelson Synthesis the question is: "How are you going to pay for it?" With MMT and Post Keynesian Economics the answer is that it will mostly pay for itself. If financed partly by deficit spending, the increased deficit to the federal budget becomes income to the private sector, causing increased economic activity, the increased tax revenue from which will partly offset the deficit while the improved system is being built. Once finished, the increased reliability and reduced cost of electricity from the project will provide long term greater productivity. In the USA the same argument will support Medicare for All and other aspects of a Green New Deal.