Footnote to a Current Controversy

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The current dust-up between Paul Krugman and the “austerians,” in which the Princeton University economist, a columnist for The New York Times, cast Carmen Reinhart and Kenneth Rogoff, both of Harvard University, to play the villain opposite himself, is reminiscent of an earlier episode in the same drama.

In 1992 it was Krugman vs. the incoming Clinton White House.  Then it was Laura D’Andrea Tyson who played the heavy.

Bill Clinton had been elected and convened an all-star economics conference in Little Rock. Krugman was then being mentioned as a possible member of the Council of Economic Advisers. After Tyson, a University of California at Berkeley economist who had been a graduate student at the Massachusetts Institute of Technology just before Krugman arrived there, was chosen to chair the Council, Krugman went on Larry King Live and called the summit “useless.”

Over the next several weeks Krugman conducted a not-so-sotto-voce campaign against various appointments, especially Tyson’s. At one point he told Hobart Rowen of The Washington Post that Clinton “wouldn’t be able to get good economists to work for him.”  Rowen called the criticism “churlish.”

Tyson went on to distinguish herself as a strong player, first as CEA chair, then replacing Robert Rubin as director of the National Economic Council, before leaving in 1997 to become a dean, first of Berkeley’s Haas School of Business, then of London Business School.

Krugman, having known for fifteen years that there was a good likelihood he would eventually share a Nobel Prize, having tired of academic research, retooled as a textbook and popular author and economic journalist, for Slate, Fortune and, since 2001, for the Times.

The current drama bears a striking resemblance to the earlier event mainly for this reason: Reinhart and Rogoff have something that Krugman wanted.  Their 2009 book, This Time Is Different: Eight Centuries of Financial Folly turned out to be the authoritative warning of the severity, breadth and duration of the recent economic crisis.

In comparison, Krugman’s rapid revision of an earlier book about Japan, The Return of Depression Economics and the Crisis of 2008, which appeared about the same time, had comparatively little effect on the way the crisis was perceived in policy circles (though it was a mass-market best-seller).  And, for all Krugman’s spirited defense of massive stimulus, it was NEC director Lawrence Summers and CEA chair Christina Romer who devised the government’s response for the Obama Administration. As an economist, as opposed to a journalist, Krugman was a marginal figure throughout the crisis.

In the aftermath of the crisis, Krugman was an influential proponent of stimulus – “compensatory government spending” in the language of an earlier age.  When the  original $800 billion measure failed to produce a robust recovery, Krugman and other argued for a second, larger spending bill—despite the new prominence the 2010 election results had given the Simpson Bowles proposal for long-term deficit reduction. See this lucid article by Michael Kinsley for the context.

All along, Krugman needled Reinhart and Rogoff for what he saw as excessive devotion to caution. And when a key paper of theirs was criticized on methodological grounds last month, Krugman ramped up his attack. It reached new heights earlier this month in an essay “How the Case for Austerity Has Crumbled” in The New York Review of Books.  “[R]einhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics,” he wrote.

The Harvard economists last week posted an open letter to Krugman in their defense. Their refutation of Krugman’s charge that they had declined to share their data is worth reading. So is the record of their policy advice-giving in the appendix.  Otherwise, it is not worth sorting through the details. Here’s why.

Last week, Krugman on his energetic New York Times blog praised Laurence Ball, of Johns Hopkins University, for his “Four Percent Solution”:

Larry Ball makes the case that we would be a lot better off with a 4 percent inflation target rather than the 2 percent that is now central bank orthodoxy. Intellectually, this position is hardly outlandish; indeed, Ball’s case is very similar to the case Olivier Blanchard made three years ago, just stated more forcefully and with more evidence.

Here is Rogoff, writing in a December 2008 op-ed for Project Syndicate, “Inflation is Now the Lesser Evil”:

It is time for the world’s major central banks to acknowledge that a sudden burst of moderate inflation would be extremely helpful in unwinding today’s epic debt morass…. Moderate inflation in the short run – say, 6% for two years – would not clear the books. But it would significantly ameliorate the problems, making other steps less costly and more effective.

By any standard, that was a prescient call – a bit too early to build popular support, but a year earlier than Blanchard, and sufficient to demonstrate the Rogoff was anything but a single-minded budget-cutter. In 2011 he renewed the prescription.

A lawyer who withheld exculpatory evidence like that from his argument would have his case tossed out of court. A columnist for a great newspaper should be held to a similar standard.

I have known Krugman for a long time; I admire him. I share many of his convictions. I would even say that we are friends. His career as a journalist, like his career as an economist, has been studded with brilliant coups.

But as in the Little Rock case, he lacks a governor; or, in this situation, even an editor. The earlier episode ensured that Krugman would never again serve in government. (He had done a turn the CEA as a junior staffer under Martin Feldstein in the early 1980s.) This one surely cinches the case that he should never win a Pulitzer Prize. The habitual thumb on the scale has become contempt for the balance itself.