Over the years, I’ve written numerous posts in response to Paul Krugman’s columns and blog posts. Now that Krugman is retiring from his NYT column (but not from academia), I wanted to share some observations about his career as a critic. What made Krugman such an influential, perhaps the most influential economic commentator?
Some experts are particularly good at showing how seemingly simple problems can actually be quite complex. I’ve seen blog posts by people like Tyler Cowen and Scott Alexander discussing problems where they can only think of two or three relevant factors. They somehow come up with 10-12 important points of view, most of which I had never thought of. My mind tends to travel along narrow paths.
Other experts are particularly good at showing that seemingly complex problems actually have fairly simple root causes. They are good at getting to the heart of problems that at first glance seem very thorny. Paul Krugman is one of the most talented at this kind of analysis. (He also has excellent writing skills.)
Many of my readers have views closer to mine than Krugman’s on issues such as the size of government, deregulation, and fiscal stimulus. They are often surprised to learn that I rate Krugman very highly as an economist, despite important policy differences in some areas.
My political views are closer to those of people like Tyler Cowen, but my analytical approach is often closer to Krugman’s. Sure, some will argue that I’m oversimplifying things. Therefore, I believe that the Great Recession of 2008 was caused by excessive monetary tightening that depressed NGDP, and that the other phenomena we observed (such as fiscal distress) were primarily signs of a decline in aggregate demand. I claimed that there was. In a recent post, I argued that the Great Depression was more complex than many people thought, but even then the root causes were very simple: central banks hoarding gold and people buying currency. I think it was a hoarding. The increased demand for these two media accounts cut NGDP in half from late 1929 to early 1933. As wages remained high, a sharp decline in NGDP led to a significant decline in employment and production.
I have been arguing for Krugman’s 1998 Brookings paper, “It’s Burke.” . ” This is the latest example of a groundbreaking paper that fundamentally changed the way we think about money and macros. Of course, there are many good research papers being produced all the time, but there currently seems to be a lack of truly transformative ideas, or at least transformative ideas that are generally accepted.
In that paper, Krugman developed a new way of thinking about the zero lower bound problem, also known as the “liquidity trap,” which occurs when nominal interest rates fall to zero. I will not discuss it in detail here. Interested readers should check out my (rather long) paper on the Princeton School of Macroeconomics. Most importantly, Krugman showed that underlying the liquidity trap is a deeper problem called the “expectation trap,” or the challenge of forming expectations about the future direction of monetary policy. That’s true. The Princeton School paper used the Coase theorem analogy to illustrate this insight. Coase showed that underlying the problem of external costs lies a deeper problem related to transaction costs. Mr. Coase is also an economist who excels at getting beyond all surface complexity and getting to the essence of a problem.
Congratulations to Paul Krugman on his successful career as a NYT columnist.
