Bishop vs Krugman
Paul Krugman was not happy with the choice of Matthew Bishop to review his new book in the NYTBR, and the main locus of the disagreement seems to be, at heart, how much respect Krugman should give to people who disagree with him.
No opportunity to preach to the choir is missed by the populist Mr. Krugman, nor any chance to mock those he calls the “Very Serious People” who disagree with him. This is often entertaining: during a stern speech in 2010 by Germany’s finance minister, Krugman’s wife dismissed those who regard austerity as a sort of moral purification with the whispered aside, “As we leave the room, we’ll be given whips to scourge ourselves.” But the book’s preachiness gives those politicians and economists who most need to read this book an easy excuse to ignore it.
To this Moderately Serious Reviewer, Krugman’s habit of bashing anyone who does not share his conclusions is not merely stylistically irritating; it is flawed in substance… The austerians may be excessively fearful of so-called “bond vigilantes,” but that does not mean there is no need to worry about what investors think about the health of a government’s finances. Sure, ridicule those fundamentalists who believe it is theoretically impossible for an economy ever to suffer a shortage of demand, but does Krugman really need to take passing shots at Erskine Bowles and Alan Simpson, the chairmen of the widely respected bipartisan Bowles-Simpson Commission on deficit reduction appointed by President Obama? Maybe his case for stimulating the economy in the short run would be taken more seriously by those in power if it were offered along with a Bowles-Simpson-style plan for improving America’s finances in the medium or long term. Instead, Krugman suggests cavalierly that any extra government borrowing probably “won’t have to be paid off quickly, or indeed at all.”
I can see why Krugman finds this annoying. Krugman’s whole point is that Bowles, Simpson, and the like are wrong and dangerous. And as he reminds us today, he was right and they were wrong, two years ago. He should get credit for that. But Bishop, the kind of person who loves nothing more than schmoozing important people at Davos, thinks that Krugman “would be taken more seriously” if he were more polite to “widely respected” people with the word “chairman” in their names.
This criticism is off-base for three different reasons, I think. Jared Bernstein deals with the substance very well:
Krugman has been consistently empirical on this point. His argument is not that investors’ sentiments don’t matter. It’s that they’re embedded in prices and can be followed on an hourly basis. Those numbers—the bond yields on sovereign debt—show that markets judge US debt to be safe and Spanish and Greek debt to be risky. If you want to criticize Krugman on this count, you need to explain what’s wrong with the markets themselves—why they’re giving the wrong signals. Otherwise, you’re into phantom-menace land, just across the way from where the confidence fairy hangs out.
This is a point I myself tried making to Bishop back in April, with no visible success: Bishop’s convinced that when it comes to gauging future inflation expectations, we should for some reason trust the volatile and largely-insane gold market at least as much as we should trust the most liquid and efficient market in the world, that for US Treasury bonds.
As for the style, there is no shortage of Serious liberals willing to do exactly what Bishop suggests. Indeed, Erskine Bowles probably counts as one himself, even as he sits on the board of Morgan Stanley. Pretty much the entire Obama administration deals constantly with calls for fiscal prudence and austerity, and takes them very seriously. There’s something of a bipartisan consensus on the issue — so if like Krugman you think that the consensus is bonkers, the only real way to get your point across is to be very clear that no matter how grand these people are, they’re simply wrong, and do not deserve to be taken seriously.
And then there’s the whole class-based undertone to the discussion, which I think if anything Krugman doesn’t make forcefully enough. The thing that Serious liberals and Serious conservatives have in common — the thing which in large part makes them “widely respected” in the first place — is that they’re rich. Usually, very rich. And rich people, as I said in my own review of Krugman’s book, don’t actually worry much about unemployment: it doesn’t really hurt them, even if they lose their jobs. What they do worry about is inflation, since that erodes the value of their dollars. And so when Krugman calls for a nice dose of inflation to help cure the economy’s ills, what he’s really calling for is for a significant chunk of the fixed-income portfolios of the rich to be devalued in real terms.
The rich don’t like that, and the austerity consensus is in large part a closing of ranks — one of the few areas where left and right can agree, at least at the upper end of the income spectrum. And that’s why my own review of Krugman’s book was a pessimistic one. When rich liberals and rich conservatives agree on something, that thing is going to happen. Especially when that thing is in their own self-interest.