Krugman vs. Barro - InvestingChannel

Krugman vs. Barro

Paul Krugman has come in for a lot of criticism for this comment:

But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal and famous economists like Robert Barro — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!

Especially because his textbook says that UI is a disincentive to work.  I tend to agree with Robert Barro’s argument that extended UI benefits will raise the unemployment rate. However in this case I’m going to defend Krugman against Barro and Bob Murphy and Russ Roberts and David Henderson and lots of other guys I often agree with.  Here’s my problem with Barro’s article (or at least the version I found, I’m blocked from the WSJ.)  Barro correctly points out that there isn’t any good evidence of more transfer payments boosting GDP, and thus he’s very skeptical of the multiplier.

But in mocking “aggregate demand,” Barro never really says whether he agrees with people like Milton Friedman and Robert Lucas, who have argued that a big drop in NGDP will raise unemployment, or whether he disagrees with this view.  He simply dodges the issue.  But it’s a really important issue, as in my view the evidence for the claim of monetary offset (fiscal stimulus doesn’t boost NGDP) is 100 times more powerful than the view that AD doesn’t matter (i.e. more NGDP fails to boost RGDP.)  It’s especially disappointing because I recall an earlier Barro piece on fiscal stimulus where he said something to the effect that if falling AD is the problem then just print more money (I’ve forgotten the exact words.)

I’ve noticed an increasing tendency for people on the right to dodge the issue of whether nominal shocks matter.  And this is why I increasingly identify with people like Irving Fisher and Milton Friedman, but with hardly any living economists.

I suppose it’s possible that Krugman is sending a dog whistle to his liberal readers that Barro is a big bad conservative who thinks poor people are lazy.  But as I read the Krugman comment the plain meaning seems to be that Krugman was complaining about his views (that AD matters) being ridiculed by Barro, whereas as Krugman correctly points out the vast majority of economists do believe AD matters.  Barro didn’t literally say “Hahahaha” but he used metaphors like “bloodletting” that gave that impression.

Maybe I’m being too generous to Krugman, but when I saw that post I simply didn’t see the unfairness that others see.  Krugman always writes in an aggressive style, which in my view made other conservatives misinterpret him this time.

In other news, a man was just caught biting a dog.

PS.  I’m guessing other conservatives won’t buy my argument.  Here’s Russ Roberts:

How do you write a post on unemployment benefits without conceding the possibility that your opponents might be right, given that you have made a similar argument to theirs?

I don’t think Krugman’s post is about UI; I think it’s about AD.  The post is actually directed at what he sees as conservative denial that AD matters.  Krugman is just using UI as an example, but the real focus is on AD.  He’s trashing Barro for his views on AD, not his views on UI.   I think that’s why other bloggers had a different view.  The key phrase is “self-evidently absurd.” Krugman’s not unhappy that Barro has a different view on UI, he’s unhappy because Barro completely denies the importance of AD, and if you do that then Krugman’s view on UI would be self-evidently absurd. So AD is the real issue that bugs Krugman here.  Krugman’s not saying Barro’s view on UI is crazy; he’s saying the reasoning process (AD doesn’t matter) is crazy.  I’m not sure Barro actually believes AD doesn’t matter (my earlier NGDP/RGDP question), but he left that impression.

PPS.  With so many differing views we need a neutral observer here.  Josh?