

Why Krugman and Stiglitz Are Wrong About Government Spending - elfinlike
http://www.professorhollybell.com/2012/11/04/why-krugman-and-stiglitz-are-wrong-about-government-spending/

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dimitar
I recommend you watch the actual talk:
[http://ineteconomics.org/blog/inet/conversation-economy-
stig...](http://ineteconomics.org/blog/inet/conversation-economy-stiglitz-and-
krugman-financial-crisis-and-future-economics)

They don't really disagree, although it may appear so in the talk. The only
major disagreement is about QE, not the size or character of fiscal stimulus.

I think you should pay attention to both Stiglitz and Krugman because they are
very insightful 'hackers' in Economics in every good sense of the word.

Both are theorists, that try to explain real world phenomena with simple,
often in their own words 'silly' models. Both don't shy away from math and are
mindful of the empiric research being done by others, without sacrificing
substance.

The results of their work are that we are able to explain very accurately
anomalies in international trade and errors in traditional welfare analysis
(Krugman's increasing returns models of agglomerations and Stiglitz's
externalities, respectively). They should really be given Nobels at least two
times - they are definitely not one-hit wonders and Krugman's work on exchange
rate volatility, currency crises and liquidity traps are extremely relevant
today.

Both are very outspoken in their criticism of the powerful of the day and the
orthodoxies of 'think-tank economists' and thus often dismissed by them as
'leftists'.

Even if you don't agree with them you should watch their talks and columns. To
see the hacker ethic in Krugman's work check out this piece:
<http://web.mit.edu/krugman/www/howiwork.html>

Specifically about government spending and the article:

* Stiglitz and Krugman both assert in the talk that they prefer the spending to be on infrastructure and education. So the article is being very dishonest. Even in the infamous "Space Aliens invasion" remark Krugman recommended building "things like high-speed rail"

* Actually the US has austerity in the state and municipal level, so there isn't actually "additional dollars of federal spending". Also mentioned in the talk, and many other places by these two.

* There is wide agreement about positive multipliers in the crisis since around 2011. The proposition that they may have been negative has been shot down by studies in 2010 and has very little basis in theory. Economists like Alesina who were austerity hawks before that have back-pedalled somewhat and the IMF has admitted that austerity deepens recessions.

* Krugman and the Romers have written quite a lot why this depression is very much like the one in the thirties.

~~~
nickik
Disclamer, I have not seen the talk.

> Stiglitz and Krugman both assert in the talk that they prefer the spending
> to be on infrastructure and education. So the article is being very
> dishonest. Even in the infamous "Space Aliens invasion" remark Krugman
> recommended building "things like high-speed rail"

This does not matter. There theory clearly states that the main effect of the
spending has nothing todo with what is being spend on. Sure the do not
advocate spending on usless things but that does not matter. There theory is
wrong and spending this money is wronge. If is your political opinion that
more money should go into education or whatever, you should do it threw the
proper politcal channals and not go around the normal political process with a
stimuls package.

This (proper) discussion between a keynesian and a free market guy about
stimulus infrastructure spending might be intressting.

[http://www.econtalk.org/archives/2012/09/frank_and_rober.htm...](http://www.econtalk.org/archives/2012/09/frank_and_rober.html)

> Actually the US has austerity in the state and municipal level, so there
> isn't actually "additional dollars of federal spending". Also mentioned in
> the talk, and many other places by these two.

There is only very, very few presidents that ever decresed spending. If you
look at the amount of GDP goverment spends, its constantly growing, with every
president (I think the only expetion is Clinton).

Bush and Obama have both been record spenders, and then you have the obama
stimulus. Claming the US is doing austerity is just wrong.

> * There is wide agreement about positive multipliers in the crisis since
> around 2011. The proposition that they may have been negative has been shot
> down by studies in 2010 and has very little basis in theory. Economists like
> Alesina who were austerity hawks before that have back-pedalled somewhat and
> the IMF has admitted that austerity deepens recessions.

Sorry this is just wrong. "wide agreement", really?

The only people that agree are the ones that where pro stimuls in the first
place, ie. keynsians and neo-keynsians. Basiclly everybody else disagrees,
including all form of montarism (classic, new, market), austrians and many
others.

Can you find any economist or groupe of economist that where anti stimulus and
now are pro? I have not heard of a single person that changed there mind.

Also you might want to read up on the sumner critique that has gotten a lot of
attention.

Some Blogpost on it: <http://marketmonetarist.com/category/sumner-critique/>

> Krugman and the Romers have written quite a lot why this depression is very
> much like the one in the thirties.

I quite agree and many economist do too but the point is that economist still
do not agree on the what should have been done in 1929 (or 1933). They do not
agree if the new deal helped or harmed, they do not agree if going of the gold
stanard was good or bad

------
nealabq
The debate should be about who's most wrong.

