Over the years I have written a number of posts in response to Paul Krugman’s columns and blog posts. Now that Krugman is retiring NYT column (but not from academia), I thought I would share a few observations about his career as an expert. What made Krugman such an influential economic expert, perhaps the most influential?
Some experts are especially good at showing how a seemingly simple problem can actually be quite complex. I’ve seen blog posts from people like Tyler Cowen and Scott Alexander discussing a topic about which I can only think of two or three relevant factors. Somehow they come up with ten or twelve important perspectives, most of which I had never considered. My thoughts tend to move along a narrow path.
Other experts are particularly good at showing that a seemingly complex problem actually has a fairly simple underlying cause. They are good at getting to the heart of a problem that seems very messy at first glance. Paul Krugman is one of the most talented in that kind of analysis. (He also has excellent writing skills.)
Many of my readers have views closer to mine than Krugman on issues such as the size of government, deregulation, and fiscal stimulus. They are often surprised to discover that I have a very high opinion of Krugman as an economist, despite important policy differences in some areas.
While my policy views are closer to those of people like Tyler Cowen, my analytical approach is often closer to Krugman’s. Some would even argue that I’m oversimplifying things. For example, I argued that the Great Recession of 2008 was caused by a tight money supply that suppressed the NGDP, and that the other things we observed (such as financial problems) were mainly symptoms of that decline in aggregate demand. In a recent article I argued that the Great Depression was more complicated than many people think, but even in that case I believe the underlying cause was quite simple: gold hoarding by central banks and money hoarding by the public. The increased demand for these two media caused the NGDP to be halved between late 1929 and early 1933. Due to tight wages, the sharply lower NGDP significantly reduced employment and production.
I have argued that Krugman’s 1998 Brookings article entitled “It’s Baack. . .‘ was the latest example of an innovative article that fundamentally changed the way we think about money/macro. Of course, many excellent research articles are being written all the time, but it seems that we are now running out of truly transformative ideas, or at least transformative ideas that have been widely 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 won’t have an in-depth discussion here; Interested readers can read my (fairly long) article about the Princeton School of Macroeconomics. Most importantly, Krugman showed that at the root of a liquidity trap lies a deeper problem: the ‘expectations trap’, the challenge of shaping expectations about the future path of monetary policy. In my article at the Princeton School, I used the analogy of the Coase theorem to explain this insight. Coase has shown that behind the issue of external costs lies a deeper problem related to transaction costs. Coase is also an economist who was good at looking beyond superficial complexity and getting to the essence of a problem.
Congratulations to Paul Krugman on an impressive career as a NYT columnist.