Yves here. If comments on this site are any guide, readers appear to have taken considerable interest in a blogosphere debate on the role of money and banking, with Steven Keen and Scott Fullwiler (among others) arrayed against Paul Krugman and Nick Rowe. Krugman’s latest piece not only misrepresents Steve Keen’s argument, as Philip Pilkington explains below, but Krugman also appears to have shut down any discussion at his blog after quite a few of his readers pointed out his sleight of hand.
There were 65 comments from 12:46 PM to 5:22 PM. Krugman put an update (no time marker) at the top of the post”OK, I’m done with this conversation.” Did the last comment, reproduced in full below, hit a nerve?
I predict this sorry exchange that started about Krugman’s misuse of Minsky will one day haunt the good Professor if he doesn’t do his homework with an open mind immediately. If not, the damage to his credibility will be permanent and irreversible.
Paul, at least come clean and admit you misread Keen here and quoted him out of context. It’s obvious.
Your doubling down with each new post is very unbecoming and your [sic] beginning to look like a Republican.
What was that post you wrote awhile back on hypocrisy?
By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil
Oh, its a dark day, my friends. A pall has been cast over the econoblogosphere. Yes, Paul Krugman has just used the New York Times website to undertake a vicious stitch-up on an intellectual opponent who should have, by rights, won the original argument.
Here’s how it went down. Post-Keynesian economist and sometimes Naked Capitalism contributor Steve Keen wrote a cogent article critiquing a Paul Krugman paper on Minsky and debt deflation. The key issue was that the so-called money multiplier does not function to restrict credit growth in modern economies operating on a floating exchange rate with a central bank that targets interest rate. We dealt with this briefly the other day and pointed out the flaw in Krugman’s argument.
Krugman then started to get overwhelmingly negative comments from his usually receptive audience. Many were people who worked in banks trying to appeal to Krugman’s good sense so that he might consider that he failed to understand some fundamental things about modern banking. No luck there.
Then Scott Fulwiller ran a comprehensive rebuttal here on Naked Capitalism yesterday. It was a one-two punch. Krugman fell back on a post written by Nick Rowe. Rowe’s post was dodgy in the extreme. He made up a quote — specifically that “the money supply is demand-determined” — called it gibberish and then undertook a ‘deconstruction’ of the quote… that he had made up. I called his rhetorical tactics sophistical in the comments section. He called me rude.
Fine. All in good fun, right? But then Krugman did something outwardly nasty and underhanded. He put up a quote from Keen’s second post about DSGE models that he took completely out of context so that Keen would appear ignorant of the matter he was discussing. You can find Krugman’s original post here, but just in case he decides to take it down here is a screenshot.
It’s a short post and everyone should read it. It’s not hard to see what Krugman is doing. He lifts a quote from Steve Keen about DSGE models in order to make out that Keen doesn’t know what he’s talking about. Keen basically says that DSGE models assume equilibrium. But Krugman counters that…
Point 1 [of Keen's post] is all wrong — NK models are all about sticky prices, so what’s that about “instantaneous adjustments”? (And who said anything about rapid return to equilibrium?) Point 3 is also completely wrong: NK models almost always assume imperfect competition, so that we can talk about price-setting agents. This is all in Eggertsson and Krugman, by the way.
He then goes on to allude that Keen is talking through his you-know-what. But look what is to be found just two paragraphs under Krugman’s torn-out-of-context quote in Keen’s piece:
So economists like Krugman—who describe themselves as “New Keynesians”—have tweaked the base case to derive models that “ape” real-world data, with “sticky” prices rather than perfectly flexible ones, “frictions” that slow down quantity adjustments, and imperfect competition to generate less-than-optimal social outcomes.
Oh dear, oh dear, Mr. Krugman. For shame. This is not very professional at all.
What sort of an impact might having a Nobel Laureate allude to your work as being “shit” have on your career? Surely not a very good one. I think most people come to think that Nobel Prizewinners are careful, reasoned, scientific types who would never tear a quote out of context to stitch up an intellectual opponent. Not so, it would seem. Press their intellectual buttons in a certain way and kaboom!
This whole affair has become dank and sordid. While I was first happy to see Krugman engage with this topic, I now only hope the whole exchange will end. It has truly brought out the worst in him. He is clearly not willing to consider any new perspectives on any fundamental issues because he has too much intellectual capital at stake. Any pressing of the matter by his colleagues is now only generating flak from Krugman’s side.
On a positive note however, a lot of his readers seemed quite perplexed by Krugman’s evasiveness on the original topic — that of endogenous money. I saw one comment that said something along the lines that “I come to this with no prejudices, in fact my main prejudice would be to try to see sense in what Krugman is saying. But I’m finding it hard to understand how he refutes Keen’s/Fulwiller’s critique.” And that, as Keen always says, pace Max Planck, is how science advances: one funeral at a time.