I periodically get emails and phone calls from people wanting me to respond to particular statements from politicians, columnists, and other high-profile figures.
Not surprisingly, Paul Krugman occasionally is the subject of these communications, particularly with regards to his view that Keynesian spending is an elixir and universal cure for economic stagnation.
I certainly have waded into the so-called stimulus fight, addressing the issue over and over and over again. But I generally try to comment on the underlying economic and political issues while avoiding pointless arguments with other people (not always with total success, as seen here and here).
The most recent Krugman-related email I received, however, has nothing to do with fiscal policy. It deals with his views on housing bubbles. Here’s what he advised back in 2002.
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Given what has happened in the past five years, Krugman’s endorsement of a housing bubble certainly leaves him vulnerable. And if it turns out that Alan Greenspan took his advice, that would be rather damning.
But I think he should be criticized for his general support for economic intervention, not his specific recommendation for a housing bubble.
Sure, his advice doesn’t look very good with the benefit of hindsight, but economists are notoriously awful forecasters, as I’ve noted before. Moreover, Krugman legitimately could argue that his advice was for the specific circumstances of 2002, and not a permanent recommendation.
That’s why my criticism is limited to his overall belief that government should steer the economy. And if you want to understand that issue, this post looking at the work of Robert Higgs is a great place to start.
P.S. If you want some amusing Krugman-baiting, you should read Best of the Web by James Taranto of the Wall Street Journal. Taranto often refers to Krugman at the “former Enron adviser” and routinely mocks Krugman for his silly assertion that horror stories about healthcare in the United Kingdom are false.