Thursday, May 2, 2013

Those Ultra-Keynesians at the National Review and the Wall Street Oped Pages

Ken Rogoff and Carmen Reinhart make this strange claim:
Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates. .No one fully understands why [real interest] rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained...Economists simply have little idea how long it will be until rates begin to rise. If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause.
Jonathan Portes appropriately responds to this idiocy:
Leave aside the silly straw man (repeated elsewhere) that "ultra-Keynesians" want an "unlimited open-ended surge in debt." Who are these "ultras"? Not Martin Wolf and Simon Wren-Lewis in the UK, or Paul Krugman and Brad Delong in the US. And, as Reinhart and Rogoff know perfectly well, of course we think (and hope!) that real interest rates will rise at some stage, when demand and confidence returns and the private sector wants to invest.
Actually we have seen lots of pseudo economists claiming we can have fiscal stimulus without worrying about higher real interest rates. The Reagan tax cuts were sold on a Laugher of a cocktail napkin where they would so stimulate growth that deficits would fall. The reality is that the Federal Reserve dramatically increased real interest rates, which ultimately lowered long-term growth. The Bush43 tax cuts were sold on a bastardization of Ricardian Equivalence where they were supposed to not affect interest rates even though they raised consumption (which of course the real version of Ricardian Equivalence would deny). These proponents of free lunch tax cuts, however, typically told us how they abhorred Keynesian economists. Then again – these hacks weren’t actually economists in the first place. So who on earth are Rogoff and Reinhardt calling ultra-Keynesians?


Robert said...

Time for the two minutes Chait

2. Don’t debate straw men. If you’re arguing against an idea, you need to accurately describe the people who hold them. If at all possible, link to them and quote their argument. This is a discipline that forces opinion writers to prove that they’re debating an idea somebody actually holds. And quoting the subject forces them to show that somebody influential holds it — if the best example of the opposing view is a random blog comment, then you’re exposing the fact that you’re arguing against an idea nobody of any stature shares. This ought to be an easy and universal guideline, but in reality, it’s mostly flouted.

However, R-R have always been at war with Eastasia.

Mike Kimel said...

The Bush 43 tax cuts were actually, er, "better" than that. See:

"Over the next 10 years, the Federal Government is projected to collect $28 trillion in revenues from American taxpayers. The President's Budget devotes roughly $22.4 trillion to extend the Government we have today, including the President's new initiatives.

This leaves a $5.6 trillion surplus. The President's Budget takes a cautious approach to allocating this staggering sum, starting by saving the entire Social Security surplus—nearly 50 percent of the total surplus—for Social Security and debt retirement. None of the Social Security surplus will be used to fund other spending initiatives or tax relief.

By devoting these revenues to debt retirement, the Nation will be able to pay off all the debt that can be redeemed—an historic $2 trillion reduction in debt over the next 10 years. The only remaining debt will be those securities with maturity dates beyond 2011. In all likelihood, American taxpayers would have to spend an additional $50 to $150 billion in bonus payments to bond holders to accelerate the repayment of those notes, a wasteful and senseless transaction. It makes more sense to allow the securities to mature naturally, leaving the Nation on a glide path to zero debt post 2011."

Not long afterwards, such luminaries as Alan Greenspan ( became concerned about the effects we would be seeing on paying down the debt. One of the effects was, naturally, lower interest rates.

Benedict@Large said...

Don't be silly. The reference to ultra-Keynesians is a cheap shot aimed at MMT.

Anonymous said...

Good information here. I really enjoy reading them every day. I've learned a lot from them.