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Wednesday, December 7, 2011

Krugman is Wrong

Paul Krugman is wrong in his criticism of my brief summary of last week’s economic policy conference at Stanford’s Hoover Institution. Krugman was not at the conference, which lasted a full day and went well beyond previous research by the participants.  In general people focused on policies to restore strong economic growth and reduce unemployment in the United States.

First, Krugman incorrectly claims that I mischaracterized the research of my Stanford colleague Nick Bloom and his coauthors Scott Baker and Steve Davis presented at the conference. Krugman says my conference summary suggested that “Bloom, Baker and Davis had showed that fear of Obama was holding the economy down.” No, my summary said or implied no such thing; there is no mention of Obama, Bush, or any politician in my summary. It simply says that these authors “presented their empirical measures of policy uncertainty and showed that they were negatively correlated with economic growth.” And that is what they did at the conference. Second, Krugman claims that my summary mischaracterized the presentation of my Stanford colleague Bob Hall, making it look like something it wasn't. My summary referred to Bob’s interesting presentation at the conference. As part of his presentation Bob said that now and going forward we should assume “no chance of conventional fiscal expansion; rather, possible cutbacks motivated by excessive federal debt.” That is why Bob focused his paper at the conference on monetary policy and the problem of the zero lower bound, and that was what all the discussion of his paper was about, rather than on his earlier work on the multiplier, which is now part of a huge literature recently nicely reviwed by Valerie Ramey.

I stand by my brief summary of the conference as a being accurate. Lee Ohanian and I, as co-organizers of the conference, hope that we can soon get a book published containing the full proceedings (written versions of the individual presentations and many comments by participants), as has been done with other recent Hoover economic policy conferences: The Road Ahead for the Fed and Ending Government Bailouts As We Know Them. We hope the results of each author will be read carefully by policy makers and other researchers.