Key points
Krugman and some of the cyclicalists have focused the vast majority of their attention on cyclical issues. But this reinforces the (mistaken, misleading) claim of the structuralists that there is a tradeoff between the short term and the long term. One more Krugman blog post is not going to convince anyone to support stimulus, QE, etc. But one more Krugman blog post dedicated to discussing long-term issues will do a lot to convince readers that there is no policy trade-off. In other words, the marginal value of Krugman devoting more time to cyclical issues is negative.
I am sympathetic to this view and used to more or less hold it, but now I think it is mistaken.
While you don’t want to get trapped into people thinking that cyclical concerns are liberal concerns – hence my constant reminder that tax cuts are fiscal policy – I don’t think it actually helps to offer middle ground.
The problem is that too much of the debate is manufactured. That is, it is debate for debate’s sake. There is no underlying reasoning going on. So, if you move the debate towards a compromise the parameters will simply change because people want to continue having some form of a debate.
In short, the way the political narrative is set up makes it sound as if their ought to be “sides” and “viewpoints” and so even if there aren’t really sides to be had on an issue sides will be manufactured so that they can fit this narrative.
Look at the way Rajan’s essay was cast for example. You could have easily written that as, here are some long-run challenges that the West faces and a few modest proposals for what could be done. But, that’s not how it was cast. It was cast as “True Lessons of the Recession: Why the West Can’t Borrow and Spend its Way to Recovery” though the piece had little to do with the recession and nothing to do with borrowing and spending for recovery.
You see it in the budget debate as well. A person like me could say “why not just tolerate the mantra about the need for long run fiscal consolidation” even if I think long run plans are at best masturbation and at worst hubristic folly (see Regime Change, the Euro, Dirigisme.)
Well, the reason not to tolerate it is then the debate shifts into: should we cut spending or raise taxes and who “wins” this battle. The notion that hey this entire exercise flies in the face of what real interest rates are telling us and risks creating a massive global shortage in safe assets doesn’t even register. The debate has already settled, people have taken sides and that’s what they are comfortable doing.
So, you can’t let the debate settle. You have to keep needling.
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Friday ~ May 18th, 2012 at 9:40 am
Lord
Yes, debate is rarely about truth and falsity but about what someone wants done or not done, but when the latter case can’t be made, they resort to false arguments to prevent getting there and exposing their desires are just their desires.
Friday ~ May 18th, 2012 at 10:20 am
curtd59
This is the fundamental question facing political economy, isn’t it?
And I think you’re wrong.
The inter-temporal or “Long Run” impact of monetary and fiscal policy does in fact exacerbate booms and busts, misallocate human capital, and destroy incentives necessary for the maintenance of the polity precisely because it serves the interests of the left(short) right(long) divide . You argue that ‘there will be problems either way’, but you can’t support that argument, and you deny the existence of the opposing argument. The opposition (conservative political economy in contrast to liberal monetary economy) disagrees. Because conservatives are rightly concerned with the maintenance of unique western norms.
Monetary policy can be used constantly. Fiscal policy can be used in the short term. But they are both dependent upon the use of Trade, Industrial, Education and Social policy, which express the remainder of the temporal spectrum. Monetary and Fiscal policy are BOUNDED BY the longer term constraints, aren’t’ they?
Surely you wouldn’t make the argument that trade, industrial, education and social policy are irrelevant? So if they are relevant, then why so? Surely you wouldn’t make the argument that we could simply ‘print’ money without consequences. WHy not embrace MMT or ‘Social Credit’ then? Would you argue that inflation was the only consequence? But not fragility? Isn’t that Greece’s problem?
How do we coordinate policy across the “production cycle” of an economy? We can’t. Because we have no institutional means of coordinating this inter temporal production cycle as we do with interest rates to coordinate production in the private sector. Or are you arguing that there is no production cycle present in a body politic? If so, then why does education policy matter? Why is social policy meaningful other than as a means of emotional self-gratification?
You’re wrong. It is a left right divide.
It’s a left right divide because the short and the long term are tools of the left and right. While it may not be a THEORETICAL NECESSITY that these tools be biased left and right, it is a PRACTICAL NECESSITY that these tools are biased left and right, because we lack the institutions to prevent inter temporal transfer in government the way that we have institutions for the construction of inter temporal cooperation in the private sector, and therefore these tools are in fact tools of left and right.
It surprises me how the left cannot grasp this, but then, the left is by definition a short term ideology. We cannot expect the color blind to see differences in hue, and we cannot expect the temporally blind to see the production cycle. And we cannot tell the difference between those who are time blind and those who are simply thieves.
Saturday ~ May 19th, 2012 at 12:06 pm
Lord
There is a sense in which this could be valid. It would be that policy actions today, although good in both short and long term, could lead to policy actions in the future that are bad, therefore we are better off enduring bad policy actions now to prevent those in the future. OTOH, bad policy action now could as well lead to even worse policy action in the future by necessity. I still think that better policy today is more likely to lead to better policy tomorrow, and even if it doesn’t by itself, it is still better to work for better policy both today and tomorrow. My greater concern is just that bad policy today will lead to worse policy tomorrow. I don’t think that can be dismissed lightly; the depression led to war before.
Friday ~ May 18th, 2012 at 2:13 pm
Morgan Warstler
Tax cuts are NOT Fiscal Policy you fool. You only say it because you don’t want to be stuck admitting, “cyclical concerns are liberal concerns.”
The govt. doesn’t own the money. Money and govt. are servants to the productive class that ACTUALLY PAYS FOR IT. The people who if tomorrow the money and govt. are destroyed will slap another one together again FOR THEMSELVES.
The non-payers, the ZMP (sum total teat suckers) ride along in the passenger seat.
Let me say it another way: Democracy isn’t for sure. Capitalism is. So where Democracy gets in the way of Capitalism, it fails.
The govt. figures out what it needs to do (usually wrongly), and it taxes for that. Anything it doesn’t tax for is not fiscal policy.
Fiscal can’t stimulate, but it can easily slow down the progress of technology / human improvement.
Karl, I REALLY WISH you’d spend some real time studying Distributism – the world needs progressive capitalists to fight the rent seeking capitalists.
Saturday ~ May 19th, 2012 at 12:58 am
pyroseed13
I consider myself a libertarian, but I could never understand why the cyclial/structural debate must be a right/left issue. Why can’t we pursue policies that address both the cyclical and structural elements of recessions? I might take some heat from my fellow libertarians for saying this, but there are reasons why markets fail to clear and cease to recover that can’t simply be explained by “regime uncertainty.”
Saturday ~ May 19th, 2012 at 8:28 am
Becky Hargrove
From what I can see it is not as much about making markets clear and having capitalism work, as it is about power plays. Instead of looking to government ‘anything’ for solutions, libertarians will probably have to start with local solutions where people are actually willing to work together for progress, instead of constantly using government to trash the losers.
Saturday ~ May 19th, 2012 at 4:32 am
Morgan Warstler
My plan is to give the unemployed and Guaranteed Income of $240 (think Paypal) and auction them starting at $40 per week on Ebay (they keep 50% of bid).
GOOGLE the plan. It is complete.
My point is the MOMENT a libertarian suggests a structural approach to unsticking wages… Karl (and all cyclicalists) is IMMEDIATELY obligated to either defeat the plan or adopt it.
What they ca’t do is argue “sticky wages” and support policies that support sticky wages.
Since you are a libertarian you get the obvious correctness of this argument.
From now on you canuse this plan and this argument to force guys like Karl to BEND.
Saturday ~ May 19th, 2012 at 9:13 am
Becky Hargrove
We need more inclusive forms of libertarianism, where people can actually start from scratch to achieve better structured freedoms. Such forms of libertarianism, instead of having to ask governments to take away from someone else, would instead ask governments for the permission to create sustainable settings were greater economic mobility is possible for any (within the structured settings) who actually desire to prosper through shared economic interaction with others. Wherever government cannot take care of problems on its own, such experimental settings could show what is still possible when systems of social security and organized healthcare finally break down. That way, no solutions need to be patched together in the last minute or hour, when we could have decades to find out what might work better.
Saturday ~ May 19th, 2012 at 7:29 pm
Jon
Tax-cuts primarily act to shift AS. That’s not to say that they don’t contribute to fiscal policy: Fiscal policy is about deficits, but fiscal policy basically does not work in an economy with a modern CB. It is an archaic concept at this point unless you want to argue that liquidity traps actually do happen and are happening.
Empirical evidence clearly cuts against the Fed being constrained by the zero-bound.
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Roosevelt Institute | Cyclicalists/Structuralist Divide, Redux
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