There’s no reason you should be following this silly little fight between Paul Krugman and Amity Shlaes. It centers around a false distinction but has wandered into a grudge match between two very different personalities. Krugman is abrasive but brilliant. Shlaes is plodding and tendentious. The funny thing is that they agree but neither wants to admit it.

First, a quick re-cap of the tit-for-tat: Shlaes first came to prominence with her book on the Depression, The Forgotten Man, which rode the usual conservative hobby horses about government interference. Even before the financial crisis, the book had strong following among the troglodyte right.

Intoxicated with her increasingly influential voice, Shlaes tried in her muddled way, to have a voice in the Obama stimulus plan. Here in a Bloomberg opinion piece, she got one thing right: the stimulus should focus on meaningful infrastructure like Eisenhower’s National Highway system. This is the point that she and Krugman agree upon but both would be loathe to admit it.

Krugman pounced on Shlaes here in his Times blog where he points out the difference between Keynesian spending and the Great Society (a favorite conservative target.)

You don’t have to take Krugman’s word that Shlaes’s work is lopsided and poorly argue. Even a friendly citation of her work has The Atlantic’s Megan McArdle tap dancing away from Shlaes:

The problem is that Shlaes way, way, way overstates her case.  There is an academic argument that the National Recovery Administration prolonged the Great Depression [ . . . ]  But the Great Depression is complicated, and it’s hard to make the case that government intervention was the main problem with the economy.  As economic history, the book is interesting if one sided.  But as an argument, it leaves a lot to be desired.

All of that sets up today’s Wall Street Journal Opinion piece where Shlaes is still stinging from Krugman’s rebuke. And she continues to flail around for a reason to oppose a stimulus plan that all sides agree must be focused on creating jobs and spurring private sector spending:

Because lawmakers are considering new labor legislation containing “card check,” which would strengthen organized labor and so its wage demands. Because employees continue to pressure firms to spend on health care, without considering they may be making the company unable to hire an unemployed friend. Piling on public-sector jobs or raising wages may take away jobs in the private sector, directly or indirectly. [emphasis added]

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Editors note: We previously took issue with Shlaes’ defense of Phil Gramm’s mental recession/nation of whiners comments. She did so by using a definition of recession — 2 consec Qs negative GDP — that was outdated centuries ago. Either she is economically clueless, in which case she should be dismissed as a no-nothing. Or, perhaps she knew better, but used it anyway, making her a hypocrite.

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Sources:
The Krugman Recipe for Depression
Massive government spending is no solution to unemployment.
AMITY SHLAES
WSJ, NOVEMBER 29, 2008

http://online.wsj.com/article/SB122792327402265913.html

Amity Shlaes Strikes Again
PAUL KRUGMAN
NYT, November 19, 2008

http://krugman.blogs.nytimes.com/2008/11/19/amity-shlaes-strikes-again/

Amity Shlaes Does Not Know What a Recession Is (July 12th, 2008)

http://www.ritholtz.com/blog/2008/07/amity-shlaes-does-not-know-what-a-recession-is/

Obama Will Take Us Backward By Channeling Keynes: Amity Shlaes
AMITY SHLAES
Bloomberg, Nov. 19 2008

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1CNR7igi8KU

Shlaes and the Depression
MEGAN MCARDLE
The Atlantic, 10 Nov 2008

http://meganmcardle.theatlantic.com/archives/2008/11/shlaes_and_the_depression.php

Category: BP Cafe, Data Analysis, Economy, Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Krugman vs. Shlaes — Not A Fair Fight”

  1. Archiphage says:

    I’d expect to gain as much knowledge from a fight between Krugman and Shales as I would from a fight between a Hindu and a Muslim about the length of the Easter Bunny’s ears. I doubt either of them will be coming off my ‘ignore’ list anytime soon.

  2. gz says:

    I did not realize when I was reading TheStreet.com that BRitolz true passion is leftist politics and finding ways to bash anything that smells of republican or conservative

  3. me says:

    “in which case she should be dismissed as a no-nothing. ”

    And why doesn’t’
    t she write for the Financial Times anymore.

    @GZ”I did not realize when I was reading TheStreet.com that BRitolz true passion is leftist politics and finding ways to bash anything that smells of republican or conservative”

    This is one of the top read investment blogs. If you don’t agree that the last 8 years have been disastrous then you should stick with the same old policies and the NR.

  4. bardium says:

    The argument is being trivialized in commentary like this. Let’s face it: Krugman is Keynesian and an apologist for the left and FDR’s fascist policies. He is keen to cite E. Cary Brown’s 1956 paper on “Fiscal Policy in the Thirties: A Reappraisal” as the final argument on the topic. Brown was Keynesian and worked in FDR’s administration. Brown is cited as saying that massive deficit spending is the right thing to do and FDR never spent enough. No plausible data supports that hypothesis. Grrr.

    I don’t understand why you would conclude Krugman is a genius and Schlaes is a stupid apologist for troglodytish right wingers. Name calling won’t undo her research or conclusions. I thought the book was good. So what. Read Rothbard’s America’s Great Depression.

    I would say that Keynes had it wrong, dead wrong, and in fact government action not only caused the 1920’s bubble but also caused the crash. And the crash went from being a nasty recession to a decade long depression thanks to Hoover and FDR. We troglodytes don’t need Schlaes to tell us that.

    So, to have a meaningful discussion, your comments and Krugmans’s comments add up to zip. If you wish to present an argument based on economic theory, please do so. Just stop smearing Schlaes. It’s kind of important now, because many of us troglodytes now fear that our fair government is making the same mistakes that were made in the 1930s and such actions could lead to a decade-long economic morass. We need to get it right.

    Look there is a constant roaring argument among economists about this topic. There are “brilliant” people on both sides of the argument. How would you decide which argument is best?

    Why should we listen to Rubin, Krugman, Paulson, or Summers? See my commentary “The Smartest Guys in the Room,” http://subprimeforum.blogspot.com

  5. Francois says:

    “Let’s face it: Krugman is Keynesian and an apologist for the left and FDR’s fascist policies.”

    Fascist policies…wow! This qualifier is supposed to add weight to your argument?

    “Brown was Keynesian”

    That’s it Mr. Brown! Here you are, neatly packaged in one word, defined and tagged. That should simplify our lives, shouldn’t it?

    “I would say that Keynes had it wrong, dead wrong, and in fact government action not only caused the 1920’s bubble but also caused the crash.”

    You *would* say? Apart for saying it anyway, thus negating the use of the conditional, would you be kind enough to bring forth any FACT that might help making your rather sweeping indictment?

    “There are “brilliant” people on both sides of the argument. How would you decide which argument is best?”

    At the risk of repeating myself, it is not prohibited (yet) to look at the facts, give them rigorous context, and let a conclusion emerge without torturing the argument. Is that too much to ask?

    When it comes to FDR, apparently it is too hard. Which leads me to the conclusion that there are people who have an agenda to push, the facts be damned.

    Thus far, Krugman has been on the correct side of the facts more often than not. So, notwithstanding my right to revise my opinion, should the facts change, (it’s called adaptation) I’ll side with Krugman, until proved wrong.

  6. Marion Maneker says:

    A couple of points to make clear:

    1) This not Barry’s post and doesn’t reflect his views.
    2) Krugman leaves a lot to be desired on several fronts. No one here thinks he’s a genius; nor would being a genius preclude him from being wrong-headed.
    3) The issue with Shlaes is not her politics but her sloppy argumentation. Because the government didn’t solve the economic crisis during the Depression doesn’t invalidate all government action. Calling the Great Society an example of Keynesian deficit spending is silly and tendentious.
    4) This is the most important point: Trying to tar the stimulus approach to creating jobs and economic demand by citing the NRA and other programs that shared similarities to fascist policies is to spend one’s time arguing about irrelevancies. If FDR’s glib description of what ended the Depression–Replacing Dr. New Deal with Dr. Win-the-War–can be cited as roughly the right description of what happened, then government stimulus is the right approach. Further to this point, no one has yet suggested any programs that remotely resemble the new deal. And Shlaes’s arguments that government spending will crowd out private jobs is laughable and not constructive.
    5) When you think about what confronts us on a rational level, you’ll quickly come to a very conservative position. The US needs to use public money to spur private activity that will yield revenues to pay off the reckless spending of the last 8 years on everything from prescription drugs to tax rebates to the two wars. The US needs to repair its fiscal standing or face dire consequences. But it cannot do that if the economy collapses.
    6) It would be more impressive if Amity Shlaes had spent the last eight years opposing the spending and lax oversight that got us in this horrendous mess. Krugman is an intemperate guy. But so far he has not suggested sending money to individuals as a stimulus–Bush did that first with the trillion-dollar tax cuts and then with the silly $600 stimulus last spring. We were told ordinary citizens would allocate that money better than the government could. They didn’t.

  7. Francois says:

    “Krugman leaves a lot to be desired on several fronts.”

    Like what?

  8. nemo says:

    “I’d expect to gain as much knowledge from a fight between Krugman and Shales as I would from a fight between a Hindu and a Muslim about the length of the Easter Bunny’s ears. I doubt either of them will be coming off my ‘ignore’ list anytime soon.”

    Krugman may be intemperate, but he’s a real economist. And he nailed the Bush administration early, years before it was cool to be right about the Bush administration. Shlaes is just a propagandist, end of story.

    “I don’t understand why you would conclude Krugman is a genius and Schlaes is a stupid apologist for troglodytish right wingers. Name calling won’t undo her research or conclusions. I thought the book was good. . . .”

    Haven’t read her book, and perhaps it is good, but her FT column has been consistently stupid propaganda for years.

    Pretty sad when someone as shallow as McArdle thinks you oversimplify.

  9. kazoolist says:

    I hate to break it to you, but dismissing the right as “troglodyte” and Shlaes as “intoxicated” doesn’t make it so.

    Your later name calling – “clueless” or a “hypocrite” – is equally unauthoritative, and it’s made by faulty reasoning to boot:

    Shlaes’s use of the metric of two consecutive quarters of negative real GDP growth is a measure still in use by many in the “economic know”. Do a google search to see for yourself.

    Furthermore, although a bit less touchy-feely, that definition squares nicely with the NBER definition you prefer (“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP…”). NBER’s “More than a few months = Shlaes’s “2 quarters”; NBER’s “decline…in real GDP” = Shlaes’s “decline in real GDP.” Maybe you should let NBER know their either clueless or a bunch of hypocrites?

  10. colion says:

    Barry and Paul are good examples of how politics can inform an individual’s economic views.

    ~~~

    BR: Do you care to flesh that out, or are you only capable of playing in the shallow end of the pool ?

  11. bardium says:

    Marion: Well … The issue is not to debate Krugman’s character, but whether or not Schlaes and her followers are troglodytes as accused.

    I don’t offhand recall that she says in her book that government action doesn’t work in ALL cases (I would make a pretty good argument for that, though). She does say and many economists agree with her that FDR’s policies for the most part failed. Otherwise why did a fairly common crash and recession turn into a decade long depression? Hoover and Roosevelt meddled and meddled and their policies were counterproductive.

    Marion, you say that FDR’s war policies are fiscal stimulus that worked? Are you sure you want to stick with that as an argument? Read about that history: price and wage controls, defense monopolies, rationing; you know, your basic central planning. There are many thoughtful people on the free market side who would say that fiscal stimulus in the Keynesian sense, Federal spending, doesn’t work. Since this policy is now being proposed, I would challenge you to show when such Keynesian stimulus worked? I don’t know about the Great Society. All I know is that there was deficit spending during LBJ to pay for the war and the Great Society. But, as an aside, JFK’s tax cuts resulted in increased tax revenues.
    There are New Deal policies being proposed today. Everyone, Dems and Repubs, are clamoring for government spending as fiscal stimulus. So her argument is not wacky as you say. Wouldn’t it be nice if we actually looked into the Keynesian argument a bit more carefully before we jump in. Unintended consequences and all that.

    Government spending crowds out private jobs? Laughable? Why? She says: “Piling on public-sector jobs or raising wages may take away jobs in the private sector, directly or indirectly.” If you disincentivize employers, as the article discussed, maybe private employers won’t compete for employees. So, why do you think Schlaes is silly and tendentious? She may have a good argument. It seems a rather offhanded smear in light of the wonderful writing she has done. Why are you so critical? If you were fair you wouldn’t just slam her without refuting her argument.

    Now to the meat about being on a rational level. I agree that Bush’s spending was bad and reckless. But, being rational, what has that got to do with our crisis, except indirectly? It wasn’t government spending that caused the crisis. Your argument is all mixed up.

    I think you are actually meaning something else: the government spending that Bush did was bad (agreed) but now that we have Obama, his government spending will be good. Perhaps you can tell me why government spending will be good. How does government spending (coming from taxation or deficit spending–just another tax) result in stimulus?

    My take is that it will prop up bad companies that should fail, resulting in the moral hazard we all know about, further preventing capital being reallocated from these bad companies to good companies, depressing investment because of increased taxation (capital gains, dividends and income) and permanently tighter loan standards, money pumping causing inflation causing a flight into some new asset class because of dollar devaluation, and resulting in another credit bubble and crash or the Japanese disease. Take your pick.

    And finally, why the hell should Schlaes be more impressive if she had opposed spending? Maybe she did, but her goal was to write about the depression and you fault her for that. Personally I think she’s made a great contribution to economic history and the lessons gained should be learned.

    Francois: As to “fascism” it isn’t a secret that FDR’s Brain Trusters were using Mussolini and Stalin as examples of progressive modern political and economic policy at the time. Also I apologize for my grammatical errors.

    If you guys wish to argue more, please go to http://subprimeforum.blogspot.com . I’m thinking of writing a piece on this issue.

  12. DavidB says:

    When you think about what confronts us on a rational level, you’ll quickly come to a very conservative position. The US needs to use public money to spur private activity that will yield revenues to pay off the reckless spending of the last 8 years

    Conservative? How is that conservative? That looks more like the application of the law of diminishing returns

    I always thought conservative meant living within your means. Spending less than you take in, not stealing your kid’s credit card and buying home improvements in the hope that it will pay off what you borrowed in the past.

    Public money spending to pay for past debts is socialist in the extreme.

    I will agree with you on one thing though. The US may need public spending…..but only because it is the only option left for a short term fix. Unless the government does what it takes to fix the fundamental problem then this last snort of coke is going to be the last taste of drug heaven most people are going to get before the credit withdrawal blues start setting in with a vengeance.

    If you want a good look at conservative then look at Canada. They have been living within their means for close to a decade and now that the world crisis is sinking in they are much better prepared to deal with their corner of the mess. If the US government had kept its books in order they would have been able to weather the collapse of the banking system in a much less future toxic way than they are now. That is where Bush and congress erred most egregiously over the past decade

  13. tedstevens says:

    “I did not realize when I was reading TheStreet.com that BRitolz true passion is leftist politics and finding ways to bash anything that smells of republican or conservative”

    ^^^ this is the impression that I have gotten over the last 2 months of this blog (regardless of whether BR wrote it or a guest writer wrote it). Before that, it was more unbiased and economically sound…read: educational + useful.

    @BR – FYI, just because someone is not a Democrat, does not automatically make them a republican. Similarly, just because Republican leadership (miserably) failed the past 8 years is not an automatic talking point in support of Democratic/Keynesian ideals and values. Hell, even the fundamental ideas of Free Market Anarchists when compared to what we’ve seen over the past 100 years in this country, look a lot closer to what the framers of the constitution had in mind. IMO, you are missing out on a large target audience by failing to remain unbiased in the political arena.

    note: I don’t know what the statistics look like behind this site…I have no doubt its popular (read: profitable)…so maybe all these leftist rally cries draws the maximum audience (you tell me). Nothing like fad-based news…just ask the CNN/FOX/. Maybe the majority of Americans are not interested in fundamental economics and the sound principles of a “true free market economy” *** …maybe they are just interested in talking heads.

    *** before anyone makes the standard free market rebuttal, “the past 8 years have proven that free market economies do not work”, please take a second to note that I added the word TRUE before free market. Just because Repubs carried the term like a “get out of jail free card” doesn’t mean we’ve had anything close to a free-market economy.

    I’m taking a(nother) hiatus from this blog..

  14. Marion Maneker says:

    @ David B:

    Looks like we agree. The fiscal stimulus is a last resort measure. We would be in a better position to pay for it had we not already spent trillions on the unnecessary tax cut and the two wars. In other words, we were all spent out before this crisis started.

    Few people would call Canada conservative. But I agree with you whole-heartedly. The simple-minded right–as opposed to the thoughtful right–is out of ideas. That’s a shame. By fixating on anything the state does, as Shlaes and several commentors do–they miss the real terrain of the current debate. The fiscal stimulus has a very strong consensus.

    Now the politics is in making sure it gets spent on economically meaningful projects, not just pork and job preservation. Shlaes says this. But so does Krugman. And the point of this post was to illustrate that Shlaes’s petty arguments do nothing to acknowledge that commonality, nor do they offer a constructive debate about the stimulus itself.

    Indeed, the whole conversation about the New Deal and the Depression is a distraction from our current situation. The lasting value of the New Deal was not the anti-competitive practices but the social safety net. Long before this crisis began, our politics has been frozen over how to revamp that safety net in a economically sound manner. Reforming Social Security and Medicare (not a New Deal program) will have to wait for some time. But we won’t be able to move forward without addressing the flaws in those programs.

    Arguing about whether the government’s spending will crowd out private jobs–when the economy is shedding jobs rapidly–should get you laughed out of the room. Shlaes isn’t a conservative thinker; and several of the posters are correct: her arguments do give conservatives a bad name.

  15. Archiphage says:

    @ nemo:

    I agree that Krugman is a real economist, in the same sense that I agree that Ptolemy was a real astronomer.

    http://www.mlahanas.de/Greeks/PtolemyAstronomy.htm

  16. DavidB says:

    Few people would call Canada conservative. But I agree with you whole-heartedly.

    Ironically, one of the few places Canada is more conservative than the US is in regards to government policy towards debt, deficit financing and their banking system. Through a sheer quirk of timing, that is the ‘bet’ that paid off for Canada. Had this crisis happened only 12 years ago Canada would be looking like Iceland is today

  17. Marion,

    maybe you see something I don’t, but what is the value of referencing M. McArdle?

    were you tring to fill some sort of quota?

  18. sparrowsfall says:

    Marion, agreed that she’s utterly outclassed, but must take issue with this:

    “She did so by using a definition of recession — 2 consec Qs negative GDP — that was outdated centuries ago.”

    Many people and outfits still use this seat-of-the-pants definition, and not unreasonably, because there actually is no definition of “recession.” (Check the NBER site; you’ll see.) It’s just a moniker that’s applied retrospectively by a group of sages standing at the taffrail and holding up their collective thumbs while squinting at the wake.

    Those sages, their thumbs, and their squints inevitably change over the years and decades, making their designations over those same decades basically incomparable and hence, meaningless.

  19. censeo says:

    What Would Keynes Have Done?
    By N. GREGORY MANKIW – The New York Times; Published: November 28, 2008
    This is a must read: a succinct synopsis of the current economic challenge, and the fiscal tools available to meet it. Rearrogation by sovereign states of financial and industrial policy is essential. Capitalism properly performs the essential commercial function using financing mechanisms when performing within fiscal guidelines set by the body politic. Monetarism alone is adequate: it must serve an essential but limited role as hand maiden to the fiscal plan.
    We are witnessing the consequence of inverting the government/business power relationship. There is little free about so-called free market methodology when money trumps politics. The interests of the few concentrate resources, efficiency increases lead to systematic rigidity, the inevitable end is asphyxiation. Commerce stops when all the gold is locked in the counting house.

  20. Tom K says:

    “The US needs to use public money to spur private activity that will yield revenues to pay off the reckless spending of the last 8 years on everything from prescription drugs to tax rebates to the two wars. ”

    This is incredibly wishful thinking if not downright naiveté. Obama and the Democrats have spent well over a year proposing the use of “public money” for their own brand of reckless spending; to spur income equality and to fund their favorite social/economic/environmental. This was long before the current financial collapse got a head of steam. There hasn’t been a single statement from Dems supporting… let alone a plan to “pay off” anything. The only thing that’s changed in the past couple months is their rationale for more Federal spending: “Jolt” the economy.

  21. Thats your critique? Calling me a leftist?
    Is that all you got?

    gz and colion — not only are you unable to muster any coherent criticism beyond name calling, you are also too lazy to bother with any sort of analysis or criticism.

    Intellectually vapidness and limp critiques wont win you any popularity contests around here . . .

  22. Holman says:

    Have we, maybe, taken our eyes off the ball. The stimulus plan – good or bad – is still on the launchpad and the countdown has stopped. We need to light the blue touch-paper under the banks’ booster rockets.

    The banks still are not lending – to one another or industry. They are in a country-wide prisoners’ dilemma. They all want to cheat – wait and watch until other banks take the risky step of being the first to lend again. Then when the field is given the all clear, they too will re-enter the market.

    The way out of this dilemma is to make the government look like the mafia – make cheating too expensive to contemplate. In the mafia, if you are caught jeopardising the family by avoiding personal risk, then you are very likely to get a punishment much worse than the one you were trying to avoid.

    Example programme: list the top 20 US banks in the interbank market. Look at their new lending vs their capacity to lend. Rank them. Drop the bottom 2 from the any bank support processes. When they fail, let them. Repeat every 2 weeks until lending reaches escape velocity. Advertise this plan 2 weeks in advance of the first cull.

    Some other plan might work better. But the point is: it has to be an offer they cannot refuse.

  23. Scott F says:

    Qualifications I Can Believe In

    I hadn’t realized that Amity Shlaes is a “senior fellow in economic history at the Council on Foreign Relations.” I kind of wonder what it takes to get made a senior fellow in economic history at the Council on Foreign Relations. She’s got a bachelor’s degree in English and her columns once won a prize from a libertarian organization for some articles that “compared the failing economy of high-taxed and over-regulated US state of Maine to the success of the increasingly economically liberal Ireland; and showed that US workers benefit from taking responsibility for their own pensions.” That’s it.

    I have a really, really, really hard time imagining the CFR doing something comparable for a liberal with so little in the way of relevant qualifications or track-record outside an ideological cocoon. Just saying. Where’s my fellowship?

    http://yglesias.thinkprogress.org/archives/2008/12/qualifications_i_can_believe_in.php