Round and Round We Go: Krugman-Magoo Strikes Again!


Here we go again. Paul Krugman has made another, erm, innovative discovery. Apparently, Krugman has just discovered that when government deficits rise interest rates may not rise at all, indeed there may be a tendency for them to fall. Think you’ve heard this before? Well, that wouldn’t be particularly surprising if, I don’t know, you have internet access because that is the Modern Monetary Theory (MMT) argument.

Krugman then goes on to say that this proves macroeconomics wrong but as Matias Vernengo writes:

[Krugman] gets everything right, including the bold claim that mainstream macro (the only one he acknowledges, even though he knows better) is all wrong.

I don’t know exactly what Vernengo meant by his bracketed comment, so I don’t want to put words in his mouth, but for me this raises an interesting question and one that I have been wondering for some time: is Krugman a plagiarist or is he completely and utterly myopic to the point of Mr. Magoo-esque comedy?

Okay, let’s lay out the evidence. Over the past few years Krugman has been taking some positions that Post-Keynesian economists have taken for decades; literally decades. Consider that Krugman recently began to hint that income distribution might be entirely detached from what neoclassicals consider fundamentals. As I highlighted in the piece linked, Krugman gets it all wrong but he is certainly moving in what might be considered a heterodox direction. But its the occasional MMT-style comments that Krugman makes every now and then that really have me wondering what’s up with Krugman — this latest being only one of many.

“But shouldn’t we just be glad that Krugman ‘gets it’?” some might ask. No. Absolutely not. If Krugman is not citing his sources properly then he is not a real scholar. Scholars must cite their sources lest they become megalomaniacal idea-gobbling charlatans who care more about their popular image than the work they do. Think Lyndon LaRouche and his bizarre perversions of elements of Western philosophy or L Ron Hubbard and his, erm, discovery of “Dianetics”. In cases such as these not only are the ideas stolen but they are also degraded and bastardised.

Well, let’s lay out the case against Krugman to see if we can provide a judgement. Okay, so we know that Krugman is familiar with heterodox and Post-Keynesian work. The evidence for this is extensive; one could consider this awful review of John Kenneth Galbraith’s work from way back in 1996 (there is also a more recent photo where Krugman is sitting down with The New Industrial State on his desk, which I cannot find at this moment in time) or one could point to the fact that he himself claims to have read Hyman Minsky’s Stabilizing an Unstable Economy which contains discussions of endogenous money and Kaleckian income distribution dynamics. Or one could point to the fact that he is clearly aware of the MMT argument (who isn’t at this stage?).

So, there’s your evidence. I think that it’s pretty conclusive: Krugman has exposed at least his eyes to such work. The question is to what extent it penetrated his mind. Here I will lay out the only three possibilities I can think of. (Alternative possibilities are welcome in the comments section.)

(1) All the ideas contained in the work that Krugman seems to have read actually did penetrate his mind fully. Krugman is thus to be thought of as a highly competent scholar but, ultimately, a fraud. He would then be using these ideas to buttress his own standing in the media and the profession by coming to the same conclusions as heterodox economists, but then pretending to arrive at them in slightly different ways making himself appear highly original and innovative. This is the “Econburgler” argument.


(2) Same as the above, but Krugman is afraid that actually saying that he is a heterodox economist will ruin his standing. By this reading, Krugman is the humble savior of heterodoxy. He is trying to secretly package their ideas and send them, like a parcel-bomb, straight into the lair of the mainstream without their even knowing it. This is the “White Knight” argument.


(3) Krugman cannot actually read the stuff he claims to read properly or he hasn’t read it at all. By this reading, Krugman just scans books like The New Industrial State and Stabilizing an Unstable Economy with perhaps some of the material slipping somewhere into his subconscious where it might re-emerge some months later as a Krugman-original. This is the “Krugman-Magoo” argument.


So, the court has been, as it were, in session for long enough. What is my judgement on the matter? Well, I’m of the mindset that you should never imagine a conspiracy exists where we can assume simple human incompetence. For that reason I’m going with the Krugman-Magoo argument. It seems to me that Krugman, having such a large and devoted following on the liberal-left due in part to his admirable opposition to the Iraq War and his opposition to austerity, has a bit of an ego on him. Combine this with a typical neoclassical level of acumen for scholarship and I think you get the Krugman-Magoo result.

The upside to this: if heterodox economists keep barraging Krugman with new ideas many are likely to filter into his subconscious and emerge some months later. The downside: don’t expect any acknowledgement from the ever myopic Krugman-Magoo.


Update: A commenter has pointed out that Vernengo and I misread Krugman’s original post. He did not say that macroeconomics is wrong. Well, he did but he was being sarcastic. I came at this from Vernengo’s post so the misreading spread — which is obviously on my shoulders.

The same commenter thinks that this slight misreading, of an ironic remark, debunks this post. It does not. Krugman still argues that when a recession hits and the deficit increases, the central bank steps in and holds down interest rates. You can read this here:

The recession of 1990-91 (driven by the S&L crisis and a burst bubble in commercial real estate) drove up the deficit, and also led to Fed easing.

This is not in line with Krugman’s previous arguments where he has said that the LM-curve is upward-sloping and that only in a liquidity trap can the government spend without driving up interest rates. Unless he has redefined “liquidity trap” to mean “any recession” then 1990-91 is not a liquidity trap and yet the government can still, according to late-July 2013 Krugman, spend without driving up rates. Despite my misreading of his ironic statement, Krugman-Magoo remains a wet fish, flopping around in the mud of his own lack of clarity on these issues.


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Philip Pilkington is a macroeconomist and investment professional. Writing about all things macro and investment. Views my own.You can follow him on Twitter at @philippilk.
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19 Responses to Round and Round We Go: Krugman-Magoo Strikes Again!

  1. NeilW says:

    “Scholars must cite their sources lest they become megalomaniacal idea-gobbling charlatans who care more about their popular image than the work they do. ”

    Krugman has the nobel prize. He’s moved beyond being a Scholar. He’s now a ‘name’ with a PR team advising him.

    And you never acknowledge those who may eclipse you if you want to remain a ‘name’.

  2. ivansml says:

    Krugman argues that crowding out (“conventional macroeconomics”) can be true, but we cannot test it empirically only by looking at simple correlations between deficits and interest rates, since those are confounded by the business cycle. This is an obvious point, and of course there is an empirical literature that attempts to estimate the relationship with more sophisticated methods. [1]

    MMT, on the other hand claims that there is no crowding out. This seems to me like a very different argument, and you’re essentialy attributing to Krugman the opposite of what he’s saying. Yes, citing existing literature is important for a scholar, but reading comprehension even more so.

    [1] e.g. Engen & Hubbard (2004): , Laubach (2009):

    • Well, you’re right about one thing. Vernego misread that and I came at this from his post. Krugman did NOT say that macroeconomics is all wrong. I will amend that now.

      However, he does clearly say that the Fed controls the interest rate and can drive it down when deficits open up due to recession. See:

      The recession of 1990-91 (driven by the S&L crisis and a burst bubble in commercial real estate) drove up the deficit, and also led to Fed easing.

      So, the end result is the same. Krugman is still making an argument that is inconsistent with the upward-sloping LM curve that he beat Keen and Fulwiller over the head with. The piece still works.

      Thanks for pointing out the minor error. But don’t make a mountain out of a molehill. Think before you type.

      • ivansml says:

        “Krugman is still making an argument that is inconsistent with the upward-sloping LM curve”

        Inconsistent how? The point is that government typically responds to a recession with _both_ expansionary fiscal and monetary policy. While the first would lead to increase in interest rates due to crowding out, the other would have the opposite effect. Given that rates would be lower than usual due to recession itself, it’s no surprise that recessions are usually accompanied by rise in deficits and low interest rates. Nothing here is inconsistent with standard IS/LM model that Krugman usually refers to.

      • That would imply that the government could spend up to the inflation barrier and keep interest rates as low as they want. That’s the MMT argument. Yet Krugman clearly says that governments can only spend and not effect interest rates in what he calls a liquidity trap:

        “Now, under current conditions — that is, in a liquidity trap — the monetary base is indeed irrelevant at the margin, because people are indifferent between zero interest public liabilities of all kinds. That’s why there are no immediate policy differences between some of the monetary heterodoxies and what IS-LMists like me are saying. But that’s not the way things normally are.”

        You’re as confused as Krugman! Enough of this now. Either follow the debates or don’t engage with them.

      • ivansml says:

        “You’re as confused as Krugman! Enough of this now. Either follow the debates or don’t engage with them.”

        Getting grumpy? FYI, I’m familiar with that debate, though we’d probably disagree about who had won. It’s also irrelevant here, because you seem to be confused about more basic things (undergraduate-level stuff, really). Crowding out is a conditional, ceteris paribus relationship (or a hypothesis if you want), while we’re talking about an unconditional correlation. There’s a difference between movements along the LM curve (fiscal policy) and shifts in LM curve (monetary policy), and in reality both can happen simultaneously. Your reasoning is as if you observed data on price and quantity, found a negative relationship, and then proclaimed that supply curve slopes down (an obvious econometric fallacy).

    • Yes, I’m getting “grumpy”. Because you’re engaged in obfuscation and you have been for some time now.

      Krugman quite clearly says that the liquidity trap creates an environment where “there are no immediate policy differences” between ISLM and MMT/Post-Keynesians. This means that if the liquidity trap were not there he would not think that fiscal policy would not cause some disruption.

      I don’t believe that he has thought this through but I imagine if he did it would be some long-run inflationary condition.

      I’ve had these debates with ISLM adherents — some fairly well-known ones on the internet. They do think that there is crowding out in non-liquidity trap conditions and when I press them on the MMT/Post-Keynesian point that central banks accommodate automatically some of them get it and some of them deny it. But there is a clear difference of opinion.

      I trust their judgement more than I trust your’s as they don’t engage in obfuscatory arguments. So, you concoct all the nonsense about “unconditional correlation” in your mind that you want to diminish the difference in the approaches. I am not going to engage with you further as there is no point. You’ll just slip around inserting ad hoc nonsense into your arguments.

      • Here’s more for people who want to actually read Krugman on this. He quite clearly states that crowding out will be an issue outside of a liquidity trap:

        That is, under current conditions deficit spending doesn’t lead to crowding out — it leads to crowding in. In fact, you could argue that the worst thing we can do for future generations is NOT to run sufficiently large deficits right now.

        Things won’t always work this way. Eventually we’ll emerge from the liquidity trap, and the normal rules of economic prudence will reassert themselves. But we are not there, or anywhere close to there, right now.

        It’s there in black and white. And it takes heroic effort to obfuscate the fact that Krugman wrote this and then went on to write the other day that there was no crowding out in the 1990-1991 recession even though this was clearly not what he calls a liquidity trap. Krugman is obviously confused. It’s as clear as day to anyone that wants to see it. But because of Krugman’s popularity some fan-boys don’t want to see it. The level of fawning is juvenile. Like teenage girls rallying around a pop star.

      • ivansml says:

        “But because of Krugman’s popularity some fan-boys don’t want to see it. The level of fawning is juvenile. ”

        I don’t really care about Krugman (and disagree with him on some points), I’m just here for some fun.

        “And it takes heroic effort to obfuscate the fact that Krugman wrote this and then went on to write the other day that there was no crowding out in the 1990-1991 recession even though this was clearly not what he calls a liquidity trap.”

        And we’re back to the reading comprehension issue. Krugman didn’t write that there was no crowding out in 1990-1991 recession, he wrote that interest rates went down due to expansionary monetary policy. Fiscal and monetary policy affect interest rates in a different way and can be at work simultaneously, that’s not so hard to comprehend, is it?

        If you’re really saying that the basic econ 101 IS/LM model with upward-sloping LM curve somehow logically implies that central bank cannot lower interest rates in a recession, please do enlighten us. Thousands of economics teachers who explain effects of shift in LM curve each year will surely be interested in how they got is so wrong.

        By the way, we’re now far away from accusations of laziness and academic dishonesty (even plagiarism), which are still the main subject of your post even when they’re based on misunderstanding of one Krugman’s blogpost you didn’t even bother to read. I’d just delete the whole thing in your place, but then I guess my ideas about scholarly behavior are not heterodox enough.

      • (1) The issue goes deeper than that on the LM-curve. MMT claims that central banks will automatically respond to hit their target rate. So, the LM-curve is flat. Again, if you’re not going to engage with the debate stop leaving comments. Do some background reading, then engage.

        But regardless, if the Fed have full control over the interest rate then there can never be crowding out. Krugman claims that in “normal times” there can be crowding out. Again, I’ve had these debates privately with the likes of Dean Baker and Nick Rowe and this is what they generally argue. I trust them more than you, frankly, because you seem to have an axe to grind. Not to mention that I have no idea who you are and so don’t know how much authority you wield on such issues.

        (2) Never said that Krugman plagiarised. And I did read the post, but I misinterpreted a single ironic sentence (not hard to do; writing courses often caution writers against using irony in written form as they will likely be misinterpreted).

        If you want to talk about misrepresentation then you might start by looking in the mirror, buddy.

  3. james says:

    In Krugman’s blog post ‘MMT, again’ he links to Cullen Roche’s text ‘Understanding the modern monetary system’. No wonder Krugman didn’t think much of MMT. Cullen’s paper was an amateurish piece of rubbish. It’s even worse now.

  4. Tom Hickey says:

    I said at the get-go, when PK first took notice of MMT, Minsky, etc, that #2 would apply, that is, he would use his bully pulpit to sneak this stuff in gradually without attribution.

    I don’t think there is much doubt it gets it. For example, Warren Mosler laid out soft currency economics-MMT to PK in San Croix over a couple of hours, and Warren is convinced that PK got it.

    I don’t think it is a bad strategy. PK apparently thinks that’s what it takes, and it’s his bully pulpit. If he manages to push the Overton window, fine.

    During a battle is not the time to be concerned about getting credit . The record is there, and when the history is written subsequently, it will come out.

    • You’re very generous, Tom. I’ve read Krugman’s academic work and he’s not as bright as some folks think (I’m thinking of his garbled studies of unemployment in Europe back in the 1990s). But maybe you’re right. I put him in the “dull knife” drawer. But whatever.

      • Tom Hickey says:

        When it’s one idea and one person, maybe not. But here we are taking about the whole PKE tradition going back to Lerner and Kalecki.

        We haven’t mentioned him yet, but along with MF, FH and JMK was are also dealing with Paul Samuelson and his neoclassical synthesis (along with John Hicks and IS-LM). PK is in that tradition, and PKE claims to have refuted major aspects of it. For instance, long ago PS admitted that the neoclassical account was not universally valid and moved away from it, but did not give up his commitment to ergodicity and equilibrium-based econometric modeling

        So politically there are several major economics school of thought prominent in the policy game — neoliberalism based on MF, neoliberalism based on HF, and the Keynesian-neoclassical synthesis, with Austrian-Libertarianism rising into contention. Old Keynesianism, Institutionalism-Galbraithianism, PKE (including Minsky), Marxian econ, etc. are all marginalized in the US.

  5. james says:

    What was PK doing in St. Croix? Holiday?

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