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Johan Gustaf Knut Krugman or Naked Wicksellianism

Dr. Krugman, I presume

Lance Taylor has a new paper on Krugman's liquidity trap model, showing that it is fundamentally Wicksellian, rather than Keynesian. In fact, Krugman has put his Naked Wicksellianism on display recently (see here). You should read the whole paper, but as a teaser, here is what Lance says about Krugman's policy stance (that the Fed should stimulate inflationary expectations to increase investment):

In a Knut-shell (very punny) Wicksell is okay, but Keynes is better.

Comments

  1. why are heterodox so fond on labelling things, instead of criticizing the economic idea you criticize the brand.. "omg that is not post-modern sraffian analysis, its neo-walsrarian with post-wicksellianism!111"

    ReplyDelete
    Replies
    1. Wow, dude seriously. The label reflects an important difference in content. Wicksellian models with a natural rate (that have insormountable problems, and that's why a generation of less challenged neoclassical economists tried, without success, to move away from it with the Arrow-Debreu model) basically end up with a confidence fairy story like Krugman. The quote from Lance makes it explicit: we need expansionary fiscal policy and better income distribution, not higher expected inflation. You need to read a bit more.

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    2. Well, is it not cleat that Krugman defends the same thing, i.e., we need expansionary fiscal policy? And, from the times he mentioned the 1% and quoted Saez & Diamond's work on the optimal top income tax rate, it seems pretty obvious he defends a more equitable income distribution, too.

      Hasn't his point been that, given the absence of the more appropriate fiscal expansion, a higher expected inflation targets is just something we can try, even if it is unlikely to work, because it also does no harm?

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    3. He does defende that on his policy discussions, but if you check his theoretical model, he actually asks for higher inflation to stimulate spending (a confidence fairy). By the way, in normal conditons he is for using only monetary policy (he only wants fiscal policy because he incorrectly says we are in a liquidity trap).

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