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Monday, August 13, 2012

Paul Krugman is Wrong

Paul Krugman took time off from his vacation last Friday to take a shot at a paper by Kevin Hassett, Glenn Hubbard, Greg Mankiw and John Taylor on the growth and employment impacts of Governor Romney’s economic program in comparison with President Obama’s program. Though flaming with vitriolic rhetoric, his shot misses the mark.

Half of Krugman’s piece strays away from the paper, so focus on what he actually says about the paper.

First, he says that that the “work of other economists” cited in the paper does not support its position. But the research papers and books that are cited are quoted correctly and do provide supporting evidence. As Scott Sumner reports “when I looked at the paper I couldn’t find a single place where they had misquoted anyone.” And Jim Pethokoukis shows not only that the evidence cited in the paper is supportive, but also that Krugman is on record as previously agreeing with the cited work on the 2009 stimulus package.

Second, Krugman claims that the authors whose work is cited in the paper have also done other work which is not supportive of other aspects of the paper. The example he mentions is the work of Atif Mian and Amir Sufi showing that the slump is “demand-driven” in addition to their cited work on the cash-for-clunkers program (and much other work by the way). But work showing that the slow recovery is demand-driven is not evidence that the Romney program will not increase economic growth. As the paper on the Romney economic program states, the program works in two ways: "It will speed up the recovery in the short run, and it will create stronger sustainable growth in the long run."  Demand and supply are at work.

Third, Krugman asserts that the “Baker et al paper claiming to show that uncertainty is holding back recovery clearly identifies the relevant uncertainty as arising from things like the GOP’s brinksmanship over the debt ceiling — not things like Obamacare.” Well there is nothing about “the GOP’s brinkmanship” in the Baker et al paper; those are Krugman’s words. And the paper on the Romney economic program does not link Baker et al to Obamacare. The Baker et al paper uses an index of policy uncertainty which has been very high in recent years for many reasons including uncertainty about future taxes and the debt problem, as exemplified by the 2011 debt dispute, which had its origins prior to 2011, including in 2009 and 2010. That is exactly the point: Policy uncertainty is high now for a number of reasons, and reducing it with a long-term strategy rather than more short-term fixes will increase economic growth and create jobs.