Wednesday, July 21, 2010

Crazy Kenny (Rogoff edition)

Krugman is right, again, this time that this Op-Ed by Ken Rogoff is just awful.

Strangely, he writes: "there is a growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus." Really? From my vantage point, it seems almost certainly that we will not see any more stimulus in the US, and if we do, it will be small. Secondly, who is part of this "chorus" advocating for "indefinitely sustaining aggressive" stimulus? None of the main stimulus proponents, such as Krugman, advocate this.

Rogoff warns that if the US does another "panicked fiscal stimulus", such as another $150 billion aid to states and continued food stamps and unemployment benefits, that "Even the US is likely to face a relatively sudden fiscal adjustment." WTF? That's crazy.

There's also no criticism of the Fed or of the Japanese central bank in the whole piece. And the guy is a Harvard professor. And yet he writes things like: "a panicked government fiscal surge is far more likely to destabilize the nascent recovery than to nurture it."

This article reminded me of the angry, emotional letter an upset Rogoff sent Stiglitz back in 2002, in which he wrote things like "we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better," in response in part to Korea, which the IMF forced a balanced budget amendment on. One of Stiglitz's big bones of contention, of course, was capital market liberalization. The IMF has now changed course and no longer makes country's in trouble adopt this as a precondition to get loans, somewhat vindicating Stiglitz... In some sense, though, this Op-Ed is worse, as although for Korea in the 1990s, since it can devalue, the effects of austerity were counterbalanced by the stimulative effects of a much cheaper currency, meaning that Korea could just export its way out. The same logic does not apply to the US today, however...

Even sadder is that he is also on the advisory board of George Soros's INET, which is supposed to change the field of economics. I see other theoclassical economists on there too, such as Harold Uhlig. I've got two CV's, one for conservative eyes, and another for liberal eyes. I think when I apply for a fellowship from INET, I'll send in the conservative one...

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