Krugman vs. Phelps

by Reihan Salam

Edmund Phelps is, along with Robert Fogel, is one of my intellectual heroes. In Rewarding Work and Designing Inclusion, Phelps pioneered an innovative approach to fighting poverty by encouraging greater work effort through the use of graduated employment subsidies. And he’s also brilliantly described how the virtues of entrepreneurial or dynamic capitalism as opposed to the state-directed alternatives that scar lives by actually reducing economic inclusion.

So when Paul Krugman writes a derisive blog post about Phelps, one that acknowledges that he stopped reading a characteristically smart and incisive Phelps column in the FT because he didn’t like the first few sentences, you can guess what I make of it.

Krugman’s rhetorical strategy increasingly relies on bullying. He is a brilliant thinker with a legion of decidedly less-brilliant epigones who has turned a large swathe of the economics blogosphere into a “slagosphere” not unlike the lit blogs that punish and torment fiction writers and essayists who dare to say anything provocative or interesting. Interestingly, Krugman sees himself as a voice of reason braying against a conservative movement he sees as full of racists, reactionaries, and economic Luddites. This from a writer and thinker who proudly writes a lacerating post about a column he refuses to read.

I still think that Krugman has made many valuable contributions not only to economics as a discipline — that is obvious — but also to our public discourse: he brings a valuable, informed perspective to bear on vitally important debates. I welcome that. But his intolerance and his near-constant mischaracterizations of his interlocutors are having a coarsening effect. Moreover, Krugman has enabled the rise of an unthinking, reflexive interventionism that is, in my view, doing real damage to our economy and our democracy by creating unreasonable expectations of what bright, well-intentioned planners can realistically accomplish.

What’s even more embarrassing is that the rest of Phelps’s column offers a nuanced, troubling account of our medium-term economic future, one that is actually less optimistic about the self-correcting marketplace than Krugman. Rather than attacking the Keynesians, Phelps is making the case for profound uncertainty.

The gravest error of the phony debate between two non-starters is that their superficial and mechanical character – the clockwork of the neoclassical system and the hydraulics of the Keynesian one – operate to distract policymakers from asking basic questions about the dynamism of the US and UK economies. Economics has paid a terrible price for its dalliances with the Keynesian and neoclassical theories. Now policymakers are being misled by the siren call of these same, hopelessly inadequate views.

For all Krugman’s insistence that he is the rigorous empiricist and his opponents are rigid ideologues, one doesn’t get a lot of epistemic humility in his scathing polemics.

I should add, by the way, that Krugman’s caricature of Phelps is worse than it looks: describing Phelps as a crude stimulus opponent, Krugman seems to miss the fact that Phelps has long advocated the aforementioned subsidies designed to increase work effort, and he’s championed stimulus efforts in France and Singapore modeled on those lines.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.