Patrick Brennan recounts a recent conversation between Joseph Stiglitz, the left-of-center Columbia economist and public intellectual, and Paul Krugman, the left-of-center Princeton economist and public intellectual, both of whom are recipients of the Clark Medal and the Nobel Memorial Prize, as their admirers will happily remind you. Though Stiglitz and Krugman are both advocates of fiscal expansion, and in particular of a larger role for state-sponsored social insurance programs and an increase in public investment, they disagree over the impact of household income dispersion in shaping the current economic climate. The discussion has been illuminating in all kinds of ways. It confirmed some of my prejudices about Stiglitz and it disconfirmed some of my prejudices about Krugman. Patrick has done an able job of drawing out the most interesting threads.
On a tangential note, I attended a dinner in honor of Stiglitz over a year ago, and he discussed, inter alia, the flaws in GDP accounting, e.g., that we include public expenditures in GDP only as inputs, ignoring their beneficial economics effects. What struck me about Stiglitz’s remarks is that he never acknowledged the possibility that public expenditures might make various inputs less valuable than they’d be otherwise. As Stephen Smith and Alon Levy often remind us, some governments are much better, which is to say more efficient, at building infrastructure than others, and these relative differences in efficiency ought to inform the lessons we draw from comparative analysis.