Thursday, February 23, 2012

Sachs attacks Krugman

Jeffrey Sachs has attacked Paul Krugman as a "Crude" Keynesian.  In a previous post, I had chosen to interpret Mr. Sachs' flamboyance against Keynesian economics as playful hyperbole to make a deeper point.  I thought that he was emphasizing a long-run where tax revenue and government expenditures should balance, or, at least, where government debt as a percentage of GDP would be stable, which would demonstrate long-run fiscal discipline.  Unfortunately, it appears I was wrong about his position.

In the post, Building the Foundations of a Wealthier America, I laid out what I believed to be a synthesis of a Keynesian position with Mr. Sachs' concerns about long-run fiscal discipline and investment in future productivity.  Apparently, Mr. Sachs could not see this alternative and desires to get into theoretical struggles with the Keynesian economic perspective.

Mr. Sachs said that Mr. Krugman has "under-emphasized the risks of growing debt, he’s over-asserted what we really know about the effects of these policies and he has underestimated the long-term need for public-sector change and reform."  There is some truth in this.  To me, Mr. Krugman may have over-emphasized deficit financing of a relief package and I would probably advance a more balanced approach, with increased taxes covering more of the costs of relief.  That being said, Professor Krugman has advocated allowing the Bush Tax Cuts to expire, at least the portion for high income taxpayers.  This is all very unhelpful friendly-fire.  Ultimately, they are both very progressive economists, with one of them more of a "deficit hawk" than the other.

I had thought that with a synthesis of their ideas, with relief mainly coming in the form of investments in education and infrastructure, the U.S. of the future would have an easier time paying back any debts accrued in building that new infrastructure than if it had spent it willy-nilly on anything and everything.  They have disagreements, but I appreciate Mr. Krugman's basically respectful attitude toward Mr. Sachs.

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