Can Scott Sumner Read? Empirical Evidence Suggests Not...
Paul Krugman writes:
Down The Memory Hole: Richard Green flies into a rage over remarks by Peter Wallison, who declares that "Indeed, the modern era of rapid economic growth commenced after both Democratic and Republican presidents undertook to lift costly and stultifying New Deal regulations." Green points out that growth has actually been slower since the big rightward shift circa 1980. But what he doesn’t seem to realize is that Wallison is just following the party line. Read almost any conservative commentator on economic history, and you’ll find that the era of postwar prosperity — the gigantic rise in living standards after World War II — has been expunged from the record.... Basically, US postwar economic history falls into two parts: an era of high taxes on the rich and extensive regulation, during which living standards experienced extraordinary growth; and an era of low taxes on the rich and deregulation, during which living standards for most Americans rose fitfully at best...
Scott Sumner writes:
Why Krugman is wrong: [T]he performance of every single country on the list is consistent with my view that the neoliberal reforms after 1980 helped growth, and inconsistent with Krugman’s view that they did not. Krugman makes the basic mistake of just looking at time series evidence, and only two data points: US growth before and after 1980. Growth has been slower, but that’s true almost everywhere. What is important is that the neoliberal reforms in America have helped arrest our relative decline...
And then Paul Krugman notes:
Lies, Damned Lies, and Growth: Scott Sumner says that I’m wrong... [that] although American growth has slowed since deregulation and all that, the growth has been better than we might have expected. We can try to parse whether that’s true — but in any case it’s not a response to my original point. That was about the claim, quite common on the right, that the US economy was stagnant until Reagan did away with those nasty New Deal policies — a claim that is simply, flatly, false. The era of strong unions, high minimum wages, high top marginal tax rates, etc. was also a period of rapid growth and rising living standards. That doesn’t prove causation; it does disprove the widespread dogma that these things are always economically devastating. And it’s telling that so many on the right have airbrushed the whole postwar generation out of history.... [W]here this all started was with the common assertion that the US economy was a failure until Reagan came along. This should be true, according to doctrine — so that’s what people believe happened, even though it didn’t.
UPDATE: Weasel words from Scott Sumner:
Sumner says that when he wrote "Krugman is wrong" he meant, instead, "Krugman is right":
TheMoneyIllusion » What does Krugman think of the neoliberal policy revolution?: What does Krugman think of the neoliberal policy revolution? Paul Krugman replied to my critique of his comments on neoliberal reforms after 1980. First a couple quick points: 1. Krugman’s right that I didn’t really refute his specific point—that these reforms were associated with a slowdown in real income growth. Indeed I agree with that observation...
And then he goes on:
I thought it would be more interesting to explore an implication that I believe 99.9% of his readers drew from the post--which is that the reforms did not boost growth in real incomes relative to the [counterfactual] alternative of maintaining the 1945-80 economic model...
Nevertheless, he has not corrected his earlier post. His title still reads:
TheMoneyIllusion » America’s amazing success since 1980: Why Krugman is wrong.
