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Benjamin Wallace-Wells's Paul Krugman Profile Is Up...

It is a good piece. Ezra Klein is first out of the gate with a reaction:

Ben Wallace-Wells’s profile of Paul Krugman is an excellent piece of work, but rather than engage with the various big ideas and tough questions that the piece raises, I’m just going to quote from the hilarious sniping between Krugman and Larry Summers:

The two economists have known each other since the late seventies, when they were both graduate students in Cambridge, and there were moments in conversation with Krugman that I began to suspect he viewed Summers as a one-man control group for his study of himself. They each share a high assessment of the other’s intellect (“Larry’s extremely smart — ask him and he’ll tell you,” Krugman says). Krugman’s sense of humor is built upon self-deprecation, and sometimes Summers’s sense of humor is built upon deprecating Krugman, too.

I should say that Wallace-Wells also gets both men to offer more substantive criticisms of the other, and their indirect exchange is arguably the most interesting section in the article.

Benjamin's substance:

Summers.... “The Obama administration asked for less than all that it recognized pure macroeconomic analysis would have called for, and it only got 75 cents on the dollar. But political constraints and practical problems with moving spending quickly constrained us. The president’s political advisers felt, and history bears them out on this since the bill only passed by a whisker, that asking for even more would have put rapid passage at risk.”... Krugman also wanted a... takeover of the floundering banks.... [Summers:] “the Obama administration’s somewhat messier confrontation with reality averted the disaster that would have come with nationalization..."

On the ARRA I think Larry is right: getting what you can fast is better than trying to get what you need but certainly getting it later and maybe not getting anything at all. Where the Obama administration fracked up was in claiming that the ARRA was the right size rather than a too-small compromise--and in letting Fed seats sit open season after season. It is not clear to me that Paul would disagree. When I have heard Paul Krugman, it is always "the ARRA was too small," not "I have a whip count that shows that a bigger ARRA could have gotten through congress in February 2009."

On the banks I think Larry Summers is correct economically, but not politically. Economically, the banks did not need nationalization. Politically, however... Support for rational policies would be a lot stronger if the U.S. government had taken large bank equity positions at fire sale prices in March 2009, had curbed bank lobbying against financial reform, and were now sitting on enormous profits from the bank rescue.

Krugman and Summers actually agree on the substance of the vulnerability of modern finance to crises:

“If you were domestic, the image you had was Alan Greenspan heroically fighting off all problems,” Krugman says. But if your focus was international, you saw crisis everywhere: Mexico, Asia, Russia, Brazil, Japan. And then there was Argentina, where the state stepped back just when it was needed most. If Domingo Cavallo, one of the elect, could preside over this collapse, then perhaps there but for the grace of God went Alan Greenspan. What Krugman took from Argentina—and what he thinks even liberals in Washington missed—was “a certain level of understanding,” he says, “that important people have no idea what they’re doing.”

And Summers:

Larry Summers. “Excuse me, I think I’m the guy who pushed President Clinton and the IMF to commit $40 billion to Mexico—the largest piece of assistance since the Marshall Plan. I think I’m a guy who was central in concerting all the banks with respect to the Korean crisis. You can argue the merits of the choices we advocated, but the idea that somehow I’m unaware of the fact that there are international crises? Ludicrous.”

And then Ben baits Sumers, who rises to the bait:

“Paul hasn’t liked any president or any Treasury secretary,” Summers continues. “He always gravitates to opposition and dramatic policy because it’s much more interesting than agreement when you’re involved in commenting on rather than making policy. He savaged the early Clinton administration from the right, blistering Laura Tyson and Bob Reich, and then moved to savage the more liberal Obama administration from the left. He liked the Bush administration least of all. The only politician I remember him praising in the last sixteen years is John Edwards.... Paul may be the smartest and most creative applied economic thinker of this era,” [Summers] says, “but there is some element of him that is like the guy in the bleachers who always demands the fake kick, the triple-reverse, the long bomb, or the big trade.”

Let me note that it is distinctly annoying to Summers to have been condemned by Krugman as a leftist institution-wrecker in the 1990s and as an overcautious establishmentarian in the 2000s. But Paul's role is to call for the government to do what it ought to do--not to limit his aspirations to the politically possible.

And let me give the last word to Krugman:

Krugman has been arguing with Summers about policy, he says, for most of their adult lives, and their arguments have often followed the same line: “Let’s put it this way,” Krugman says. “When things go crazy, my instinct is to go radical on policy, and Larry’s is to be a little more cautious.”

The most puzzling thing about the Obama administration is its unwillingness to set forth it's own vision of the first-best: "This is what we want to do, and this is our proposal for a compromise." they don't do that. They really should.