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Alan Reynolds Has Submitted a Comment to My Weblog...

So I am writing him a letter:

I see you submitted a comment… It contains three things that are wrong.

You mischaracterize the liquidity trap argument by claiming "Krugman's 'lliquidity trap' means the Fed is completely useless. It can't stimulate demand and it can't raise inflation either." A liquidity trap means that if monetary policy works, it works not through the safe-and-sure channel of reducing short-term safe nominal interest rates but by changing borrowers' assessments of the future by either raising expected inflation or reducing risk spreads by taking risk off of the private sector. That's strike one.

You mischaracterize Krugman's argument about Iceland and Ireland as well. Krugman writes that Iceland:

demonstrated was the usefulness of devaluation (and therefore of having your own currency), and the case for temporary capital controls in an emergency. Also the case for letting creditors of private banks gone wild eat the losses. Iceland did not engage in fiscal stimulus; it didn’t have to, given the kick from a huge depreciation of the currency. It did, however, have a quite effective program of mortgage debt relief that is a role model for countries like the United States.

Your claim that Iceland's failure to undertake fiscal expansion is a reason Krugman should expect it to be doing badly--that's strike two.

As you know from reading my comments, there are a lot of comments critical of me and my arguments. So you artfully write: "Some say you never allow critics to comment on your blog. Is that true?" You know it isn't true. But you hope to persuade some of my readers that it is. That's strike three.

Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

And I am still pissed off that you stood up in front of 400 KU-State students and denied that you had written pieces like "Krugman's Liquidity Claptrap", claiming I must be thinking of "some other guy". That's strike four.

And if you really do think that monetary expansion undoes fiscal expansion because monetary expansion buys bonds and fiscal expansion sells bonds, you need to educate yourself. That's strike five.

If you want to reword your comment to get rid of those five strikes, I would be happy to post it. Otherwise, no.


The comment:

Spending as a share of GDP went way up in Ireland after September 2010 and way down in Iceland. According to Krugman, Ireland is supposed to have suffered from austere spending cuts, while Iceland grew because of unconventional policies (i.e., slashing spending by 11% of GDP). Krugman's "liquidity trap" means the Fed is completely useless. It can't stimulate demand and it can't raise inflation either. This is all wrong in theory, history and current evidence. Loyalty is nice, but surely you must know better. Some say you never allow critics to comment on your blog. Is that true? Why?

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