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Last One I Promise: Krugman on DeLong on Murphy on Potential GDP

Summary:
I’m just trying to get my ducks in a row here “among friends” before I go out into the cruel world. I think I have a very strong case so I don’t want to commit an unforced error. A few of you who have no axe to grind (such as Capt. Parker, who is outranked by Major Freedom just to be clear) are disputing my claim that both DeLong AND Krugman were saying potential GDP wasn’t much lower than the pre-recession trajectory would have implied, as of August 2013. And yet, DeLong goes through a whole post saying I didn’t do my homework, because if you looked at various investment considerations and other factors, you’d know that potential GDP in August 2013 was 1% below trend. Then Krugman linked to that post and opened with: “Brad DeLong gets very annoyed at Robert

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I’m just trying to get my ducks in a row here “among friends” before I go out into the cruel world. I think I have a very strong case so I don’t want to commit an unforced error.

A few of you who have no axe to grind (such as Capt. Parker, who is outranked by Major Freedom just to be clear) are disputing my claim that both DeLong AND Krugman were saying potential GDP wasn’t much lower than the pre-recession trajectory would have implied, as of August 2013. And yet, DeLong goes through a whole post saying I didn’t do my homework, because if you looked at various investment considerations and other factors, you’d know that potential GDP in August 2013 was 1% below trend.

Then Krugman linked to that post and opened with: “Brad DeLong gets very annoyed at Robert Murphy, who ridicules him for not taking into account the effect of low investment on potential output. Brad notes that Murphy apparently hasn’t done the math, which indicates that even the sustained shortfall we’ve had since 2008 (mainly in residential investment) should not have had a major effect. (I added the bold.)

So help me out, guys. You’re saying that *really* what Krugman was saying there was, “For all I know, Murphy is right when he says potential GDP is substantially down because of shortfalls in investment since the recession struck”?

One last potential loophole: It occurred to me that perhaps Krugman merely meant, “Sure, potential GDP could be way down–who knows?–but if it *is*, it’s not because of investment patterns. Rather it’s because unemployed workers see their skills atrophy through disuse.”

But that’s not the story at least in the papers Krugman links in his latest post. I haven’t seen anybody make that particular point; instead I see them talking about “procyclical R&D and other investment” that gets hit when governments foolishly engage in austerity.

Either way, I’ll move on with my life (here on the blog) after this post, but I really have no idea what you guys are talking about. Any normal person would be certain Krugman was agreeing with DeLong in August 2013, when he claimed all the data suggested potential GDP was maybe 1% below trend.

Robert Murphy
Christian, Austrian economist, and libertarian theorist. Research Prof at Texas Tech and author of *Choice*. Paul Krugman's worst nightmare.

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