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Yes, Ezra Klein Should Believe Paul Krugman

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Scott Sumner attempts to defend the honor of the "classical" economists:

TheMoneyIllusion » Memo to Ezra Klein: Don’t believe Krugman: In the General Theory, John Maynard Keynes created a crude and inaccurate caricature of “classical economics.”  He argued that people like Pigou had models that simply assumed full employment.  In fact, economists like Pigou, Cassel, Hawtrey, Fisher, Hayek and others, believed that wages and prices were sticky in the short run.  They believed that nominal shocks (decreases in the money supply or increases in money demand) would have real effects in the short run, but merely change the price level in the long run.  Indeed this tradition goes all the way back to that most “classical” of classical economists–David Hume.  The standard macro model of the 1920s is in some important respects far closer to the modern new Keynesian model than is the crude model of the General Theory, which lacks a self-correcting mechanism in the long run.  Of course Keynes knew all this, and was being intentionally disingenuous in order to make his own model seem more revolutionary.

I think Sumner is wrong here.

I cannot say how anyone can deny that Hawtrey and Hayek were definitely in the Eugene Fama camp. (Hawtrey later changed his mind.) And I do not believe Keynes classified Fisher and Wicksell as "classical" economists. The only places where Sumner might have a legitimate beef is with Pigou and Cassel.

What I find more worrisome is Sumner's assessment of the current debate:

In his recent post Krugman has misrepresented the views of those he disagrees with in much the same way that Keynes did.  I’ve read most of the economists that he ridicules (except Fama), and they do not believe that nominal shocks have no short run real effects.  There are debates about whether it is most useful to think about nominal shocks as being essentially monetary, or due to Keynesian expenditure shocks, and there are also disputes about how much of the unemployment in the current recession is due to insufficient AD and how much is due to structural problems. For instance, Cochrane holds NGDP constant when evaluating fiscal stimulus, as he assumes changes in NGDP are a monetary policy issue...

To "hold nominal GDP constant when evaluating fiscal stimulus" is to go the full Treasury View. That's one.

Sumner gives up on Fama. That's two.

The others whom Krugman mentions are Mulligan, Ferguson, Meltzer, and Laffer.

Krugman is completely right about Mulligan and Ferguson.

I don't think Laffer has a coherent model of the economy at all.

The only one of the six whom Krugman "ridicules" for whom Sumner has a case is Meltzer. And when I look back at Meltzer's piece, I side with Paul on this one:

Alan Meltzer: Inflation Nation: May 4, 2009: If President Obama and the Fed continue down their current path, we could see a repeat of those dreadful inflationary years.... Paul Volcker is now the head of President Obama’s Economic Recovery Advisory Board. Mr. Volcker and the administration’s many economic advisers are all fully aware of the inflationary dangers ahead. So is the current Fed chairman, Ben Bernanake. And yet the interest rate the Fed controls is nearly zero; and the enormous increase in bank reserves — caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain.... [T]he Fed has sacrificed its independence and become the monetary arm of the Treasury: bailing out A.I.G., taking on illiquid securities from Bear Stearns and promising to provide as much as $700 billion of reserves to buy mortgages....

Some of my fellow economists, including many at the Fed, say that the big monetary goal is to avoid deflation. They point to the less than 1 percent decline in the consumer price index for the year ending in March as evidence that deflation is a threat. But this statistic is misleading: unstable food and energy prices may lower the price index for a few months, but deflation (or inflation) refers to the sustained rate of change of prices, not the price level. We should look instead at a less volatile price index, the gross domestic product deflator. In this year’s first quarter, it rose 2.9 percent — a sure sign of inflation.

Besides, no country facing enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation as we are has ever experienced deflation. These factors are harbingers of inflation.... That’s why the Fed must start to demonstrate the kind of courage and independence it has not recently shown...

For Meltzer to call in May 2009 for a rapid turn to monetary restraint is a very strange reading of the situation indeed.

So Ezra Klein should believe Paul Krugman. I score this one Krugman 9, Sumner 2.