Correct Predictions and the Status of Economists
Paul Krugman is certainly right that history has judged, and that the judgment of history is for James Tobin over Milton Friedman so completely that there is not even a smudge left where Friedman's approach to a monetary theory of nominal income determination once stood.
And Robert Walmann points out, repeatedly and correctly, that there is nothing theoretically in Friedman (1967) that is not in Samuelson and Solow (1960)--that inflation above expectations might deanchor future inflation was not something Friedman (or Phelps) thought up, and that neither Friedman (nor Phelps) was thinking that high unemployment might deanchor the NAIRU.
And Paul Krugman points out that the vertical long-run Phillips Curve of Friedman (and Phelps) is simply wrong at low rates of inflation, and so not helpful as a fundamental tool.
There is, however, one big thing Friedman got right: to stand up on his hind legs and say: "Expectations of inflation are becoming deanchored right now. The accelerationist mechanism is the mechanism that is going to dominate business cycle dynamics in both the short-term and the medium-term." That was right. And that was a powerful source of manna.
Similarly, or perhaps not, I would argue that there is one big thing (along with a large number of medium things and small things) that Paul Krugman got right: his prediction back in 1998 of The Return of Depression of Economics. Yet somehow Uncle Paul has not gained a similar amount of manna to what Uncle Milton gained in the late 1960s…
