It's Paul Krugman Vs. Robert Samuelson
It began with an observation by the New York Time's Paul Krugman:
On the right, of course, the 1980s are remembered as an age of miracles wrought by the blessed Reagan, who cut taxes, conjured up the magic of the marketplace and led the nation to job gains never matched before or since. In reality, the 16 million jobs America added during the Reagan years were only slightly more than the 14 million added over the previous eight years. And a later president — Bill something-or-other — presided over the creation of 22 million jobs. But who’s counting?
In any case, however, serious analyses of the Reagan-era business cycle place very little weight on Reagan, and emphasize instead the role of the Federal Reserve, which sets monetary policy and is largely independent of the political process. At the beginning of the 1980s, the Fed, under the leadership of Paul Volcker, was determined to bring inflation down, even at a heavy price; it tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent. What followed was a severe recession that drove unemployment to double digits but also broke the wage-price spiral.
Then came this blast from Washington Post columnist Robert Samuelson:
It’s important to get history right — and economist and New York Times columnist Paul Krugman has gotten it maddeningly wrong.
Krugman recently wrote a column arguing that the decline of double-digit inflation in the 1980s was the decade’s big economic event, not the cuts in tax rates usually touted by conservatives. Actually, I agree with Krugman on this. But then he asserted that Ronald Reagan had almost nothing to do with it. That’s historically incorrect. Reagan was crucial.
In nearly four decades of column-writing, I can’t recall ever devoting an entire column to rebutting someone else’s. If there were instances, they’re long forgotten. But Krugman’s error is so glaring that it justifies an exception. It’s also a subject about which I know something, having written a book on it: “The Great Inflation and Its Aftermath: The Past and Future of American Affluence.” This column draws from that book.
That prompted a Krugman riposte on his blog:
OK, I’m accustomed to getting attacked — if what I write doesn’t induce some hysterical backlash, I’ve wasted the space. And it’s kind of flattering when people devote whole print columns to attacking yours truly; it’s kind of a compliment, a tribute to their sense of my malign influence.
But this piece by Robert Samuelson, attacking me over my debunking of the Reagan legend, is really strange — because Samuelson declares me “totally wrong,” then seems to agree with me about the economics.
My point was that the legend of Reaganomics — that supply-side tax cuts produced a disinflation that confounded Keynesians — is not at all what happened in the 1980s. What happened instead was that harshly restrictive monetary policies created a deep recession, and a period of very high unemployment broke the wage-price spiral. And events played out exactly the way Keynesian-leaning textbooks said they would.
The next day Krugman, gathering more evidence, had this to say:
Now Brad DeLong weighs in with some contemporary press reports, which suggest that far from offering Volcker enthusiastic backing, at least some Reagan officials were putting pressure on the Fed to loosen up. As best I can tell both from the record and from my own recollections, the Reagan administration was in fact a house divided on monetary policy, containing at least three factions: hard-line monetarists, supply-siders who didn’t believe that the demand side mattered in any case, and, yes, people who wanted to pressure Volcker into easing up. Not the story Samuelson tells, but in any case the main point should be that Reaganomics per se had nothing to do with it.
Yet Samuelson is angry about something; indeed declared himself “maddened” by a column whose economic analysis he doesn’t actually dispute. What’s going on here?
The answer, I think, is Reaganolatry.