Brad DeLong on the "sell by date" of Krugmanomics
By Scott Sumner
I recently argued that Krugmanomics would become instantly obsolete the moment the Fed raises interest rates (a date that seems to be steadily receding into the future, although still expected this year.) A new post by Noah Smith suggests that Brad DeLong thinks this will occur quite soon:
University of California-Berkeley economist Brad DeLong does some quick back-of-the-envelope calculations, and estimates that the TPP would increase the world’s wealth by a total of $3 trillion. Though that’s not a big deal in the grand scheme of things, it’s one of the best reforms that’s feasible in the current polarized political situation. DeLong dismisses Baker’s idea that the TPP would lead to demand leaking out of the U.S., pointing out that interest rates won’t stay at or near zero much longer.
When I went to the link, however, I could find no support for Smith’s claim. I read DeLong’s post three times, and still found no support.
DeLong does hint, or perhaps imply, that if interest rates were to rise in the future then the zero bound model would no longer be applicable. Note that Paul Krugman frequently argued that the zero bound model applied to the eurozone in the period after early 2009, despite the fact that eurozone interest rates were not at the zero bound during 2009-2012.
I don’t have a view on the TPP, although I’ll probably support it once it’s negotiated. However I do agree with Paul Krugman’s criticism of the US negotiating position on intellectual property rights, which if enacted would increase global economic inequality. Of course Obama has the opposite view from us ivory tower academics. Egalitarianism is OK in theory, but when big money gets entwined with the national interest, high-minded ideals seem to fall by the wayside.