Winner of the New Statesman SPERI Prize in Political Economy 2016

Thursday, 12 June 2014

Good and Bad Blog Debates

One of the things I really like about blogs is that they can generate considered and informed debates about ideas. But not all blog debates are like that. Debates can get too personal - they begin to become about the people involved in the debate, rather than the ideas. They become a debating contest. Sometimes this can be a contest between two people, or it can be a contest between two groups. This may be a fun sport for those committed fans of either side, but I do not think it is a very good means of informing those who are not committed but who want to know more about the issues involved.

Take the debate involving Mark Sadowski (MS) that started with this post. MS disagreed with a number of things I said, and we had a short back and forth in the comment thread to that post. MS also combined his points as a separate post. All well and good. This debate led me to write two subsequent posts. One was about how the US recovery had continued despite fiscal contraction. The other, actually written following a subsequent post by Giles Wilkes, was an attempt to try and explain in very general terms where the two sides agreed and disagreed on fiscal policy. I wrote neither as sequels in a debate between MS and myself, because they were not intended to be that. I wanted to talk about facts in the first case and ideas in the second, rather than have a debating contest.

I think MS saw it differently. Here he responds to my post on the US recovery, imagining it to be a ‘response’ to his earlier post. Here he responds to my second post. Both are written in a quite personal style, as the titles suggest. Not a style I like, but so what?

Well, if you are going to do this kind of thing, you need to be especially careful that you get your facts right, because it has become personal. In the second half of the second post, he writes:

“At what point will fiscalists stop wringing their hands over the “liquidity trap” and start to worry about what is the consensus assignment of fiscal policy, which is debt stabilization? What I sense is they aren’t really interested in the consensus assignment of fiscal policy.
 And who can blame them? Debt stabilization is dull. It is *really* dull. Why worry about something so dull when you can worry about something which is so much more exciting, which is obviously aggregate demand stabilization.
 And this I think is the crux of the real asymmetry. Monetarists are genuinely interested in the consensus assignment of monetary policy, which is aggregate demand stabilization. Fiscalists show no interest at all in the consensus assignment of fiscal policy, which is debt stabilization.”

Now here he talks about ‘fiscalists’ rather than mentioning me by name, but anyone reading this post would assume that I was among the people he is talking about. Another fiscalist named in this debate is Jonathan Portes. Now it just so happens that Jonathan and I have just written a substantial paper, which is all about debt stabilisation! Whoops.

An unlucky error? No, it’s much worse. A quick look on my homepage will show you that much of my academic research since 2000 has been about debt stabilisation. Unlike MS, I do not think the subject is really dull. Issues like what the long run target for debt should be, how quickly we should get there, what happens to monetary policy when debt is not controlled by the fiscal authority, seem to me rather interesting.

Hopefully that corrects the impression created that these particular 'fiscalists' are not interested in debt stabilisation. But has this post been very informative for someone interested in the issues, rather than the personalities? I learnt very soon after I started this blog, thanks to another market monetarist, that it is generally better to focus on the ideas rather than the individuals putting these ideas forward. This can be difficult, and I do not always get it right, but that at least was what I was trying to do in my last post.


  1. When scoring these blog debates, I dock people points whenever they go ad hominem. For me it's a sign that they're losing the debate and are trying to through up some distraction since they're getting frustrated or something.

    But to the ideas... as an amateur I would guess that the focus has been on aggregate demand stabilization since that has been the main problem since 2008 in the U.S and Europe and 2011 again in Europe. And there's been a new effort in Japan with Abenomics.

    And aggregate demand stabilization and debt stabilization are related anyway. Too much austerity will hurt aggregate demand levels. Too much bad debt, like with the European periphery (when capial inflows turn to outlfows), will hurt aggregate demand as well.

    Stabilizing aggregate demand levels at optimal levels will make it easier for governments to stabilize their debt levels. Tax revenues will be higher and there will be less spending on safety net programs. The time to pay down the debt is during boom times. For me, stabilizing aggregate demand levels via fiscal policy, if done well, is a better way to go for a few different reasons. The impact on inequality. The impact on financial stability and asset bubbles within the context of deregulation. But monetary policy is better than nothing.

    I don't see how debt stabilization is "boring." Maybe Sadowski could explain. It is what it is. Whenever I bring up monetary policy to some of my friends and family, their eyes glaze over. Thank goodness we have blogs.

  2. Prof. Wren-Lewis,

    I agree with you as to avoiding personalizing debates. It's a common affliction that affects commentators across ideologies.

    Also, not to beat a dead horse on the Monetarist-Fiscalist issue, but here's where I think you've not fully described the mindset of market monetarists who oppose fiscal stimulus.

    If the central bank is targeting inflation at the ZLB, then monetary expansion is NECESSARY to stimuluate the economy. The key empirical data point here is Japan. Japan in the 90s and 2000s demonstrated that massive fiscal expansion, if not accompanied by monetary easing, does nothing besides generate a ruinous debt load.

    Abenomics has demonstrated that a credible commitment to raise inflation does, in fact, work to stimuluate the real economy. But if this is true, what is the role of fiscal stimulus? The market monetarist answer, is: none at all.

  3. My response:

  4. "Abenomics has demonstrated that a credible commitment to raise inflation does, in fact, work to stimuluate the real economy."

    No, any benefits from Abenomics is coming from Japan's competitive devaluation (on the order of 40%). The rise in price inflation, with wage inflation lagging, is increasing inequality in a country which hitherto has been remarkably resistant to the Anglo-Saxon disease; hardly something to brag about.

  5. I don't see why you are debating this guy, Simon.

    He evidently does not understand your papers (see his response, where he claims you argued that aggregate demand deficit at the union level should be responded to by fiscal rather than monetary policy even AWAY from the ZLB, thus completely failing to see what you even meant with countercyclical fiscal policy where countercyclical is in relation to other union members) and he does not understand what the ZLB means itself. He claims that the >1% interest rate set by the ECB and the unfortunate hike are proof that Europe was not at the ZLB - a crazy twisting of what the concept is referring to (real interest rates being constrained by nominal rates and thus not being able to equilibrate supply and demand) towards a weird naive literalist interpretation!

    Apparently, he believes that if we are in a boom and the CB sets interest rates at zero because they have collectively gone mad, we are at the ZLB (and what would that imply for fiscal policy?), ... since when is the CB infallible and their actions are the word of the economy God, decreeing at what state we are in the business cycle?

  6. @Simon, Mark, et al: There is this hot topic being debated that fiscal actions need to be boosted when not enough investments are forthcoming from the corporate sector. But is it not true that the stock of savings is fixed, if the government wants to make infrastructure investments, it must issue debt that would make savers divert part of their savings to these instruments thus drawing down on the savings that would have otherwise moved to other investments and consumption. So effectively government fiscal actions actually crowds out private investments or consumption by drawing down on existing savings that are earmarked for these.

    Am I right?

    1. You are only sometimes right. If there are unused resources they can be put to use by governmet investments without crowding out anything. That has been the situation since 2007, to an all-too-slowly declining degree. The percent of the working age population that is employed remains at a dismal level.

  7. It should never be about who is wrong or right, the focus and solutions are in what, instead of who.

  8. This one has been a good debate overall, IMHO. You are someone worth arguing with.

    I'm trying to join in, but my draft post isn't coming out right yet.

    1. My reading: Simon is 95% monetarist (speaking only about the assignment question), and 5% monetarist+fiscalist. But I wouldn't care if you spend 100% of your time writing about that 5% of cases, simply because it interests you.

    2. Pr Wren-Lewis is neither a monetarist or a fiscalist. He's a macro economist who seek to use the best tool, of either breed, to solve problems.

  9. It seems to me that fiscal policy cannot be exclusively about debt stabilization. Adjusting expenditures over the business cycle to changes in the differences between market and shadow prices of project inputs and in the discount rate over the life of a project is also involved. Of does the latter imply the former?

  10. Sorry you have to deal with this, Simon!


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