delong.typepad.com/sdj/2005/06/a_missing_piece.html
Krugman's allegations": To: Mr Paul Krugman Op-Ed Page The New York Times From: Ben Stein Los Angeles, California. Dear Professor Krugman, In all of my life, I have never seen a more confused column than the one that appeared on March 12, 2002 on the Op-Ed page of the New York Times about the death of the esteemed economist, policy expert, teacher, and public servant, James Tobin, on the sad occasion of Professor Tobin's death. I was honored to be a student and lifelong admirer of Dr. Tobin, and you do him and many others wrong, and display frightening misunderstanding of the field. Just to start, you say the great depression was "widely blamed" on laissez faire policies. It has been blamed on many things, but no serious scholar has blamed it on free market economics. In fact, just the opposite--many blame it on price fixing and restraint of trade encouraged by the New Deal. Your idea that there is or ever was any intellectual rigor in blaming the great depression on the free market is simply a non-starter, period. Second, your calling a true scholar and genius like Friedman "naive" is simply astonishing especially in context. He had great respect for monetarism, for its central text, The Monetary History of the United States by Friedman and Anna Jacobson Schwartz, and would have been scandalized by someone at your level daring to call Milton Friedman or his ideas and thorough research naive. For you to further assert that Friedman's monetarism has not stood the test of time is almost unbelievable. What theory do you think governs current Fed policy if not monetarism? Do you really think that even Tobin believed that changes in asset prices (related to his fascinating doctrine of "Tobin's Q", which you totally ignore) caused business cycles, or were more important than fluctuations in money supply in determining levels of economic activity? I can well recall Tobin in class at Yale in the late sixties heaping praise on Friedman's explanations of the causes of business cycles. Finally, for you to assert, on zero evidence, that Tobin's time as a member of the Council of Economic Advisers was unique and that since the early sixties, all other Council members have had to hew to a political line and sacrifice honesty and objectivity is insanely insulting to all other members of the Council and their staffs. The history of honesty and objectivity of members of both parties is unquestioned (except maybe by you, again, on a hunch, without any data at all). However, they all loved their jobs and knew who their bosses were. The idea that the Kennedy team of economists alone was above politics and holy men of scholarship is comical. I strongly urge you to read "Presidential Economics" by my father, Herbert Stein, a member and then Chair of the Council of Economic advisors, under Nixon and Ford, and whom you smear along with all of the others similarly sited except Dr. This little bit of reading by you might save you from such naive assumptions in the future, as well as from smears of the innocent. and to heap scorn on one of the great minds of all time in economics, Milton Friedman. In short, your piece is a dismaying morass of confusion, insult, and disinformation.
You know you're really getting under peoples' skin when they go ballistic over perfectly nice, genteel columns. I was somewhat surprised, while on vacation, to receive hostile, irrational email attacking my valedictory for James Tobin - the least biting column I've written for ages. Not until I got back and read a short squib in the New Republic did I realize where that came from - a bizarre screed by Ben Stein. For what it's worth: I can be accused of a lot of things, but a "limited background in economics" isn't one of them. Mr Stein's father was a fine economist, a member of a rapidly vanishing species - moderate Republicans. Vague memories of what he heard in his undergraduate class in the 1960s don't cut it. I'm tempted to assign Mr Stein some readings, starting with Tobin's Essays in Economics: Volume 1, Macroeconomics. It gives you a pretty good picture of what he did, of his debate with Friedman (the volume includes Tobin's critical review of Friedman and Schwartz, which Mr Stein clearly has not read) and much more. I think I understand Tobin's contribution as well as anyone - and no serious economist has quarreled with my depiction of his work. the current fashion in economic policy is "inflation targeting", while the current fashion in academic research is to suppress any explicit discussion of the money supply, and use other indicators of monetary policy. Friedman's claim to greatness rests not on monetarism, which is now seen as a somewhat embarrassing - and, yes, "naive" - episode in his intellectual evolution, but on two lasting contributions: the permanent-income theory of consumption, and the natural-rate hypothesis. If I had to psychoanalyze Mr Stein, I'd say that the idea that I am a serious academic economist deeply disturbs him. After all, if I know what I'm talking about in eulogizing James Tobin, the other things I've been saying in my column might be true, and the politicians Mr Stein supports might be as dishonest as I claim. Anyway, I knew Jim Tobin - whom I talked with at length just a few days before his death - a lot better than Mr Stein. And here is Krugman on Tobin, from the March 12, 2002 New York Times: Missing James Tobin SYNOPSIS: The passing of James Tobin marks the passing of a good man and the end of an era of honesty James Tobin -- Yale professor, Nobel laureate and adviser to John F Kennedy -- died yesterday. his passing seems to me to symbolize the passing of an era, one in which economic debate was both nicer and a lot more honest than it is today. Mr Tobin was one of those economic theorists whose influence reaches so far that many people who have never heard of him are nonetheless his disciples. He was also, however, a public figure, for a time the most prominent advocate of an ideology we might call free-market Keynesianism -- a belief that markets are fine things, but that they work best if the government stands ready to limit their excesses. it's ironic that some of his essentially moderate ideas have lately been hijacked by extremists right and left. Mr Tobin was one of the economists who brought the Keynesian revolution to America. Before that revolution, there seemed to be no middle ground in economics between laissez-faire fatalism and heavy-handed government intervention -- and with laissez-faire policies widely blamed for the Great Depression, it was hard to see how free-market economics could survive. John Maynard Keynes changed all that: with judicious use of monetary and fiscal policy, he suggested, a free-market system could avoid future depressions. Basically, he took the crude, mechanistic Keynesianism prevalent in the 1940's and transformed it into a far more sophisticated doctrine, one that focused on the tradeoffs investors make as they balance risk, return and liquidity. In the 1960's Mr Tobin's sophisticated Keynesianism made him the best-known intellectual opponent of Milton Friedman, then the advocate of a rival (and rather naive) doctrine known as monetarism. For what it's worth, Mr Friedman's insistence that changes in the money supply explain all of the economy's ups and downs has not stood the test of time; Mr Tobin's focus on asset prices as the driving force behind economic fluctuations has never looked better. First, Mr Tobin was the intellectual force behind the Kennedy tax cut, which started the boom of the 1960's. The irony is that nowadays that tax cut is usually praised by hard-line conservatives, who regard such cuts as an elixir for whatever ails you. In fact I was on a panel with him just last week, where he argued strongly that the current situation called for more domestic spending, not more tax cuts. Second, back in 1972 Mr Tobin proposed that governments levy a small tax on foreign exchange transactions, as a way to discourage destabilizing speculation. He thought of this tax as a way to help promote free trade, by assuring countries that they could open their markets without exposing themselves to di...
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