Writing in these pages last week, Peter Hartcher argued that Paul Krugman's advice about the Asian financial crisis was nonsense and silly. Today Paul Krugman, writing exclusively for the AFR, strikes back.
I'm not sure that Peter Hartcher's hysterical attack on me, published in last week's Australian Financial Review, deserves a reply. There is a certain sort of commentator who, when confronted with anything that threatens his prejudices, turns abusive; at that point rational argument is basically a waste of time. I would suggest that instead of taking his word that my proposals are "whacky", people actually read the careful arguments I have made on their behalf. Oh, and don't be taken in by the series of quotes from supposed authority figures (bank economists whom Hartcher seems to prefer - Kenneth Courtis, David Hale, both of whom have never faced the grilling one gets, say, at a University of Chicago seminar). Mr Hartcher's intent was to convey the impression that nobody who knows anything takes my ideas seriously.
For one thing, some of these authorities apparently need a refresher course in basic economics - for example, the scenario laid out by Dr Courtis, in which an increase in Japanese liquidity somehow creates a credit crunch, seems to require that one believe in at least two accounting impossibilities.
And my ideas about Japan have received serious attention - not necessarily acceptance, but attention - not only from "gullible editors", but from economists at the United States Federal Reserve, the International Monetary Fund, the Bank for International Settlements, and other institutions. If Mr Hartcher's friends think those ideas are self-evidently ludicrous, that is mainly a comment on his taste in friends.
Here's how I came up with my current views about the Asian crisis: I admitted to myself that the situation was one I had not predicted or even thought possible; I went back to basics, trying to understand how such an intractable crisis could develop in principle; and having developed a framework that seemed to match the facts, was willing to accept the policy implications of that framework, even if they seemed novel and unsettling.
I could be wrong, but at least I have tried to set my prejudices aside and think things through. Mr Hartcher, apparently, prefers a different approach: even though the situation is unprecedented, let's assume that our usual prejudices still apply, and lash out at anyone who questions them.
Well, I guess that's one way to do it. But would you buy a used economic doctrine from this man?
Originally published, 9.1.98