Taylor vs. Krugman

A little spat, with big policy implications, has broken out between John Taylor and Paul Krugman. Here's Taylor's characterization of the spat:

Paul Krugman is wrong in his criticism of my brief summary of last week’s economic policy conference at Stanford’s Hoover Institution. Krugman was not at the conference, which lasted a full day and went well beyond previous research by the participants. In general people focused on policies to restore strong economic growth and reduce unemployment in the United States.

First, Krugman incorrectly claims that I mischaracterized the research of my Stanford colleague Nick Bloom and his coauthors Scott Baker and Steve Davis presented at the conference. Krugman says my conference summary suggested that “Bloom, Baker and Davis had showed that fear of Obama was holding the economy down.” No, my summary said or implied no such thing; there is no mention of Obama, Bush, or any politician in my summary. It simply says that these authors “presented their empirical measures of policy uncertainty and showed that they were negatively correlated with economic growth.”

First, let me say that Taylor is a gentleman and a serious and sober economist, and Krugman, regardless of what he once was, is a frothing, radical leftist gnome. But, let me settle the argument, not on my biases, but on the merits. In the course of my job I speak to CEOs, CFOs, company Directors and all sorts of businesspeople from businesses large and small and I can unequivocally state that these people ARE most definitely scared of Obama, the Senate Democrats, and the regulatory apparatus carrying out the will of the Obama administration. There is not room for argument or dispute - business decisions are being made out of an environment of fear, uncertainty and pessimism and economic activity has most certainly been retarded as a result. Nearly every businessperson I talk to has a list of projects and plans that they are sitting on waiting "to see what happens in the election" meaning whether Obama will be elected or not. You cannot have a conversation with high level managers of corporate America today without November 2012 at the center of it. Krugman couldn't be more wrong on this point and Taylor is too coy in defending his point. He is exactly right but he seems reluctant to defend why he is right.

This debate is frustrating in that it smacks of these far too typical academic tussles backed by scads of "research" and academic mumbo-jumbo, but nobody seems to have asked anybody actually in the economic arena everday what is going on.